Roku: Anthony Wood

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It's amazing the number of media company executives that didn't think streaming would be popular. They just thought there's nothing wrong with cable and satellite. The world is not going to change. When it was so clear that of course it's going to change. The internet has disrupted every industry and it's going to disrupt video as well. In fact, I viewed it as a pretty big competitive advantage that people underestimate us and so they're always surprised when they lose.

Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how Anthony Wood helped transform the way we watch television. first with the DVR and then with Roku, a massive streaming platform with a remote that's simple enough for your grandparents to figure out.

One of the things we look for on this show are products and ideas that have had a big impact on how we live our lives. So Starbucks is an obvious one because even if you don't drink their espresso drinks, it's because of Starbucks's influence that you can get great espresso drinks almost anywhere in the United States. You might not use PayPal to send money, but the PayPal model has changed how we pay for stuff. Same with AOL or Door Dash or Instagram or many of the other brands that have been on the show in the past. In some way, large or small, they change the way that you and me and most people we know live. And this is basically what Anthony Wood wanted to do. He wanted to change how we watch television. And he managed to succeed twice, even though the first attempt ended in defeat. That defeat happened in the early 2000s with a product Anthony created called Replay TV. Replay TV was a digital video recorder very similar to TiVo and Anthony Wood he basically invented the DVR except right when he launched his product TiVo did the same and managed to outmaneuver him. And that could have been Anthony's story. Invent the DVR but lose out to another company. Except, as it turns out, Anthony was just getting started. His experience with Replay TV triggered this idea that a single product could have a major impact. In this case, a single device could change our relationship to TV. It could give us a lot more control over what we watched and when. So, in 2002, Anthony set out to start something that would wind up having even more of a cultural impact than the DVR. Roku. Roku was a device that let people stream content directly from the internet. And streaming changed everything. Along with Apple TV and Chromecast and Fire, Roku helped usher in an entirely new way of interacting with television. And what set it apart was its simplicity. Roku was made to be so easy to use, so intuitive that your 90-year-old grandmother could figure it out within minutes. Today, the company has more than 65 million active users, which means it's a giant, perhaps the biggest giant when it comes to home streaming products. And the man who came up with the idea, Anthony Wood, has also pushed the company into the production business. Recently, Roku produced a biopic parody of Weird Al Yankovic called Weird. Anyway, Anthony grew up in the 1970s, mostly in Houston. His dad was an aircraft engineer and by middle school, Anthony discovered computers and was soon writing his own software and eventually trying to sell it. But when he started college at Texas A&M, he didn't major in computer science.

Yeah.

When you were in college one of those ways to make money was I mean of course you knew how to write software basic software and I guess you decided to start like a little company making software for Commodore computers the Amiga. Uh what was the software that you were making?

So, you called this company Sunrise. Um, and the idea was to sell this. Um, who I mean, you're junior in college making the software and hardware and who are you selling it to? How are you selling it to people?

This became like a real business like you started to make money. I mean, I think I read almost $100,000 in profits at a certain point.

Um I guess while you were running this business cuz it was so successful your grades started to suffer like you couldn't you were not going to class because you were focused on this budding enterprise.

So I think you were 25 about 25 when you when you got your degree. And uh and one of the people that who had worked for you at Sunrise was uh is now your wife Susan, right?

And I remember it was kind of funny because I didn't really know where Silicon Valley was. I mean I knew it was in Northern California, but I remember we had our map out driving around trying to find out where is this Silicon Valley thing and uh it's not on the maps. So, you came out to Silicon Valley not with the intention of getting a job at a bigger company, but to reconstitute Sunrise and to basically just build it up there. And that was what you were building.

This is this is like 95. So I guess Mosaic or even Netscape was out already.

Yeah. And I guess you decide at this point to start a new company that could capitalize on this burgeoning internet. I think that this company is called iBand and I guess it was sort of made like software that people could use to build websites and that kind of thing. And I'm assuming you use some of the money from Sunrise to get this new company going.

Yeah.

It was not for sale yet. It was just to demo it. wasn't for sale, just to show to potential investors.

It was a conference where you could literally demo your prototype.

In buying the company, even though you did not have a product for sale yet.

You were 9 months in.

Yep. You sold it for reportedly for $36 million, right?

Yeah. That's when I guess Silicon Valley became like a real place to me.

So once you did that deal, you become, and this is common, we've heard this on the show before, you become an employee of Macromedia. It's part of the contract usually. And so now you are working, you're in your early 30s. Um, how was that? How did that go for you?

Yeah.

You managed to negotiate a way to leave a little bit early before the end of your contract. You I mean you had millions of dollars. you were set. You had more money than you could have imagined your parents ever had. I mean, um, but it sounds like you were determined to start something new. Like, was that already a top of mind even once you had sold iBand that you were going to start something new once you got through this contractual obligation to Macromedia?

Yeah.

All right. The company was called Replay TV. The idea was you were going to build a digital video recorder. Thinking that this was and this is 97. Thinking this was going to be the way you could store a lot more content. It wouldn't be one tape. It would be better quality cuz when you re-record over a VHS cassette, the quality degrades. And you were thinking this is actually where we're heading. We're heading to digital video.

By using a computer hard drive.

Yeah. Sure. Fry's electronic store. Yeah. Big big consumer electronics. It was like a giant Best Buy but kind of more RadioShacky type place, but giant. Yeah.

So, you yourself you were going to physically build a prototype?

And how quickly did it take for you to have a working model?

Right. I know you got Mark Andre as an investor, the founder of Netscape, who at the time was not yet the famous Mark Andre of today of Andre Horowitz, but he was um certainly an important investor at the time. Did you have an easy time getting others to invest?

To get a bag of Cheetos.

How much did you end up raising?

Yeah. You debuted this at the Consumer Electronic Show in Las Vegas in 1999. Um which was a big deal cuz DVRs were not yet they weren't a thing. But at that same exact show, TiVo also debuted, which was your main rival. I think your booths were side by side.

When you I mean you must have known about TiVo as you were developing Replay TV. You must have known about your competitor. They must have known about you. But you guys win best in show at CES. So clearly it's like Replay TV is going to win this war. This is Beta versus VHS all over again. And here we go. And you must have thought we're going to win this.

Right. And Philips is a Dutch-based multinational, right? It's that company, the light bulbs and Yeah. They make electronics. Yeah. Okay.

TiVo got the deal with Philips. Philips basically abandoned you guys and said, 'We're going to go with TiVo.'

TiVo paid Philips to do the deal. I see. Instead of Philips paying you to partner with you, they got paid to make these boxes, these DVR boxes. I got you. So already right then they had a massive advantage because they had a huge you know they had a manufacturer behind them that could mass produce these products right it was a big moment. Our business plan was we'll sell these things at $500 we'll make money you know the price will come down over time eventually they'll be very cheap but we'll start you know very traditional like the way every prior consumer electronics products had ever been launched. Um yeah, TiVo then decided that they would take advantage, this was like in the dotcom boom, they would take advantage of the fact that they could raise a lot of money. They raised a lot of money and then they started subsidizing the DVRs.

Selling them for what? For like a cut rate price at a loss.

And you guys there was no way you could sell your box for $99.

Yeah. And TiVo had signed an exclusive with Philips to get that deal. So we were the open available partner. Yeah. And we had won best of show. And so every consumer electronics company started talking to us and so we ended up signing a deal with Panasonic which was a bigger brand than Philips.

And you I mean you had like Walt Mossberg who at the time had a column in the Wall Street Journal. He like tested both yours and TiVo's and he said the Replay TV was more user friendly, the interface was better. like you were very well positioned to become the dominant DVR company. Um I remember I was overseas at the time but I remember coming back to the US from time to time in like 2002 2003 and just seeing everybody get have to everyone all of a sudden had to um but what happened I mean why was it TiVo not Replay TV if by all accounts it was a better product at that time

shipped first. Okay.

So what happened?

Wow. The thing that changed the dynamic is they went public before us. We were just about six months behind them. But then the dot-com crash happened and it suddenly became impossible to go public.

Yeah, late 2000 maybe December 2000. And that basically when the market crashed that that meant bankers they withdrew their

So, you knew that you had to sell the business in order to otherwise you'd collapse.

And so, you did. In August of 2001, it was announced that Replay TV was going to be purchased by a company called Sonic Blue.

So, when that happened, when the company sold, um, you're not broke. You still had the money from the sale from your previous company, but this was not a great outcome for you, and you kind of lost that war. I mean, TiVo had just outraised you and they survived the dot-com crash. Did you feel like um cuz that was the first kind of it was a not I wouldn't say it was a failure, but it was the closest kind of thing to failure that you had experienced at that point in your career.

And we didn't I mean we didn't discuss all the all the uh sorted details, but there was a lot of politics as well around the investors and the LA versus Silicon Valley culture.

Yeah. And we and it was basically the business was a merger of Silicon Valley to distribute the platform and then a service business, you know, to monetize it afterwards.

Got it.

And what about like you're kind of a low-key guy like you don't come across as being overly charismatic um from first impressions.

Yeah. And I think actually many Silicon Valley executives are like that.

But they were very political and they didn't respect each other and so there was a lot of backstabbing that started happening. So it just became a very unhealthy situation.

So once you left, this is um you know 2001, you're done. Uh where was your head at that point? Were you thinking about the next business that you were going to start or what do you remember about that time?

Yeah. Right.

But it was up until that point your best idea. You could record anything that Harrison Ford was in. You could skip commercials. You could I mean to completely change television viewing? I mean, is that Were you thinking that way at all?

When we come back in just a moment, Anthony joins forces with the head of Netflix, Reed Hastings, to build his next big idea. That is until Reed decides to pull the plug on it. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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Hey, welcome back to How I Built This. I'm Guy Raz. So, it's around 2002 and after the sale of Replay TV, Anthony's already thinking about his next business. something at the intersection of hardware, software, television, and the internet.

Yeah. All right. So, you would eventually land on a concept for what would become Roku, which was a device to help television stream video from the internet. But this is 2002. There isn't a whole lot of stuff to stream yet. This is pre-YouTube. Most people still had dial-up connections. Maybe there was a you know, some people were transitioning to DSL, but it was still early days. What was your concept that you had come up with?

How long did it take? I know you started the company in October 2002. How long before you had a product to sell?

What was it called? Was it called Roku?

The Photobridge. And the company was called Roku at that point?

I remember this. You used public radio content.

How did you convince him to cooperate with you and Roku to build a device for Netflix?

Right, because the way I think this was going to work is instead of building the Roku device at Roku, you were going to move it into Netflix and develop it there.

So I read that in 2007 internally at Netflix, you were working on this project called Project Griffin. You demoed it for Reed many times, even for the entire staff. There was a lot of excitement. But by the end of 2007, it was ready to launch, and then one day Reed Hastings announced he was pulling the plug.

Help me understand the business model. Was it just selling the hardware? The box was $99, right?

By 2011, you sold about 1.5 million devices. In a 2012 interview, you said only 1% of US homes used a device like Roku or Apple TV, and your market wasn't the 18-25 year old first adopter; you were going for their parents.

In 2012, 10 years after you launched the company, you got an acquisition offer from Intel for about half a billion dollars. You were reportedly looking for 1.5 billion, but the deal fell through. Is that true?

When we come back, we hear about some of the other ways the industry continues to underestimate Roku. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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Hey, welcome back to How I Built This. I'm Guy Raz. So, by 2014, Roku's sold around 8 million streaming devices in the US. But smart TVs were rolling out, so Roku had to expand its reach. You ended up partnering with manufacturers in 2014 to build the Roku platform inside the television. How much of a game-changer was that?

As the device became more popular, some of your partners became competitors. Amazon and Google developed competing products. They're giants. Did that worry you?

This is a question that few people like, but important. You have incredible wealth, more than you could ever use. What do you think you'll do with it?

When you think about where you came from, you were motivated to make money early on. You didn't come from money, and you wanted security. By age 31, you had 30 million dollars. Here you are today, having built a culturally relevant product that changed how people consume media. Do you think your path to success is due to hard work and intelligence, or more to luck, like meeting Reed Hastings?

That's Anthony Wood, the founder and CEO of Roku. By the way, that new Roku original film, 'Weird,' is a fake biopic about Weird Al Yankovic. It's hilarious. You can hear my interview with Weird Al on my other show, The Great Creators. Thanks for listening to How I Built This.

Hey, thanks for listening to the show this week. If you enjoyed it, please spread the word. Tell someone about How I Built This or post about it on social media. Our email is [email protected]. Follow us on Twitter @howibuiltthis and mine is @giraz. On Instagram, I'm Guy. This episode was produced by JC Howard with music by Ramin Arablouie. Edited by Neva Grant with research help from Sam Pollson. Our production staff includes Casey Herman, Elaine Coats, John Isabella, Liz Mezer, Katherine Cipher, Carrie Thompson, Alex Chung, Chris Msini, Carla Estz, and Josh Lash. Our intern is Susanna Brown. I'm Guy Raz, and you've been listening to How I Built This.