The future of television, as Roku Founder and CEO Anthony Wood sees it, is not as futuristic as you'd think, where we'll be able to watch every movie ever made, in any language, day or night. Wood says the future is getting close. I caught up with Wood earlier this year at the Over-the-Top (OTT) Conference, OTTCON 2012, where he delivered a keynote, "Future of TV: Why OTT is a Game Changer." Well regarded as a pioneer and innovator in the TV and digital media industry, Wood has had an influential hand in shaping the future of television, as inventor of the digital video recorder (DVR) and the popular Roku streaming player. He discussed the different themes in what's going to happen to OTT over the next few years, and noted the skepticism around the OTT industry when the OTTCON started 3 years ago.
Video Distribution Models are Changing
Wood says the industry is maturing and distribution models are changing. Once a upon a time there were 3 networks, but OTT has changed all that.
Over the top is really about distribution. It used to be television was distributed over networks, ABC, CBS, NBC, and then there was cable and VCRs, and satellite, now television is moving to the next phase, which is distribution over the Internet, says Wood. And it's creating a lot of opportunities and risks for some of the incumbents, and a lot of opportunities to create new brands, like Netflix and Roku.
He uses a 1999 commercial by Qwest Communications, Qwest - Every Movie, to illustrate his point.
Description: A tired man goes into a cheap motel in the middle of nowhere and asks about amenities. When he asks about entertainment, the girl responds "all rooms have every movie ever made in any language anytime, day or night." This Qwest ad aired in 1999 and 2000 and was before website such as YouTube or cable services such as OnDemand were available. It was shot at Roy's Motel and Cafe, a historic Route 66 landmark in Amboy, California, in 1999.
As Content Increases, Usage Grows
Roku has sold more than 3 million boxes to date. Wood says sales of Roku boxes tripled in the last year as the demand for Netflix increased, and as traditional models of distribution like Blockbuster died and quickly faded away. He expects his company to sell 19 million Roku devices over the next 3 to 4 years. Wood also predicted the end of Blu-Ray in 4 years at the recent "TV of Tomorrow Show" in San Francisco last month, as the industry and consumer trend is shifting to streaming devices and smart TVs.
But like all television, the most important thing is the content, the television show. If there's not a lot of great TV, people won't watch it.
Content is available on Roku through it's channel store. Netflix was the first channel available on Roku, and now the list has grown to over 500 channels with new ones going live every day.
As we've added more content, the usage on our platform has grown as well. So, what used to be about 6 hours a week on average people used Roku has been growing consistently to 12 hours a week, and that's going to keep growing until we get to 35 hours a week, which is the average amount of TV people watch in the United States.
Wood described the emerging content packages available to consumers through OTT platforms. One category of content, OTT Bundles, are available from new brands like Netflix, Amazon and Hulu, who have taken existing and back cataloged content and bundling it into new low cost packages over the Internet. There also new companies he calls, New Brands, like Glenn Beck TV, YouTube and Revision3, that are creating content just for OTT distribution where they don't have to go through a cable company. (Note: Revision3 was recently acquired by Discovery Communications and may create an even newer category of content bundles across all screens.)
There's a third group of content that's just starting to come onto devices like Roku, and that's the incumbents like ESPN, Disney and HBO. As an example, the entire HBO catalog is available on Roku through authentication, or through a "TV Everywhere" subscription. Disney has recently signed a 10-year agreement with Comcast to bring ESPN to all it's platforms, but, when can we get ESPN without all the extras for $9.99/month? Wood, says, "Probably, never." Companies will try packages, prices will come down, but, everything is based on bundling, and will not be changing anytime soon.
OTT Platforms are Shifting
So, how are most people getting their OTT content?
Wood says that game consoles and PCs lead in streaming hours and that content owners attempt to be platform-agnostic to reach consumers. That's because there are so may game console out there. But the future trend is that game consoles will decline, and inexpensive Smart TVs and streaming players will be on the rise. As more and more of the general population gets into streaming, they're looking for simpler devices.
Wood notes that we'll continue to see rapid consolidation within the space as it continues to get more complicated to maintain all the R&D that goes into the streaming platform software. Everything under the hood is always in development, and will cause a shake out in the platforms. He predicts that there will be only a handful of players within 3 to 4 years.
Who Will be the First Virtual MSO?
Will it be Xfinity? Verizon FIOS? Direct TV? Intel? Wood says that there is some hesitancy in the industry to be the first, but we'll probably see one emerge later this year.
I think another big question people have is, when will I be able to get that package of content and not have a subscription to my local cable service? Something the industry calls, Virtual MSO, and that's a good question" says Wood. "No one has said they're launching that kind of service, but my guess is, I think maybe sometime this year that could happen.
The Virtual MSO (Multiple System Operator) model, or online cable company, and is based on the bundling of TV channels and delivering them to consumer over the Internet without any geographic restrictions that confine traditional cable operators. While there's been some skepticism in the media about the emergence of a Virtual MSO, Boxee CEO Avner Ronen, shared Wood's his prediction that a Virtual MSO shall rise later this year.
The Future of Television is a Squiggly Mess
In the final slide of his keynote presentation, Wood uses a simple graphic to describe the present, future and end state of television, which he defines the current state as a squiggled mess. He says the future of television is coming faster than you think.
Wood pointed out that a lot of industries have been revolutionized by the Internet, for example, music, books and e-Commerce. But video took a little bit longer because bandwidth requirements are higher.
But now we're at that point where video distribution over the Internet is a real possibility, and it's happening mainstream," says Wood. "So, now we're in this squiggly mess part where there's a lot of stuff happening, a lot of different things being tested, but over the next 4 years there's going to be some big milestones. I think Netflix will pass 50 million customers. We'll see fairly soon, the launch of the first virtual MSO, over-the-top cable package. Most TVs will start getting their content delivered over streaming over the Internet instead of a cable or satellite box. All these things are going to happen over the next 4 years and what comes out of this is the new world, where all TV is delivered over the Internet and every TV show ever made is available on demand, and customers have an incredible amount of choice and options with their TV viewing.
Why OTT is a Game Changer
Wood says that most of the industry incumbents are embracing the change and seeing more value in getting their content on more devices and more places inside and outside the home. They've seen what's happened in other industries and they don't that to happen to them.
The industry as a whole is very engaged and I really don't see any major obstacles. I think this is happening now.
Wood says, “Roku is about being an open platform," and that future development of will be focused on further enhancing the user interface and creating upgradable devices like the new Roku streaming stick unveiled earlier year, which is a small USB flash drive-sized Roku streaming player that simply plugs into a TV equipped with a Mobile High-Definition Link-enabled HDMI port to transform it into a Smart TV. The company has not been caught in the latest Internet IPO craze and continues to expand into new markets, launching earlier this year in the U.K. and Ireland and in Canada and signing a deal with DISH Network to bring more than 50 international programming channels to the platform. The 150-employee company did about $100 million in sales last year, up from $46 million in 2011. But has yet to turn a profit, due to huge investments in product development and marketing. But Wood says the company will probably be profitable in 2013.
About Anthony Wood
A pioneer and innovator in TV and digital media, Anthony Wood is the Founder and CEO of Roku, a name that means “six” in Japanese to represent his sixth company. In the early days of Roku, Anthony also served as the vice president of Internet TV at Netflix, where he developed what is known today as the Roku streaming player, originally designed as the original video player for Netflix. Anthony holds a bachelor's degree in electrical engineering from Texas A&M University.