A few years ago, Anthony Wood left his post as vice president of Netflix to focus on the production of Roku TV set-top boxes, which allow you to connect your TV to the Internet. After the start of the streaming wars, he found a new source of income – measuring advertising. Investors support his decisions: since the beginning of the year, Roku stock has risen more than 340%, and Wood’s fortune has grown by $2.6 billion
Digital video recorders and Netflix have accustomed an entire generation to hating television advertising. Anthony Wood knows this well, because he was the one who created one of the first devices that allowed viewers to avoid watching commercials. Wood worked at Netflix for a while, reporting directly to co-founder Reed Hastings. But at the height of the streaming video revolution, Wood reversed course, betting his company’s future at Roku on exactly what consumers are thought to hate: advertising.
It was a forced move. Roku began by selling inexpensive electronic dongles that allowed viewers to connect to the Internet and watch up to 500,000 movies and shows from Netflix, Disney and other content producers. However, the business was low-profit and not profitable. Even worse, streaming has become a mass commodity: Streaming apps are now integrated into everything you can connect to the Internet, from PlayStation consoles to tablets to smart TVs.
Now, Wood, 54, is betting that Roku can move beyond producing devices and get into a more lucrative business: measuring the reach and effectiveness of advertising on streaming services.
“For a long time, it was thought that the only way to measure television advertising was the Nielsen rating, which roughly shows how many people watched a commercial,” Wood says. “Our measurements are very accurate, and we can tell a company that out of everyone who saw its commercial, 5 percent went to the Web site and bought something,” he explains. – “We’re incorporating technology into television that’s been used on the Internet for a long time. Roku uses its own measurement tools and the help of 11 partners, including Nielsen in New York, to analyze the data. The data collected tells advertisers from Jaguar Land Rover to Baskin Robbins how effective their campaigns are for each age group.
Changing course pays off handsomely. In 2015, 84% of Roku’s $320 million in revenue came from hardware, the rest from advertising and content. Now advertising is the company’s fastest-growing area, and the distribution of revenue shares has almost mirrored. In October, Roku announced its $150 million acquisition of dataxu, a Boston-based company that helps clients plan and buy video advertising campaigns.
Investors are taking the company’s action with gusto. Since January, Roku’s stock has risen more than 340%, and its founder’s fortune has grown by $2.6 billion to $3.3 billion. The company recently had a market capitalization 17 times its revenues. “I have no idea why Roku is so highly valued,” admits Michael Pachter of investment firm Wedbush Securities.
The idea of providing services to advertisers goes back to Wood’s earlier failures. In the ’90s, he invented the digital video recorder, deciding that there had to be a more convenient way to record new episodes of his beloved series, Star Trek: The New Generation, than on VHS tapes. The first product was released in 1999 under the brand name ReplayTV and sold for about $1,000. That was a big mistake – competitor TiVo was selling its recorders for as little as $500 and grabbed an impressive share of the market.
In 2001, Wood was broke and sold ReplayTV to consumer electronics manufacturer SonicBlue for $42 million. After the deal, he stayed with the company and figured out a way to stand out from TiVo – he released a new version of ReplayTV with the ability to skip ads. Another big mistake: everyone from Paramount to MGM to Disney sued the company. SonicBlue went bankrupt. “We didn’t take industry regulations into account,” Wood explains.
Undaunted, he founded Roku in 2002. He randomly called Netflix’s Reed Hastings and asked him out to lunch. Hastings agreed. “I think he had already heard of me because of Replay,” Wood says. In 2007, Hastings offered him a position as vice president of Netflix’s online TV business and to lead the development of Netflix’s streaming player, codenamed “Project Griffin.” Ten months later, Wood resigned. But by then Netflix had spun off Project Griffin into Roku and became an early investor in it (he sold his stake a few years later).