Roku's $99 player aims to be the hub for streaming movies

Both companies made their debut in 1999 at the Consumer Electronics Show. Replay beat TiVo to market by two months. But TiVo was better financed, Wood says.

Replay also had a huge problem that TiVo didn't. Wood came up with a "commercial-skipping" tool that automatically recorded shows sans ads. TiVo didn't have anything of the sort — if you wanted to skip the commercials, you needed to put your thumb on the remote and hit fast forward.

The major Hollywood studios sued Replay, and won.

Looking back on those years, Wood says it wasn't the lawsuit that made the time "traumatic" and "very stressful," but just the uphill climb to keep the company alive, competing with TiVo.

"It was a great product and a great company, and I was not happy about what happened," he says.

After Replay was sold, he knew he wanted to do something with digital media. His first Roku product connected to the TV set to display art and digital photos; then he turned to music with SoundBridge, a device to stream music around the home.

He also began doing consulting for Netflix, to help the DVD-by-mail firm begin to deliver movies via the Internet.

Netflix CEO Reed Hastings asked him to join Netflix as vice president of Internet TV, while still running Roku.

"He proved his product ability at ReplayTV," Hastings says.

Wood developed what became the Roku video player for Netflix, but Hastings decided he didn't want to be in the manufacturing business. Instead, he turned the box back to Wood, and invested an undisclosed amount in the company.

Wood admits the deal has worked out great for him. Netflix heavily promotes Roku to its 10.6 million members. And Wood also forged a deal with Amazon.

All told, Wood has raised $22 million for Roku from Netflix, his bank account and others, including venture firm Menlo Ventures.

Menlo managing director Shawn Carolan says he was attracted to Roku for its potential.

"Watching high-quality video over a broadband network is disruptive to $200 billion in revenue from ad-supported and premium TV and the DVD rental business," he says.

The technology exists today, for instance, to forgo those cable system bundles that drive consumers crazy, and let them buy only the channels they want to watch — say, AMC, HBO and just CNN, says Carolan.

Most cable channels sell their services to cable operators for cents per subscriber, he says. "What if AMC sold direct to the consumer for $1 a month?" asks Carolan.

Wood's most intense competition lies ahead from consumer electronics firms, which are rapidly adding built-in Internet connectivity to devices such as Blu-ray players and flat-panel TVs.

"Roku has a one- or two-year window to really ramp up, before LG, Samsung and the others get really serious about their marketing," says analyst McQuivey.

Wood recently added Major League Baseball games to the Roku lineup — available on a subscription basis — and plans to launch a video application store, similar to Apple's App Store for the iPhone.

But for now, it's all about movies, TV shows and sports.

McQuivey says he has tried all the devices that can deliver Internet video to the TV — Apple TV, the Blu-ray players, streaming via gaming systems Xbox 360 and PlayStation 3 — but the one he keeps coming back to is Roku.

"It's so darn easy, the content is already there, and it's so simple anyone in the family can use it."

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