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Podcast: Roku’s Internet Video Player— It’s Not Just for Netflix Anymore

In our continuing podcast series on Internet video, we spoke with Roku’s Tim Twerdahl, Vice President of Consumer Products. A little over a year ago, Roku’s Netflix Player was spun out of an internal development effort and launched the first version of its Internet Video player in May of 2008. Since then it has become clear that the box, originally named the “Netflix Player by Roku” can be a platform for a range of “over the top” Internet video content. Last month, Roku announced Amazon Video on Demand support, adding 40,000 movies and TV shows to its arsenal of supported content. The company also announced plans to open up its software development kit (SDK) to third parties who would like to add their own applications and sources of Internet content to the Roku player.

From the beginning, Roku has effectively delivered on the KISS strategy—keep it simple, stupid. At $99, the device is within reach of most consumers and Roku has invested in a set-up and user experience that is easy and fits in with the lean-back experience. The player is Wi-Fi ready and can detect Internet bandwidth and make on-the-fly adjustments to improve picture and audio quality. The affordable Roku player comes with its own remote control and includes all the cables necessary to connect to a standard television. The player features composite, S-video, and component video outputs, stereo and optical audio outputs and an HDMI integrated audio/video connection.

Tim tells me that the Roku player takes advantage of the new cloud computing model that allows the box to be a “thin client.” The Roku player only needs to stream and buffer about 4 minutes of video at a time, eliminating the need for a large hard drive. It does not need encryption inside the box, instead leveraging the DRM protections inherent in the connectors— similar to what a DVD player does.

In the podcast we talk about Roku’s strategy and get Tim’s take on how competing Internet TV strategies will hold up, including attempts by cable MSOs to hold on to their customers.

Click here to listen to the podcast.

Offline, I also got some hints as to Roku’s financial health. “We are running at full tilt, selling them almost as fast as we can make them,” he said. Tim did not disclose numbers, but says “we are absolutely making money on the hardware” and tells me unit sales are well into the “hundreds of thousands.” Surprisingly, Tim also downplayed how much money Roku makes on content sales either through revenue-sharing or referral fees, saying “We really make money on the box… occasionally there are bounties for bringing new (eyeballs) to the content owners.”

While focusing on the rapid growth that their current box is experiencing through the current Netflix and Amazon deals, Tim is excited at the prospect of opening up the SDK to more content and apps. He says the company is likely to continue its successful strategy of partnering with “top-tier brand name content providers who want to create their own channels” for the Roku box.

Asked whether we should expect partnerships with cable companies to imbed Roku technology into new set-top boxes, Tim gave me the sense Roku is open to the possibility but does not feel a critical need to move in that direction. He also balked at the possibility of baking a full Internet browser into the box, cautious that it could ruin the beauty and simplicity of the golden goose they have so carefully crafted. “We can do that but we don’t want to do that. We don’t think that is the right thing to do because it is not the lean-back experience that the mass market desires.”

Please contact me about IPTV or OTT Video consulting opportunities including custom research, speaking, webinars, white papers, or product strategy: bmahony@trenderresearch.com.

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