Well, hi everybody. It's great to see you all here and I'm delighted to welcome Anthony Wood, the chief executive and founder of Roku, who is our international keynote speaker today. Anthony's had the most extraordinary career, including developing the digital video recorder, which I understand was so you could record more episodes of Star Trek: The Next Generation.
Roku is his sixth business. It means 'six' in Japanese. Yeah.
And if the future—if the title of the conference is 'Where Do We Grow From Here'—I think when you hear the numbers that Roku has, you might feel that it is the future. So, 14 billion market cap. Active user accounts grew from 70 to 90 million people over the past two years, and US TV viewers now spend more time streaming content on Roku than they do watching broadcast TV. But I think we have a little video that can tell us a bit more about it. So, Anthony, as I said, you've got massive numbers in the US, and I think it's fair to say you're less well known here. I described the company as a 'gateway' in the green room, and I don't think you loved that. How would you describe what you do?
Yeah, well, I didn't like the term 'gateway' because I feel like a big part of our business is partnering with our partners and helping them, as opposed to being a gateway. Roku is the number one streaming platform in the United States, Mexico, Canada, most of Latin America. The Americas are really where we've focused; we're a little bit in the UK and that's growing. The numbers are a little bit different actually: we have closing in on 100 million households, which is probably two or three hundred million people because there's multiple people per household. Those are active Roku customers. It's about half of Americans use a Roku device, whether it's a TV or a streaming player, to watch television. Roku is about 45% of streaming hours in the United States, meaning 45% of Netflix and YouTube and all that on televisions flow through our platform. 20% of all TV viewing in the United States is Roku, because not all TV viewing is streaming. So that's just a sense of our scale. We're growing quickly. There's our business: there's really two parts. One is we're a streaming or TV operating system, a platform, like the way Android or Windows is an operating system for phones or PCs. Part of our business is growing the scale of that platform, and we do not make money doing that—we lose money doing that. We spend a billion dollars a year distributing devices around. So that's on the hardware side: just on devices, getting our hardware out there, and we don't make money on that. So part of our business is growing the scale of our platform; in the UK, that would be getting our TVs in Currys, which we have like 15 different models of Roku TVs in Currys for example. But the biggest part of our business is what we call our platform business, which is the monetization part: subscriptions and advertising. We distribute streaming services and get paid for that in various ways. Usually, when we convince a customer to sign up for HBO Max, they'll build through our billing platform and then we'll get a share of the revenue. That's one way we do subscriptions. Another way is aggregation of streaming services into one unified user experience, which we call premium subscriptions. Amazon calls that Amazon channels. That's a big trend. Then, we have a multi-billion dollar advertising business—traditional TV advertising with large ad agencies and top 200 brands. We distribute a lot of free content; in fact, we aggregate free content onto our platform. We call it The Roku Channel. It's the number two app on Roku: number one is YouTube, number two is The Roku Channel, number three is Netflix. The Roku Channel includes linear FAST channels as well as on-demand free content that we put ads in, and we sell those ads. That's a big ad business for us. We also have our own and operated services. We just launched a new SVOD service called Howdy, which is $3 a month and no ads, for great TV content. So, that's our business in a nutshell.
And growing and growing here. But I'd like to just go back to how you started the company because it's a really interesting story there. It was born within Netflix. Is that right?
The streaming players were born in Netflix. I started Roku with the goal of doing streaming platforms, but the world was not quite— the technology was not there. Internet was not quite fast enough, so it wasn't quite ready for that yet. We made other products: streaming audio products, products for HD TVs. Then, Netflix back then was doing DVDs by mail. This was in like 2007. I introduced myself to Reed Hastings who ran Netflix. I would go visit Reed and say, 'Hey Reed, you should let Roku build a streaming player. You guys are called Netflix. You should do internet-delivered television.' He said, 'We're working on internet-delivered television. It's not ready yet.' I tried to convince him to let Roku build a Netflix streaming player. He ultimately said, 'No, we're just going to do it ourselves.' I said, 'Okay, I'll do it for you if you let me just keep running Roku. I'll come help Netflix build your first streaming player.' He said, 'Okay.' I thought that was pretty creative on his part. I went to Netflix, was an employee there for 9 months, built the streaming team, built the streaming player. I also started licensing Netflix, so I did a deal to get Netflix on Xbox, a deal to put Netflix on Samsung. Reed decided that was better than building their own hardware. He said, 'Why don't we take that team you built? We'll spin that out, put that inside Roku, and we'll just license Netflix and put it in everything.' And he fired me, basically. I said, 'This is great. This is what I've always wanted. Thank you very much.' So, the original Netflix Roku streaming player was called the Roku Netflix Streaming Player, built mostly inside Netflix and then finished inside Roku. We shipped it, it sold really well. My plan was never to be just a Netflix player; it was always to build an operating system for TV. So we kept doing software updates: added Amazon Prime Video, then the app store, then universal search, and kept adding features to build it into the operating system it is today. People often ask why Roku is the number one streaming platform. Is it because you were first? We were early and the first Netflix player, but that's not the main reason. The main reason is we built a software platform operating system designed for television. In the history of computing platforms, it's always the ones designed for the new platform that win. DOS went on PCs because it was designed for PCs. Windows didn't become the phone operating system; Android and iOS won. Roku is the number one streaming platform because we designed it just for TVs. It has a lot of advantages: costs less to build a Roku TV, simpler, easier, with features designed to help promote content and build audiences. So, it's really designed for television, and that's ultimately why we're successful.
And did you always know you were going to do both the hardware and the software side? Sorry. Did you always want to do both the hardware and the software side? I mean, that's unusual.
I always knew we were not going to make money selling hardware. But in the early days, the scale wasn't big enough. When we first shipped, there were two Netflix players: one was $50 and one was $99. Now a Roku streaming stick costs like $15 on sale and it's way better. But we funded the company by selling hardware initially, but that quickly went away. As we built scale, we started testing different monetization techniques on the platform, and we discovered the ones that work best are selling subscriptions, billing, and advertising. Those became big businesses, and now those businesses pay for the device business and the platform business. That's the reason streaming players cost $15: they're subsidized by the platform business.
If we get into the advertising business, how does that work and how are you seeing that start to change with generative AI?
Roku is one of the largest connected TV advertising platforms in the US. The way it's changing: there are a few different ways. One, it's a traditional business with ad agencies and large brands. The way TV ads are traditionally sold is with premium content like sports or originals as the temple that gets advertisers, then bundling longtail content. Roku doesn't buy sports and does few originals. For us, the premium ads we lead with are ads in our user interface, like a video ad on the home screen that everyone sees before Netflix or YouTube. 120 million people a day see that ad. We have other ads like Roku City, which is a popular screen saver with ads. So, we lead with UI ads as opposed to content ads. The other big thing is embracing DSPs: like social media, delivered through targeted platforms called DSPs. In the US, the biggest DSP is The Trade Desk. We just signed a deal with Amazon; they're getting into DSP and I think they'll be successful. We're leaning into DSPs, and the vast majority of TV ads on our platform are delivered through DSPs—targeted, measured. For example, if Procter & Gamble buys ads through The Trade Desk, they'll put some on Roku, some on Amazon, some on Samsung, tracking across platforms and measuring results. It's a much more data-driven, targeted, measured way to deliver ads, measuring ROI, and advertisers are moving in that direction.
And in terms of creating them, people are using generative AI presumably.
So, DSPs are a big trend driving our business. The other interesting thing is the self-serve platform Roku has called Roku Ad Manager. Let's say you're a fish and chip shop in Cambridge and you want to run a professional TV ad like a Procter & Gamble ad. You can go to our website, log in, say you want to run an ad, target Cambridge and a mile around your chip shop, target people who like fish and chips, and ask to make an ad using AI. It'll generate a professional, high-production-value ad from your website images and information, and run it targeting those people. It'll measure if they go to your website and the cost per click. This is now available to local small businesses, which are the vast majority of advertisers on social media. It makes high-quality television ads available to that customer base, selling direct to small and medium-sized businesses. That's a big new segment; it's still small but already close to $100 million and growing extremely fast. This new business for ad-supported television didn't exist before; it's possible with AI and will take money from social media to TV.
You're talking about fish and chips in Cambridge. I was really... a lot of fish and chip shops.
A lot of fish and chip shops in the UK. As you know, you were born in Manchester, right? You've got a lot of British family. Acklesfield.
Um in Cambridge, I was quite surprised to find out how large your operation is here. You've got what, 300 engineers?
