How Roku Plans to Own the Digital Living Room

Jim Funk is the vp of business development of Roku, which manufactures a $99 set-top device designed to be an easy way to get Web content on TV. Roku has been an early leader in landing content distribution deals and has won a surprising following — among tech geeks, cord-cutters and people who just like to stream Netflix. Amazingly, Roku has succeeded where tech giants Apple TV and Google TV have struggled. Funk, a former Apple executive, discussed the threat of Xbox Live as a content platform and Roku’s relationship with the cable TV industry.

Roku has been making a ton of distribution deals, even though it’s still a fairly under-the-radar company both in digital ad circles and among consumers. What do you think is working for the company?
We are offering a great consumer value. It’s affordable and easy to use. We were also the first device to offer Netflix streaming for TV. That really launched us into the market. Plus we have a great price point, $99, when some devices are $199, $229, etc. Roku really brought a new value to the market, and we want to continue with that value message. And I think that creates an attractive proposition for other companies. We soon added Amazon, where you could rent movies through a different window, which was complementary. Then MLB, etc. But what really set us apart was our open SDK and our channel store, which is very analogous to the Apple and Android app stores. It’s a really easy way to work with us.
A few weeks ago Microsoft struck multiple content-distribution deals, including getting in business with cable providers like Comcast. With gaming platforms like the Xbox quickly becoming a central entertainment hub, does that put your business under threat?
Game companies have a very different business model. They’ve built devices that needed to be very powerful, and they sell those devices at low cost and recoup money on games. So that dynamic has made it more of a closed platform. We think that people buy a gaming device for gaming. We have different products at different price points, and we see different usage patterns. We find that a lot of our customers have both. To the extent that you want to watch Netflix, we are in the same category. But as for one thing that does everything, I’m not sure. We are as comprehensive as anyone. We actually have a lot more content than the Xbox. At the end of the day, it’s a game platform. We are a video platform adding casual gaming activity. We’ll continue to be positioned as different products for some time.
Roku is often lumped in with cord-cutting devices. What is your relationship with the cable industry. Are you complementary or competitive?
We like to have available all of the content available on the Internet. Primarily, that’s been services like Hulu plus, Neflix, Pandora, lots of Internet programming, like stuff from Revision3. There is a set of content that right now [we don’t have] but most of that is going to be available through a TV-everywhere-styled delivery system. For example, we just rolled out a partnership with HBO Go, [but you need to be a paying subscriber to access it]. We’re interested in making available whatever is being provide to consumers in an easy, affordable way. There are some people who are interested in an alternative content solution. But you certainly can’t replace the breathe of programming available with cable today.
What about the broadcast networks’ sites? That content isn’t available on Roku. That fact seemed to have tripped up Google TV.
We do have some of the authenticated programming as part of the Comscast Xfinity platform. If you look at the broadcast model specifically, they put a certain amount of programming on the Web initially. That model is evolving. For example, you have Hulu, which is now no longer for sale. You have Fox windowing its first run programming. The services that the networks have offered were very specifically designed for the PC and not designed for set-top devices. So I think that it’s still evolving. We’re discussing lots of things. We’re open to whatever. We want to be supportive of their business. It’s their business model, and these decisions are up to them. It’s great to have everything be free, but someone or some part of the business has to pay for all of this expensive programming. If you look at the networks today, they are increasingly looking for additional fees from broadcast and cable [like retransmission fees]. We’re working with people. We’re not trying to be counter to them. Most of our users are still cable subscribers.

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