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

Roku is the company that makes the simply-named "Roku player," a $99 box that brings Internet movies and TV shows from Netflix and Amazon, and now baseball games, to your TV set.

"Roku" is also the number six in Japanese, and Roku CEO Anthony Wood chose it because Roku is his sixth company. He began selling homemade software in high school and college, and made his biggest stamp with ReplayTV, which beat archrival TiVo to the market by a few months with the first commercially available digital video recorder.

TiVo attracted better funding and marketing, and ReplayTV never caught on with consumers. It went bankrupt and is now owned by DirecTV.

But Roku's simple box, which sounds like a smaller idea, could potentially become even bigger than the DVR, tech analysts say.

If Wood, 43, has his way, the Roku box will be your conduit to anything entertainment-related — TV shows, movies, sports, music — all offered when you want to watch, not when a programmer decides it should be seen.

"The DVR was a stepping stone to where we're at today," Wood says.

His dream of a video jukebox has plenty of company. Apple, Samsung, LG and old nemesis TiVo share similar hopes, but their boxes cost more. The Roku box is $99.

"We focus on having a really low price, and being super simple to set up and use," Wood says.

The original Replay and TiVo units "came out before they were really ready, in terms of price," he says. "They cost us $1,000 each and were being sold for a lot less than that."

The Roku digital video player "costs us a lot less than $99 to make and we make money on every box." Wood won't say how many units the company has sold. Analyst James McQuivey of Forrester Research pegs it at 250,000, worth $25 million. Wood says his privately held firm is profitable.

A $100K undergrad

Wood was born in England, and spent most of his childhood in Atlanta and Houston. His dad was an engineer.

In high school he started a software firm to make programs for RadioShack's popular TRS-80 mini-computer and moved to the Commodore computing platform in college, with video editing software. He was raking in over $100,000 a year while at Texas A&M University when he learned he was about to be dropped because he had missed so many classes. He decided to close the company, study hard and get his diploma.

After college he created another software firm, iBand, this one to easily create websites. He sold it in March 1996 for $36 million ("my first really big win") to software powerhouse Macromedia, which changed its name to DreamWeaver. Macromedia got gobbled up by Adobe Systems. DreamWeaver today is considered the premiere software for making websites.

Then he got the idea about a VCR for computers. "I used to watch TV and record shows on my VCR, but it was a big hassle," he says. "I thought, 'I should try recording them to a hard drive.' "

The obstacle was the price of drives, which averaged $400 to $500 for 100 gigabytes or so. (Today, you can get a 1-terabyte drive — 10 times the size — for $100.) "I watched the hard drive ads every week, and when they finally got affordable, it got to the point where, yeah, I could really build this thing."

He started working on his company in June 1997 with initial funding of about $2 million from himself and a few investors. Shortly, he discovered there was another firm with similar ambitions —Teleworld, which became TiVo.

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."