Roku CEO Anthony Wood shares his playbook

As the streaming ambitions of media giants like Walt Disney and AT&T's WarnerMedia take shape, Roku is positioning itself to own the digital pipes for direct-to-consumer brands to distribute their content to consumers. But it's doing more than mimicking the role traditional cable and pay-TV operators have played for decades. The company, which boasts 22 million active users through its players and TV sets powered by its software, also wants to aggregate the content from niche streaming services that might not be able to sustain their direct-to-consumer efforts. To that end, Roku CEO Anthony Wood is looking to the free, ad-supported Roku Channel, which debuted in September, as a testing ground for revamping advertising and content aggregation. Here, Wood talks with Ad Age about his vision for the Roku home screen, how ads can be more like programming, and why he doesn't fear Amazon. This interview has been edited and condensed. Let's get right to it. Roku is essentially the pipes to distribute content the way a cable operator does. We have the direct consumer relationship. I think the value-creation points in the internet distribution ecosystem are the companies that own the relationship with the customer at the home-screen level—and that's what we do—and the companies that own content. Those are the ones with valuable IP in this ecosystem. Companies in the middle are actually traditional cable networks, and their role as aggregators of content is starting to go away. If you're a content owner you can publish your content directly on the Roku Channel. Outside of the Disneys of the world, you don't think many media companies can go directly to the consumer? That's right. I think that's why you're seeing Disney buying companies and merging them. They're trying to build enough scale to be a direct- to-consumer platform and they probably have a good shot at that. But other than the Netflixes, Hulus, YouTubes, there are probably a handful of them that can do that. Today there are 5,000 apps on Roku. I think that's going to change over time. They won't all survive. When a consumer comes to streaming they don't want to replicate their $100 cable content bill on their Roku. In September you launched the Roku Channel. What's its goal? It has a couple of purposes. Ad-supported content is the fastest-growing category on Roku, and historically, most of the over-the-top services have been paid services. No one has historically focused on aggregating a lot of free, quality, long-form content. Also, of course, we make the majority of our profit from advertising, so a free, ad-supported channel makes sense for our business model. The other reason is because we think content is going to become more and more aggregated into a content-first user interface. So for us, the Roku Channel is the sandbox where we are building up our expertise in content-first UIs and recommendations. We started with movies and TV shows, added news, and we will add more content types. At some point, it will probably become our home screen. Would you look to sell a live subscription service as part of this? We believe our user interface will move to what we call a content-first [UI], where the home screen, instead of being all apps, might have some apps and a lot of content. The content will come from a bunch of different sources, but it will be aggregated by Roku and recommended to consumers. Some might have ads in it, some might be things you paid for through Roku Pay, or there might be an icon for Netflix's app. Netflix probably won't ever syndicate its content through the Roku home screen, but for brands like Showtime, HBO, CBS, ABC News, there's content that has a market, but needs to be part of an aggregated experience for the consumer to have a great experience. Given that, how worried are you about competition from Amazon, Walmart and the like? We've been competing with super huge companies since we started. But it's a huge market and there are going to be a few winners. More importantly, we built a platform for TV, we didn't take a mobile phone OS and import it. And we're relatively independent; we don't make our own content and as a result we have access to more content. Would you ever create original content? We have no plans to right now. How about making the Roku Channel a subscription service? We're not going to pre-announce stuff. We're open to expanding the Roku Channel to different business models, but I think the free tier will always be the biggest tier for streaming. Let's move from content to advertising. How is Roku looking to innovate TV advertising? At this point, all we've done is bring tools and technologies that exist on other internet ad platforms over to TV. But I think there are also ways to make the ad experience better for customers. For example, targeting. But we do things like sponsorships; in the Roku Channel you can have a family movie room brought to you by Geico or Duracell. We have banner ads on our home screen, where we might offer a free movie sponsored by an advertiser. And there are opportunities with things like ads that tell a story: Ads are one-to-one targeted so they can be sequenced. We can say, "OK, this person has seen ad one so let's show them the second and third ads in the series." So, programming ads in the way you would a show? Exactly. Like a serial drama, but a serial ad drama. There's been talk of being a potential acquisition target. Will Roku remain an independent company? I can't comment on M&A. I started Roku to build the world's largest streaming platform. I would view selling the company as giving up a big long-term opportunity.

Roku CEO Anthony Wood shares his playbook

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