Roku: Anthony Wood

Anthony Wood helped transform the media landscape…twice. First, in the early 2000’s, when he invented a device that let you record, pause, and re-watch live TV. The DVR was a game-changer, but the company Anthony built around it—ReplayTV—was eventually out-maneuvered by TiVo. Unfazed, Anthony developed another piece of hardware; one that would tap into the growing power of the internet by letting TV’s stream digital content. In 2008, he launched the Roku box, a $99 device that connected your TV to the internet, with a remote simple enough for your grandmother to use. It’s hard to imagine now, but Anthony initially had a hard time convincing investors and media execs that the Roku—and streaming devices like it—would completely change the way we watch TV. Today, Roku has grown into an expansive media company that creates and distributes content to more than 65 million accounts worldwide. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

  Our presenting sponsor today is Anthropic, the team behind Claude. Every founder on this show started with a hard question. Not the marketing plan, the 2 a.m. kind. Is this idea any good? Am I the one to build it? Should I quit my job? Anthropic got built the same way. A public benefit corporation founded on one hard question. How do we make sure AI goes well for people? So they asked over 100,000 people their hopes and their fears and are publishing what they find, even the uncomfortable parts. Me? I've got my own hard question about AI. Here it is. If everyone has access to something that can help them write the business plan,

• 0:46Guy Raz?

  build the prototype, analyze the market, maybe even come up with the idea, what separates the people who actually build something from everyone else? I don't have a clean answer yet, so I've been sitting with it with Claude. There's hope in hard questions. Ask yours at claude.ai/hibt. We get support from U.S. Bank. A question I love asking founders. What's the one decision you almost didn't make? The one that changed everything? Because it's never the obvious stuff. It's never, I decided to start a company. It's the small, boring, Tuesday afternoon decision you barely remember making until you realize it's the reason everything after it either worked or didn't.

• 1:32Guy Raz?

  Say you're 18 months in. Business is growing. You've got expenses coming from six directions. Gas for the van, office supplies, your phone bill, team lunches that are actually client meetings, and you're putting it all on whatever card you grabbed in year one. You're not thinking about it. Why would you? You've got bigger problems. But here's the thing. Path A, you keep going like that. End of the year, you're sorting through statements, trying to figure out what went where. You've left hundreds, maybe thousands on the table in rewards you never earned, money that could have gone back into the business. Path B, you pause and get The US Bank Triple Cash Rewards Visa Business Card.

• 2:14Guy Raz?

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• 2:58Guy Raz?

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• 3:40Guy Raz?

  Value estimate based on $50 per visit rate to purchase additional visits or bring a guest to the Delta Sky Club. Make every trip feel more rewarding with the card that upgrades your travel. Apply today at delta.com/cardsocial. Offer ends November 4, 2026. Minimum spending requirements and terms apply. Flights are fulfilled as flight certificates valid for Delta Comfort or Delta Main to select domestic destinations. Book 21-plus days in advance. Up to $80 per person and taxes and fees apply. Other restrictions apply. When I pull up to a gas pump to fill my car, I'm not thinking about chemistry or engineering. I'm thinking about getting in, filling up, and getting on with my day.

• 4:23Guy Raz?

  And it reminds me a little bit of the founders I talked to on this show, because the best ones obsess over things their customers will never see. Tiny details, invisible improvements, relentless iteration. And not because anyone's watching, but because it makes the product better. That's what the mobile brand does. It engineers fuel the same way great founders engineer their products. Mobile Supreme Plus Premium Gas helps keep engines three times cleaner, which can mean better performance and improved gas mileage. It's for people who care about what's under the hood, even if they never see it. Three times cleaner compared to mobile regular gas in port fuel-injected engines. Actual results may vary.

• 5:07Guy Raz?

  Visit mobili fuels.com for details. Does your team want a website that looks and feels handcrafted, but is still fast to ship? Well, Framer is built exactly for that. With Framer, you design on a visual canvas with responsive layouts, hosting, and a CMS built in, so the work is production-ready from day one. And you can get it done with help from Framer's AI agents. Framer is the AI website builder that helps creators, teams, and businesses ship production-ready sites faster than ever while getting every detail right. Prompt, inspect, edit, and publish in one place at a whole new pace. AI agents and humans work together.

• 5:52Guy Raz?

  The agents bring speed and scale, and people bring taste, judgment, and control. Learn how you can get more out of your site from a Framer specialist or get started building for free today at framer.com/built for 30% off a Framer Pro annual plan. That's framer.com/built. Rules and restrictions may apply.

• 6:17Speaker 01

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• 7:02Speaker 02

  Download the PrizePicks app today and use code WONDERY. That's code WONDERY to get $150 instantly in lineups if you win your first $5 lineup. PrizePicks, run your game. Must be present in certain states. Visit PrizePicks.com for restrictions and details.

• 7:20Speaker 03

  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.

• 7:50Guy Raz?

  Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 8:01Guy Raz?

  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.

• 8:27Guy Raz?

  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 DoorDash, 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

• 9:10Guy Raz?

  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

• 9:55Guy Raz?

  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

• 10:40Guy Raz?

  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.

• 11:22Guy Raz?

  But when he started college at Texas A&M, he didn't major in computer science.

• 11:27Speaker 03

  I didn't want to do computers because I was a little arrogant, I think, looking back on it and thinking that I kind of knew everything there was to know about computers or programming. If anything, I used to think a lot about how to... I was more interested in like, starting a company would be a good way to make money.

• 11:41Guy Raz?

  Yeah.

• 11:42Speaker 03

  And I wasn't sure why I wanted money, except that I remember I wanted a better modem and I could only afford a certain kind of modem.

• 11:49Guy Raz?

  Yeah.

• 11:50Speaker 03

  I could only afford a 300-baud modem instead of a 1200-baud modem. So it wasn't clear why I was motivated to have money. But other than just earning money, you know, was sort of a characteristic of our family, basically. Like, go out there and make some money.

• 12:05Guy Raz?

  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. What was the software that you were making?

• 12:24Speaker 03

  The first products we made, I was into kind of digital audio stuff back then, which was a new thing. And so I made something called a sound digitizer that would record stereo. I mean, back then, computers didn't do that. It would basically let you hook up your CD player or your microphone to your personal computer and record it. And then software for editing it. And that was called... I called that Perfect Sound. And that was fairly successful, actually. That was the first product I sold.

• 12:52Guy Raz?

  So you called this company Sunrise. And the idea was to sell this...

• 12:59Guy Raz?

  Who, I mean, you're a junior in college, making the software and hardware. And who were you selling it to? How were you selling it to people?

• 13:06Speaker 03

  Well, I would have my friends build it. And then there was a computer store in Houston called MicroSearch. And the guy that ran it was pretty entrepreneurial. And he would distribute it, basically, and sell it. You know, then I figured out how you sold to the stores. And so then I started, we started doing it ourselves. And then we started adding other products besides the sound digitizer.

• 13:30Guy Raz?

  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.

• 13:40Speaker 03

  Yeah, I remember I made, would make about $100,000 a year, which for a college student was, was good money. But it wasn't, it wasn't like, you know, Mark Zuckerberg or Bill Gates kind of money. But, but, and then the other thing, I learned a lot, you know, I learned a lot about business, obviously, doing it. And one of the things I learned about business is, one of my big lessons was, the amount of money you have to report on your tax return is unrelated to how much cash you have in the bank. In the hardware business, you know, you got to buy parts, you assemble them. So you got to buy the parts, you got to pay for the parts in advance. You assemble them into the things you're going to sell. And then you sell those things. And then those people that buy them, the stores, they take 30 days or 90 days to pay you. So you don't get paid for a long time after you buy the parts.

• 14:23Speaker 03

  And so it's a cash, you have a cash flow issue. And so, but you pay taxes on the sales, no matter what the cash situation is. And so I remember being sort of outraged that I had to pay taxes on money I didn't have.

• 14:37Guy Raz?

  I guess while you were running this business, because 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, this budding enterprise.

• 14:48Speaker 03

  Yep. So we got up, I think we got up to about 14 employees, had a little office. And I would sign up for classes, get busy, and I wouldn't go. And they sent me a letter saying that I was on probation, I had one semester. And so I decided, well, I would regret not finishing my college degree. I was probably only a year away if I was full time. So I decided that I would basically stop doing what I was doing, go back to school full-time, get my degree and then kind of restart it. So that's what I did.

• 15:20Guy Raz?

  So I think you were 25, about 25 when you got your degree. And one of the people that who had worked for you at Sunrise was, isn't that your wife, Susan, right?

• 15:32Speaker 03

  Yes, that's where I met my wife Susan. I hired her. It was very controversial at the time that I started dating someone I had hired.

• 15:39Guy Raz?

  Yeah.

• 15:40Speaker 03

  She was hired to do printer circuit board assembly, which is kind of funny because she told me later that she had no idea what a printer circuit board was, but she figured she could assemble stuff. And so she applied for the job and we basically at that point hired anyone who applied. And then after college, when we moved out to Silicon Valley, she was the office manager for the new version of the company. 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 it's not on the maps.

• 16:17Guy Raz?

  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?

• 16:30Speaker 03

  Yeah, but this time more focused on audio and more specifically focused on professional audio.

• 16:36Guy Raz?

  You ran that, you'd run that business for five years. And I guess you ran it until Commodore kind of went out of business because it was really designed for Commodore computers. Tell me about that decision. I mean, was it like you just kind of wound the company down and it had been going well or it was not going well or what happened?

• 16:57Speaker 03

  It was going really well, but to be honest, I was getting a little tired of doing audio stuff. Like in the audio for video business, which is our market. Audio was always the second-class citizen compared to the video. And then the Internet was just getting big at that time.

• 17:14Guy Raz?

  This is like 95, so I guess Mosaic or Netscape was out already.

• 17:19Speaker 03

  Netscape had just come out, Yahoo was like a couple of kids. It was just the very beginning.

• 17:25Guy Raz?

  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 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.

• 17:47Speaker 03

  Yep, so it built up a pretty good bank account balance. But I figured, well, my new company, I will fund it, but then we'll raise venture capital and kind of go bigger.

• 17:58Guy Raz?

  Yeah.

• 17:59Speaker 03

  And so I brought my friend in as a partner because he knew all the venture capitalists and then hired a few engineers, started going out and trying to raise venture capital. And then at the same time, we got the software up to the point where we could demo it.

• 18:12Guy Raz?

  It was not for sale yet, it was just to demo it.

• 18:15Speaker 03

  It wasn't for sale, just to show the potential investors.

• 18:17Guy Raz?

  Yep.

• 18:18Speaker 03

  And there was a conference called Demo.

• 18:21Guy Raz?

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

• 18:24Speaker 03

  And then after that, we had lots of interest.

• 18:27Guy Raz?

  In investing.

• 18:28Speaker 03

  In buying the company.

• 18:29Guy Raz?

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

• 18:34Speaker 03

  No, that's right.

• 18:35Guy Raz?

  You were nine months in, and in fact, you got an offer from Macromedia like a few weeks later to buy you out.

• 18:43Speaker 03

  Yep.

• 18:44Guy Raz?

  You sold it reportedly for $36 million.

• 18:48Speaker 03

  Right.

• 18:48Guy Raz?

  Some pretty amazing exit.

• 18:51Speaker 03

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

• 18:55Guy Raz?

  Yeah, I mean, and presumably you owned most of the company. Maybe some of your employees had some equity, but you owned most of it.

• 19:02Speaker 03

  Right.

• 19:03Guy Raz?

  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.

• 19:11Speaker 03

  Right.

• 19:12Guy Raz?

  And so now you are working, you're in your early 30s. How was that, how did that go for you?

• 19:19Speaker 03

  It was a learning experience. It was very painful, actually. I mean, I was excited, like, oh, I'm gonna work for a real company. I'd never, you gotta remember, I'd never had a job before. I'd only, I mean, I had jobs like at Burger King, but I'd never had a job, you know, at a real company, because I just run my own companies.

• 19:34Guy Raz?

  Yeah.

• 19:34Speaker 03

  And so I thought, oh, this is cool. I can, I can learn about how companies are run. And, you know, I learned lots of stuff. I didn't learn what I thought I was gonna learn. I didn't really learn about the mechanics of running a company. I learned about the politics of, not necessarily bad politics, but just how things work inside, you know, a company with lots of people. And, um, politics in the term of humans that are in a big team together, how they work and how they interact.

• 20:01Guy Raz?

  You managed to negotiate a way to leave a little bit early, um, 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, even once you had sold IBAND, that you were gonna start something new, once you got through this contractual obligation to Macromedia?

• 20:31Speaker 03

  Yeah. Like, I'm not sure what, what motivated me or drove me, but I wanted to start a success, like, quote, "successful Silicon Valley company." Looking back on it, selling a company for thirty, whatever, million dollars is quite successful, but that's not the way it felt. Like, I wanted to build the real company. I didn't want to just make the money.

• 20:50Guy Raz?

  Yeah.

• 20:50Speaker 03

  It felt like I had sold out. And the way I justified it to myself was, I was like, well, okay, I'm gonna take this money that I get from selling this company, and then after my employment contract is up, I'm gonna use it to start another company.

• 21:02Guy Raz?

  I mean, the company that you would start, you started in ninety-seven, so really soon after you exited that, that obligation with Macromedia was Replay TV.

• 21:11Speaker 03

  Right.

• 21:11Guy Raz?

  Essentially, uh, the first version of a DVR, uh, digital video recorder. How did you, how did you think about, this is ninety-seven, um, I guess, like, DVDs are just starting to kinda come out, but most people are still using VHS tapes. Most people were still going to Blockbuster at that time. And you're thinking of, of digital video recorder. How did, how did that idea come to you?

• 21:35Speaker 03

  The idea came to me, I mean, you just remember, I was in, I was in the digital video and digital audio industry, right? That was,

• 21:41Guy Raz?

  Yeah.

• 21:41Speaker 03

  The internet was kind of a sidetrack, but, um,

• 21:45Speaker 03

  And so I used to, you know, I used to watch TV. I watched, there was a show I used to watch called Star Trek: The Next Generation. I would, it would come on when I was working or busy. And so I would record it on videotape. And it was just, it's hard to do. I mean, not only programming your VCR, but even if you know how to do that, you know, you'd have multiple things on a tape. You know, what's on the tape, you forget. I mean, there's all kinds of problems.

• 22:06Guy Raz?

  All right. So 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, you're 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 because 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.

• 22:33Speaker 03

  That's close, but not quite. I mean, definitely, I felt like we were heading towards digital video. The benefits, I thought, were actually a lot better than what you just described. It wasn't really about digital quality. It was about the user interface would be simple, that you could have features like, you know, I want to record anything that has Harrison Ford in it automatically, for example. I just felt like it would be a lot easier to use. It would have features like pausing live TV and that. I mean, this was a pretty simple idea, but it was, it was novel back then. Like, oh, I want to record every episode of Star Trek, not just the one that's next Thursday, but I want to just record each episode. And if it moves around in the schedule, because they adjusted the time, because the football game went long or something, still record it. Because that was one of the problems with videotapes back then, was that you would miss the beginning

• 23:17Speaker 03

  or end, because they would move the broadcast time slightly.

• 23:20Guy Raz?

  Right.

• 23:21Speaker 03

  So, anyway, so I figured, well, certainly, we could solve this problem, you know, by using digital video and digital audio and hard drives.

• 23:29Guy Raz?

  By using a computer hard drive?

• 23:31Speaker 03

  Yeah, using a computer hard drive.

• 23:32Guy Raz?

  Right.

• 23:33Speaker 03

  But it was too expensive. Like, you just think about, okay, I could build this, but it costs way too much money to build. It would be very expensive.

• 23:38Guy Raz?

  Yeah.

• 23:39Speaker 03

  Wouldn't be a consumer price point.

• 23:41Guy Raz?

  Right.

• 23:41Speaker 03

  So I used to just sort of watch the prices of, you know, I used to, back then, the Fry's was popular in Silicon Valley.

• 23:48Guy Raz?

  In the Bay Area, yeah, sure. Fry's Electronic Store, yeah. Big, big consumer electronics. It was like a giant Best Buy, but kind of more Radio Shack-y type of place.

• 23:57Speaker 03

  Right.

• 23:57Guy Raz?

  But giant, yeah.

• 23:58Speaker 03

  Giant Radio Shack for geeks, basically. And they would put an ad on the back page of San Jose Mercury News every weekend, the prices of hard drives, you know, would be one of the things. And so I'd kind of watch the prices of hard drives. And I think I decided that, okay, the hard drive is still going to be kind of expensive, but it's possible now to maybe sell something for $500, which is sort of the starting consumer price point. So I decided it was possible to do it. And ultimately, I wanted one. Like, I figured, you know, I had enough experience with Silicon Valley Venture Capitalist to figure out that hardware was really hard to get funded.

• 24:34Guy Raz?

  Yeah.

• 24:34Speaker 03

  Consumer hardware especially, it was super hard to get funded. So it wasn't necessarily the best business choice, but I figured at least I would get a DVR out of it.

• 24:43Guy Raz?

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

• 24:48Speaker 03

  No, not personally. I mean, at this point, you know, I had enough money where when I decided to do the DVR, I started a company and I started hiring people.

• 24:57Guy Raz?

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

• 25:01Speaker 03

  I think we probably had something to demo to investors after about a year. We, I mean, we launched CES 1999, so that would have been January 1999, where we won Best of Show.

• 25:14Guy Raz?

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

• 25:31Speaker 03

  It was hard. I got some angel investors without a tremendous amount of difficulty.

• 25:38Guy Raz?

  But no major institutional investors?

• 25:40Speaker 03

  Well, we were pitching them, but they, they were not interested. It was amazing how many people thought it was a bad idea. People would say things like, no one wants to pause live TV. Why would you want to do that?

• 25:50Guy Raz?

  To get a bag of Cheetos.

• 25:53Speaker 03

  Exactly. It was, it was kind of eye opening how, how hard it is to explain a new idea. Eventually, we did. I mean, we did get institutional investors. So, I mean, we did angels at first, and then Vulcan, which was Paul Allen's venture fund, and Kleiner Perkins, Will Hearst.

• 26:13Guy Raz?

  How much did you end up raising?

• 26:15Speaker 03

  It was over, I don't remember the exact amount, but it was like $200 million. Like that, and it was a lot of money back then. That's what I was saying. After we did the CES, we got a lot more attention. And then we, then we managed to raise money from every major media company.

• 26:27Guy Raz?

  Yeah. You debuted this, you debuted this at the Consumer Electronics Show in Las Vegas in 1999, which was a big deal because DVRs were not yet.

• 26:39Guy Raz?

  They weren't a thing, but at that same exact show, TiVo also debuted, which was your, which would be your main rival. I think you, your like, your booths were side by side.

• 26:51Speaker 03

  Yep, that's right.

• 26:53Guy Raz?

  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, this war. This is beta versus, versus VHS all over again. And here we go. And, and you must have thought, we're gonna win this.

• 27:14Speaker 03

  Well, I was, it was definitely heady times. Like, you know, we were on Good Morning America and like, on TV and all kinds of stuff. But I didn't feel like, I felt like there was still a battle in front of us. But yeah, as far as TiVo, when we started raising money, then we started hearing about them. They were called Teleworld. And when we really learned about them, when it became a serious problem for us, was we were pitching early on, Philips was a consumer electronics brand that was bigger back then. And they had an office actually in Silicon Valley. And I had gotten introduced to them and was pitching them.

• 27:50Guy Raz?

  Right. And Philips is, is a Dutch-based multinational, right? That's that, that company, the light bulbs and yeah, they make consumer electronics. Yeah, okay.

• 27:58Speaker 03

  And back then they made TVs and VCRs.

• 28:00Guy Raz?

  Yep.

• 28:01Speaker 03

  So we were pitching them. We were close to having a deal. So the idea was that they would build and sell it. We'd license the technology to them.

• 28:07Guy Raz?

  Yeah.

• 28:08Speaker 03

  And then what happened is Teleworld got an article placed in the newspaper about what they were working on. So then Philips was like, oh, well, we gotta go talk to these guys before we do this deal with Replay. And then Teleworld essentially bought the deal, which was a new concept to me. Like, I had never thought of doing a deal that was not going to be profitable.

• 28:27Guy Raz?

  Teleworld got the deal with, with Philips?

• 28:29Speaker 03

  Yeah.

• 28:30Guy Raz?

  Philips basically abandoned you guys and said, we're gonna go with Teleworld.

• 28:32Speaker 03

  Yeah, because Teleworld paid them.

• 28:35Guy Raz?

  Teleworld 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.

• 28:55Speaker 03

  Right. It was a big moment. Our business plan was we will 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.

• 29:08Guy Raz?

  Yeah.

• 29:09Speaker 03

  TiVo, then Teleworld, decided that they would take advantage, this was like in the dot com 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.

• 29:24Guy Raz?

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

• 29:27Speaker 03

  Yeah. So they sell them for $99 instead of $500. Or that was their plan.

• 29:32Guy Raz?

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

• 29:37Speaker 03

  Correct. So the big thing was they were going to subsidize the hardware.

• 29:40Guy Raz?

  Yeah.

• 29:41Speaker 03

  We lost that deal. That was like, okay, this is now I understand. We've got a competitor and they're buying the business. Like they've just changed the game. We're going to have to raise a lot of money. And it turned out, actually, them getting Philips was was good because we were both, like you said, at CES. They launched with Philips. We didn't have a partner. We won Best of Show. The whole consumer electronics industry realized this was going to be a big deal.

• 30:06Guy Raz?

  Yeah.

• 30:06Speaker 03

  And TiVo had signed an exclusive with Philips to get that deal. So we were the open, available partner.

• 30:13Guy Raz?

  Yeah.

• 30:13Speaker 03

  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.

• 30:22Guy Raz?

  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. 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 TiVo's. Everyone all of a sudden had TiVo's.

• 30:54Guy Raz?

  But what happened? I mean, why? Why was it TiVo and not Replay TV if by all accounts it was a better product at that time?

• 31:02Speaker 03

  And we shipped first.

• 31:03Guy Raz?

  And you shipped first, okay.

• 31:05Speaker 03

  Yeah.

• 31:06Guy Raz?

  So what happened?

• 31:07Speaker 03

  The dot com crash basically is what happened. So they had turned it into a business where you had to have lots of money to be successful. They had raised a lot of money. We raised a lot of money as well, but not as much as they did.

• 31:19Guy Raz?

  Right.

• 31:20Speaker 03

  Even though we raised $200 million plus, the burn rate had cranked up and we were spending, you know, I remember some months it would be $20 million a month.

• 31:28Guy Raz?

  Wow.

• 31:29Speaker 03

  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.

• 31:40Guy Raz?

  This is like around August of 2001, or maybe a little earlier than that.

• 31:44Speaker 03

  2000, I think. I can't, I don't remember.

• 31:47Guy Raz?

  Yeah, late 2000, maybe December 2000. And that basically, when the market crashed, that meant

• 31:52Speaker 03

  Yeah, our bankers.

• 31:54Guy Raz?

  They withdrew.

• 31:55Speaker 03

  Yeah, they said, well, they said, we can't go public. And then at that point, you know, because of the burn rate, it was, we were going to be out of business in several months.

• 32:05Guy Raz?

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

• 32:10Speaker 03

  Yep.

• 32:11Guy Raz?

  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.

• 32:20Speaker 03

  Yep.

• 32:21Guy Raz?

  I think they paid reportedly $120 million for Replay TV, which would be less than what you raised. This, I'm sure this is painful to talk about now, but I'm sure much more painful at the time.

• 32:34Speaker 03

  Right.

• 32:35Guy Raz?

  So when that happened, when the company sold, 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, because that was, that was the first kind of, was it 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?

• 33:05Speaker 03

  I didn't, I don't know, I don't, people say, ask questions like you just asked it. I don't, I don't think much about whether something was a failure or success. First of all, financially, it wasn't, it wasn't a huge failure. I did make money on the sale. And I invented the DVR and like, I learned, I learned a huge amount of stuff and it was just a great, it was just a great experience. So I felt like, you know, there were times when it was very painful, but overall, it was just an incredible experience. And, you know, lots of people come to Silicon Valley and they don't all have experiences like that.

• 33:38Guy Raz?

  Yeah.

• 33:38Speaker 03

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

• 33:49Guy Raz?

  What's the LA versus Silicon Valley culture? What was the LA part of it?

• 33:53Speaker 03

  Well, so Replay was sort of this hybrid of Silicon Valley and LA, right? Because we had venture capital investors like Kleiner Perkins, and then we had all the major media companies as investors and they're, I'll call them the LA culture.

• 34:08Guy Raz?

  And, and you needed an LA office because you needed to have buy-in from the big media companies in order for Replay TV to be successful?

• 34:18Speaker 03

  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.

• 34:28Guy Raz?

  Got it.

• 34:28Speaker 03

  And the cultures are incredibly different and what they respect is different as well. And so, you know, for example, this is a small one, but I remember like, we had a LA executive and he told me once, like, you need to comb your hair more. And I'm like, my hair's fine. And so it was like, for him, like, the way your hair looks is incredibly important.

• 34:50Guy Raz?

  Yeah.

• 34:51Speaker 03

  Even in just internal meetings. So that's the, that's just a small example.

• 34:55Guy Raz?

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

• 35:05Speaker 03

  Yeah, well, that's true. But I get along well with Silicon Valley engineers, like they, that's why I am.

• 35:10Guy Raz?

  Right, right. You don't need, you don't need to be, not everybody needs to be Steve Jobs to be successful in Silicon Valley. In fact, you really don't need to be Steve Jobs to be a successful leader. You can be low-key and quiet.

• 35:22Speaker 03

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

• 35:25Guy Raz?

  Yeah.

• 35:26Speaker 03

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

• 35:37Guy Raz?

  So, once you left, this is, you know, 2001, you're done. 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?

• 35:48Speaker 03

  I remember thinking I should take a break. We had a vacation house in Oregon. So I thought, okay, well, let's go, let's spend the summer and just relax. And so I did that and I quickly became very impatient. So I realized I wasn't good at just sitting around. I mean, it was fun. I went biking and mountain biking and all kinds of stuff, but I was ready to do something after that.

• 36:13Guy Raz?

  What were you starting to think about? I mean, your greatest idea of all time, the digital video recorder, you know? And for most of us, we have maybe one great idea in our life. And that was it. You had that idea. So what were you possibly going to do to top that?

• 36:32Speaker 03

  Well, I would say, I would quibble a bit, not say it wasn't necessarily my best idea, but it was the, was the one that had the most mass market potential.

• 36:41Guy Raz?

  Yeah, right.

• 36:42Speaker 03

  And it had the, you know, ability to change the way billions of people acted. And that actually, I think, was a lesson that I took away, which was that you can spend your time on different things and some of them just have much bigger potential than other things. And so maybe I should factor that in. Like, maybe it shouldn't just be things that I'm interested in, but it should be things I'm interested in that also have the potential to impact a lot of people.

• 37:08Guy Raz?

  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, completely change television viewing. I mean, is that, were you thinking that way at all?

• 37:20Speaker 03

  I was definitely not thinking that way. I mean, you could say that the DVR was my best idea. That's not at all what I thought. I thought that I've got lots of good ideas.

• 37:33Guy Raz?

  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. AI isn't just opening new business opportunities, it's changing the way businesses get work done. The questions they ask, the decisions they make, the routine tasks they can hand off. That's the idea behind NetSuite Next, the next generation of NetSuite with AI woven into the tools your business already relies on. NetSuite Next surfaces insights exactly when you need them, puts agents to work on routine tasks and problems,

• 38:18Guy Raz?

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• 39:03Guy Raz?

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• 39:16Speaker 04

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• 39:35Guy Raz?

  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 is already thinking about his next business, something at the intersection of hardware, software, television, and the internet.

• 39:52Speaker 03

  You know, I went around, I talked to a few people. I think I introduced myself to Reed Hastings, you know, of Netflix fame, and had lunch with him. Back then Netflix was around, they were just doing DVDs by mail.

• 40:03Guy Raz?

  Yep. 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 not, this is pre YouTube. Most people still had dial-up connections. Maybe there was, you know, some people were transitioning to DSL, but it was still early days. What was your concept that you had come up with?

• 40:34Speaker 03

  The original concept was just the category, that there's going to be a lot of devices. So I know that's kind of vague, but that was the idea. And specific product ideas, a streaming player was on my list, a video streaming player, but it wasn't time yet. You know, that's why Netflix was still mailing out DVDs back then. And that's why I met with Reed Hastings. I was like, obviously, at some point, this is going to be an internet-delivered video company. And he's like, yep. You know, so I was sort of like, well, maybe there's something we could do together. So, but when I first started the company, the timing wasn't right for that. So I figured, we'll just build a product, kind of start building my team and get into the market. And I'm a big believer in, you know, getting into a big market area and adjusting.

• 41:19Guy Raz?

  Even if you don't know what the product is yet?

• 41:21Speaker 03

  Even if you don't know exactly what it is. I mean, you have to have something to start with, but it might not be where you want to end up eventually.

• 41:26Guy Raz?

  Because the thing you started with was very far away from what Roku is. It was, I think it was just like a box that connected to your TV that showed, that would display paintings on your TV?

• 41:37Speaker 03

  Yep. So it's the same technology that's in a Roku, but it was, but it had a different position in the market.

• 41:43Guy Raz?

  A different purpose, I guess.

• 41:44Speaker 03

  Different purpose, yeah. So it was, yeah, so we made this first product was basically a high-definition photo, video, and audio player. And then we made these little compact flashcards that had what we called live art on them. So this was like a nature picture with a stream where the stream was kind of moving. You know, the water was flowing.

• 42:06Guy Raz?

  Yeah.

• 42:06Speaker 03

  And we had clocks. We had some cool clocks, like a robot that would fly around, you know, like a cuckoo clock.

• 42:12Guy Raz?

  On the television screen.

• 42:13Speaker 03

  Yeah, so it would show the time and then on the hour, you know, a robot. It was like this giant sort of steampunk room and then on the hour, the robot would take off and fly around and fix the pipe and things like that.

• 42:23Guy Raz?

  By the way, how long did it take? Because I know you started, you founded the company in October of 2002. How long did it take you before you had a product to sell?

• 42:31Speaker 03

  I think it was about a year. It takes about a year to build a hardware software product.

• 42:35Guy Raz?

  And what was it called? Was it called Roku?

• 42:38Speaker 03

  It's called the photo bridge.

• 42:39Guy Raz?

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

• 42:42Speaker 03

  The company was called Roku.

• 42:43Guy Raz?

  And Roku, by the way, it means six in Japanese.

• 42:46Speaker 03

  Right. Yeah, it's my sixth company. I thought, you know, kind of an Asian sounding name would be cool for a consumer electronics company. And me and Susan, my wife, were having dinner at the sushi restaurant. So I started talking to the waitress about different words in Japanese. And I said, and it was actually, depending on how you count, it's either my fifth or sixth company.

• 43:07Guy Raz?

  Yeah.

• 43:07Speaker 03

  So I asked her what the Japanese word for five is, and she said go. And go was kind of a failed tech company. So I thought, no, can't use go. I said, what is six? And she said Roku. And I said, oh, that sounds cool.

• 43:22Guy Raz?

  Okay, so sixth, six in Japanese, or you got Roku.

• 43:25Speaker 03

  Right. So then we started our second product, which was streaming audio. We called it Sound Bridge.

• 43:31Guy Raz?

  I remember this. You used public radio content.

• 43:34Speaker 03

  Yep, so it would stream public radio. It would stream internet radio stations. It would stream music from your local library.

• 43:40Guy Raz?

  So it was like a, yeah, it was like an audio streaming device. Okay, so cool. It's a good product. But I think around this time, 2002, 2003, you kind of reconnected with Reed Hastings, the co-founder of Netflix, at a conference. And you, what, you pitched him on this, on making a box for them, like a streaming video box for Netflix?

• 44:02Speaker 03

  Yep. So the, so the Soundbridge sold in, I would say, the hundreds of thousands, which was good, but not a huge hit. And basically, at that same time, I, it's not that I re-met Reed. I maintained our relationship. And I would check in every once in a while and say, you know, some version of, are you guys ready to do a streaming video player yet? Because when you are, I want to make it for you. I remember one meeting with Reed where he said, I mean, Reed is very strategic. And he knew that many companies had missed transitions in their industry. He knew his industry was going to transition from DVDs to streaming. He just didn't know when, you know, nobody did. And so he actually told me once that he,

• 44:44Speaker 03

  you know, I've allocated, I'll call it 3% of our revenue to keep working on this idea of streaming in the background so that we don't miss the transition.

• 44:54Guy Raz?

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

• 45:01Speaker 03

  Well, it was a long process. He would go back and forth between like, when I'd send him an email, he'd be like, yes, we need your help to that we're going to do this ourselves. And then at some point, I got a call from a recruiter saying, we're looking for a VP of Internet TV for Netflix. And I was like, hmm, well, it sounds like they're really going to do it themselves.

• 45:22Guy Raz?

  Yeah.

• 45:23Speaker 03

  And I called up Reed and said, hey, I hear you're looking for head of Internet TV. I'd be willing to do that for you if you let me keep running Roku at the same time. Like, I can do it as a side project. And he's like, okay, that sounds good.

• 45:39Guy Raz?

  So you basically said, hey, because oftentimes when you get hired, like if Google hires you and you've got a company, they usually, there's a package and they just buy all your stuff. And then they own whatever you built. You basically said, look, I've got Roku. I want to keep running that. But let me come and work for you and see if I can develop something in-house. So he essentially said, or Netflix said, okay, yeah. You still own your IP? You still own this company?

• 46:02Speaker 03

  Yep, that's right. And it is very unusual.

• 46:05Guy Raz?

  Yeah, very.

• 46:06Speaker 03

  And I didn't really think he would do it, but he did. And Reed is very out of the box thinking that way. Like, he's, he's fine doing things that aren't the norm as long as it gets somewhere he wants to go. And so I think he had a lot of respect for my ability and he had bought all the Roku products. He loved them and he figured I would be perfect to build this product for him, so.

• 46:30Guy Raz?

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

• 46:44Speaker 03

  Well, yeah, I capitulated.

• 46:47Guy Raz?

  When you say capitulated, you, in the sense that you figured?

• 46:50Speaker 03

  Well, I wanted a deal where Roku would make the hardware.

• 46:53Guy Raz?

  Yeah.

• 46:53Speaker 03

  But that, you know, that wasn't gonna happen. And so I basically decided, well, if he's not gonna let Roku do it, then maybe I should just go do it at Netflix.

• 47:02Guy Raz?

  Do you remember when you became an employee at Netflix? Like, do you remember what year it was? Was it like?

• 47:07Speaker 03

  No, it was, it was 2007, I'm pretty sure.

• 47:11Guy Raz?

  Okay, so basically the product you were building, which was the Roku product, was going to be the Netflix streaming device?

• 47:20Speaker 03

  Yeah, so they had, at this time, they had had a beta version of their streaming service, but, you know, you had to have a PC, on a PC, on a web browser. So I was hired to build their hardware box. They, they wanted a little box that they could give to customers so they could connect this to their TV and stream Netflix. So they didn't have to use their, you didn't have to use your PC.

• 47:40Guy Raz?

  And just to clarify, you didn't need that box for a computer, obviously, because a computer is connected to the internet. But televisions in 2005 were not, the vast majority of them were not internet ready or internet connected. So you would need a box that did connect to the internet, that did connect to your television to make this work.

• 47:57Speaker 03

  That's right. And I talked to Reed and I would have conversations like, you know, we shouldn't build just a Netflix player. We should build like an operating system for TV. We should run apps. We should, you know, it's gonna be a lot more stuff besides just Netflix and people aren't gonna want a separate box for every, every streaming service. And he's like, yeah, that's a good idea. And I go, but that's in conflict. They would be competitors to Netflix. Is that okay? And he's like, ah, I think that's okay.

• 48:21Guy Raz?

  Yeah.

• 48:22Speaker 03

  And there was a lot of work going on on the sort of non hardware part of Netflix. There was a lot of work going on on, well, how are we gonna get access to this content? Because back then, it wasn't just a technical problem. It was a, it was a huge business model problem.

• 48:34Guy Raz?

  It was a business model problem because I believe if you physically rent DVDs, that's a different proposition. It's like when a radio station plays a song and that's it. They just play a song. Versus when you stream something, then it's different because that means that people can, you know, I don't know, watch it again and again, or whatever. It's, is that, was that the challenge for them?

• 49:00Speaker 03

  Yeah. So, that's right. And the studios had a large existing business. They were more interested in protecting than they were in opening up this new front.

• 49:08Guy Raz?

  So, building the hardware for this thing wasn't, wasn't the biggest challenge. It was getting the rights to get the content to stream through that hardware.

• 49:17Speaker 03

  I think so. Yeah. I think that was the bigger challenge. And they didn't get rights for a long time.

• 49:22Guy Raz?

  Yeah. So, all right. So, I read that in 2007, internally at Netflix, you were working this project. It was called Project Griffin, I think. That was the, this codename for it.

• 49:33Speaker 03

  Right. That was our codename.

• 49:35Guy Raz?

  And you had been able to, like, demo it for Reed many times. He gave feedback. You even demoed it for the entire staff. There was like a lot of excitement.

• 49:48Speaker 03

  Right.

• 49:48Guy Raz?

  But I think by the end of 2007, this thing was ready to be launched. It was ready to be Debut as a consumer product and start shipping to, and start being manufactured and shipping to consumers. And one day Reed Hastings announces he's pulling the plug.

• 50:08Speaker 03

  Yeah, that's true.

• 50:10Guy Raz?

  This is done. We're not doing this product. Just one day he comes out and says this.

• 50:14Speaker 03

  We talked about it, obviously, before he announced it. I mean, what happened, the sequence of events were that we were reeling the hardware. I hired this guy to go license, to try and sign up Xbox and some TV companies that we were having good success there.

• 50:31Guy Raz?

  Xbox would be available through, or the Netflix, how would, how to work?

• 50:35Speaker 03

  The idea is that if you had an Xbox, there would be an app on your Xbox that would let you watch, let you stream Netflix.

• 50:43Guy Raz?

  Gotcha, okay. So you had signed up, you had signed Xbox up and PlayStation up. I think even Apple TV, right?

• 50:49Speaker 03

  Right, so Apple TV existed back then as well. And actually, I think, I think if I remember correctly, Apple TV was the turning point. We were working on these other deals. It was becoming clear that we were going to get them, that you were going to be able to, at some point, get an Xbox and watch Netflix's service on it, that it would be built into TVs.

• 51:08Guy Raz?

  Yep.

• 51:09Speaker 03

  And then we approached, I approached Apple about same kind of thing on Apple TV, you know? Let's let, let's let Apple TV stream Netflix.

• 51:16Guy Raz?

  Yeah.

• 51:17Speaker 03

  And I think Reed sent an email to Steve Jobs saying, are you guys interested in this? And Steve Jobs replied, no, we're not interested because we hear you're building hardware that competes with Apple TV.

• 51:31Guy Raz?

  Mm-hmm.

• 51:32Speaker 03

  And so, why would we ever do business with you? You know, something along those lines.

• 51:37Guy Raz?

  So, so in other words, why would Apple TV make Netflix available through its box if you yourself were making your own box? That was what they, you were, and, and so Reed started to get worried about this, that, as he started to hear pushback, he was coming to the conclusion that maybe this was a bad idea?

• 51:56Speaker 03

  I don't think he was getting worried. I think he came to the conclusion that... Reed's, one of Reed's characteristics is he's very focused. So he'll pick a direction and he is maniacally focused on that direction. And so when I came in, the direction was we're going to build a box and distribute it to all our customers. He then, I think he then decided that a better strategy is to just license our service widely to other hardware makers. And we're clouding the picture by making our own hardware. And if, so if I take this team that's working on this hardware and I spin it out and put it in Roku, then Roku can still finish the box, but it'll just be one of, you know, many boxes that we can license.

• 52:38Guy Raz?

  All right. So, so essentially what happened was, was Reed decided to spin this, the streaming device back into Roku. Basically the, the company Roku, which you were still running. And so instead of Netflix making the device, Roku would make it. And from his perspective, from what I understand, it was because he wanted Netflix to be a neutral platform. That he wanted it to be available everywhere, all the time. He didn't want to compete. He, he wanted to be something where all of these other content providers would, would want to be. And as controversial as it was at the time, it proved to be very prescient and a very good decision ultimately. Then Netflix did not go into that direction.

• 53:20Speaker 03

  Right. And the decision was, was good for me. Like it was a great, great decision for us. But I was like, yes, that sounds great. That's what I wanted, you know, from the beginning.

• 53:30Guy Raz?

  So you take these employees from Netflix who've been working on it. They'll go to Roku and then you worked out a deal where Netflix would get some, some of Roku's equity, basically.

• 53:41Speaker 03

  Yeah, that's right. So they invested, not a lot. I think it was.

• 53:44Guy Raz?

  Six million dollars, something like that?

• 53:46Speaker 03

  That sounds right. Six million.

• 53:47Guy Raz?

  Netflix put six million into Roku at the time.

• 53:50Speaker 03

  Right. And so they, I think they got 20% of the company. So after Netflix invested and we started shipping the, the Netflix player, we then decided to raise venture money. And so we raised money from a venture capitalist called Menlo Ventures. And then Netflix decided they didn't want to appear to be favoring any one hardware manufacturer. So they sold their shares to Menlo Ventures.

• 54:14Guy Raz?

  Right. So, okay, so you've got now this standalone company now really doing what you initially hoped it would be doing, which was a box that could interface between the internet and your television.

• 54:27Speaker 03

  That's right.

• 54:28Guy Raz?

  Help me understand what the business model was gonna be. Was it gonna be, because at that time presumably the way to make money was just selling the hardware, selling the box. And I think the box that initially was like 99 bucks, right?

• 54:40Speaker 03

  Yeah, it was 99 dollars, which was a big milestone back then because that was very inexpensive compared to other set-top boxes.

• 54:48Guy Raz?

  Yeah.

• 54:49Speaker 03

  So, yeah, the way I was thinking about it was that Netflix would be, you know, the killer app that would allow us to launch a new television platform, you know, and that was my goal. My goal was always to be the platform for TV that, you know, just like phones have Android and PCs have Windows and I felt like TVs needed Roku.

• 55:11Guy Raz?

  Right.

• 55:12Speaker 03

  But we needed, we needed a way to launch that and get scale and that's what Netflix was for me. So although we launched the first products as the Netflix player, we, you know, we quickly started adding other services. We added an app store. We added billing systems. I mean, we added all the pieces to build a television platform and that was the, that was the goal.

• 55:33Guy Raz?

  All right. There was the Apple TV out at that time. It was more expensive, it was about 300 bucks and, and you could watch television through that and you could watch Netflix through that. There was the Roku product, which was 99 dollars. What I would have asked you at the time was, well, what happens when televisions are, are just, it was inevitable, when televisions have a, you know, an ethernet port and you can directly connect to the internet or they're Wi-Fi wireless and you can go Wi-Fi and you can just like load up Google Chrome on your TV and then just like log into Netflix? Like, why would you, when that happens, what, isn't that gonna make Roku irrelevant? Like, what, what did you say when people asked you that question?

• 56:12Speaker 03

  That's what Reed thought would happen. That was his sort of vision of the way things would play out. And that's what lots of people thought. But I, you know, my experience in the TV industry was that price was incredibly important in the TV business and that web browsers were a very inefficient way to distribute software. Like, they required lots of memory and lots of processing power and that it was not the way to make a... There'd be ways to do it a lot cheaper and manufacturers always picked the less expensive way.

• 56:38Guy Raz?

  Yeah.

• 56:39Speaker 03

  And so, that's why we focused on cost and that's why we were successful and web browsers were not. Because it just, it just adds quite a bit to the cost to build a TV if you try and use a web browser.

• 56:52Guy Raz?

  The TV becomes more expensive, you're saying?

• 56:54Speaker 03

  Yep, that's right.

• 56:56Guy Raz?

  And what, what, in, in, at that time, in 2008, 2009, what could you watch through the Roku box besides Netflix?

• 57:04Speaker 03

  Well, when it first started shipping, it was just Netflix. And then I think we added Amazon Prime after that. Prime Video came out fairly soon. And then after that, we added the App Store. So, so there was HBO. Hulu, I think, came out around that time. And then, because of the App Store, you started getting lots of little companies publishing, publishing stuff.

• 57:25Guy Raz?

  Was it hard for you to convince other media companies to, to jump on board? Or was it more like everyone felt like they would miss out if they didn't jump on board?

• 57:35Speaker 03

  It was not hard to convince. You know, initially, it was more like the internet companies, like Amazon or YouTube or, you know, Hulu was sort of the internet experimental branch of, of different networks. Those companies that had made the decision to do streaming, they wanted to be on Roku because we were a leading streaming platform.

• 57:54Guy Raz?

  Yeah.

• 57:54Speaker 03

  But if you went to traditional media companies that had traditional businesses, they had no interest in streaming. They viewed it as a threat to their business. So, they did not take their services and put them on streaming for a long time.

• 58:05Guy Raz?

  So, the, the, initially, the strategy was just to get as many Rokus in the hands of consumers because you were not making any money off, of people watching Netflix through the Roku device, right?

• 58:16Speaker 03

  So, the strategy was, we will make some money on the hardware, enough to basically finance the business, but we're not going to try and make, make a profitable business on it. We're just going to use it to build scale.

• 58:28Guy Raz?

  And once you build scale, you can figure out how to... Once people have these devices or have the Roku... Platform in their house, then you can figure out how to monetize it.

• 58:37Speaker 03

  Right.

• 58:38Guy Raz?

  All right, so you've got these devices, and I think by 2011, you sold like a million and a half of these devices. So it's still, it's successful, but still, you know, you're still building it, building it out. I read an interview you gave in 2012, and this article, I think it was in Forbes, it said at the time, most people who streamed video were doing it through game consoles, through Xboxes in 2012. Only 1% of US homes at that time used a device like a Roku or an Apple TV. And you had said at the time, "Look, we're essentially not, our market isn't the 18 to 25-year-old first adopter. We're going for their parents, actually. That's who

• 59:23Guy Raz?

  we want to attract."

• 59:25Speaker 03

  Yeah, so our goal was to offer a solution that was very inexpensive, that was super easy to use. You didn't have to be a gamer to use it, and just had, and had a lot of content.

• 59:37Guy Raz?

  Yeah, I want to ask you about the simplicity side, because, you know, anybody buying a television today, and I'm just saying, if you're gonna buy a television, just don't, because it's annoying. There's too many buttons on the remote, there's too much stuff, you know, it's just too many options. Your, your products are simple. The remote is simple. It looks like a, looks like a kid, like a, like a remote for a preschooler. And I'm not trying to say that in a disparaging way. I like that. It's very simple. There's like, simple buttons, easy to use. Even the website, very simple explanation of what Roku does. That was part of the strategy from the beginning, I think, right?

• 1:00:12Speaker 03

  Definitely. That's always been a huge part of our strategy. And I think our competition continually underestimates how simple consumers want their TV experience to be. Like, television, they want to sit down, maybe drink a beer, and they want to watch something as quickly as they can. And they don't want to get confused trying to figure out what they're gonna watch. And so that has always been a, a big focus for us. Even kind of a correlate to that is that consumer electronics...

• 1:00:38Speaker 03

  Especially when dominated by Japanese companies, they started competing by adding more options. And so that just started adding more and more buttons to the remote. And it got to the point where, you know, a TV remote has like a lot of buttons and no one knows what they do. And so we put a lot of effort into our remote control to reduce the number of buttons, yet still being powerful and simple to use.

• 1:01:00Guy Raz?

  There was no off button on the Roku box.

• 1:01:03Speaker 03

  Yeah, that was a very controversial decision, but it was to make it easier to use. We didn't put a power button on the remote control. Because what, if you go back to sort of one of the things that is confusing the people about different devices on their TV is, you know, you have a source button on your TV and you change the source. And the source might be an Xbox or a DVD player or a Roku player. And what, one of the things that made it hard was you didn't know if your DVD player was turned on or off. If it was off, then you didn't know if you were looking at your DVD player or not. So if you just keep them on all the time, then it's easy to find. So it just makes it easier and it doesn't actually change the power consumption. It just wasn't what people were used to. So we had a lot of resistance to it, but it made it a lot easier to use. And now it's the standard.

• 1:01:49Guy Raz?

  2012, 10 years after you officially launched a company, but really, you know, part of that time you'd been in Netflix, you get an acquisition offer from Intel. They apparently are looking, were looking to buy you out for about close to half a billion dollars. You were reportedly looking for 1.5 billion, but that deal fell through because it was just too much for them. Is that, is that true? Is that what happened?

• 1:02:15Speaker 03

  I remember that there was some interest in them buying us. We never, you know, never got to the paper stage.

• 1:02:20Guy Raz?

  Why were you willing to entertain the possibility of selling? Was it, was it because?

• 1:02:24Speaker 03

  We didn't really entertain a possibility.

• 1:02:25Guy Raz?

  You didn't?

• 1:02:26Speaker 03

  They tried to, they tried to buy us. Or they didn't even try to, I mean, it depends what you mean by try to buy. They were interested in acquiring us. We were not really interested in selling. But I mean, you know, even if you're not interested in selling at some point.

• 1:02:38Guy Raz?

  There's a price?

• 1:02:39Speaker 03

  There's a price, exactly.

• 1:02:40Guy Raz?

  Sure. And so you basically, from what I understand, you basically said, sure, we'll take a billion and a half for it.

• 1:02:45Speaker 03

  I don't remember exactly. I do remember that there was, I probably gave them a price that was unreal, unreasonable, and they probably said no. But I think that's, if we back, if we just go at a higher level, I think if you're an entrepreneur and you start a company. And you've already been successful, like I have, in terms of financially successful.

• 1:03:03Guy Raz?

  Yeah.

• 1:03:03Speaker 03

  Then you don't really end it for the money anymore.

• 1:03:05Guy Raz?

  Right.

• 1:03:06Speaker 03

  And so, so it just becomes hard to do a transaction just based on money. My, my attitude for Roku has always been, look, as long as I see a path to us continuing to grow and be successful, then there's no reason to sell. The reason to sell is if, you know, you think the competitive dynamics of the market have gotten to the point where it's difficult to be standalone and successful, that you need,

• 1:03:29Guy Raz?

  Yeah.

• 1:03:29Speaker 03

  that you need the leverage of being part of something else. And then that would be a legitimate reason. Like, you don't want to run the company into the ground.

• 1:03:35Guy Raz?

  Right.

• 1:03:36Speaker 03

  But absent that, why would you sell? It's just getting, it's just getting more valuable every year.

• 1:03:40Guy Raz?

  Right, true, but acquisition could also be a good thing, right? I mean, there are plenty of examples where a company is, I mean, Audible, acquired by Amazon, became a much bigger company. So there are lots of a twitch, right? They become bigger, so there are, and this is a strategy. You've got to give your investors a return. I know that, that a year later, Amazon approached Roku with an acquisition offer and that, that also didn't, didn't work out. But at the time, there's a quote, there's an article at the time that was written about this, and, and one of your main investors, and you said this too in this article, you said, you know, we've had less acquisition offers than is normal for a company as successful as ours. And you said, I think it's because people don't understand the company.

• 1:04:22Guy Raz?

  One of your main investors who sat on your board, Daniel Leff, said, I'm, you know, more or less saying, I'm shocked, there wasn't a single media executive who believed Roku would be successful. It wasn't getting almost any acquisition offers. So clearly, there was, whether you were interested in entertaining them or not, you were surprised at the lack of acquisition offers at the time.

• 1:04:45Speaker 03

  That's all true. I mean, I am surprised at how few serious acquisition discussions Roku has had.

• 1:04:52Guy Raz?

  Because you were underestimated, do you think?

• 1:04:54Speaker 03

  Continually underestimated and still are, I think. In fact, I viewed it as a pretty big competitive advantage that people underestimate us, and so they're always surprised when they lose. So, for example, 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. And then I can think of the point when Roku became like, well, maybe, actually, maybe we should think about buying Roku. We had finally become so valuable that it was too expensive for them.

• 1:05:33Guy Raz?

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

• 1:05:58Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So by 2014, Roku sold around 8 million streaming devices in the US. But at this point, smart TVs are also rolling out into the market, which means Roku has to expand its reach. You actually end up partnering with manufacturers in 2014 to build the Roku platform inside the television. So now, of course, you sell the Roku televisions, and you work with a bunch of different companies. How much of a sort of a game changer was that? Did that... Had you not done that, would Roku be where it is today?

• 1:06:39Speaker 03

  It was an important decision and very key to our success. And it's a hugely successful program for us, the Roku TV program. I mean, for a long time, we debated, should we actually make our own TVs? And it was clear that that's a tough business to be in. So we decided licensing would be by far the best approach.

• 1:06:59Guy Raz?

  Yeah.

• 1:07:01Guy Raz?

  Once you reached a level of scale, you were able to start thinking more specifically about your revenue model, because you're not going to make it by just selling devices. So from what I understand, it really, okay, you had the hardware, the streaming sticks. It will start out with the boxes and now they've got the sticks. That sells. That's not a huge part of your revenue. But then it was like licensing the platform, the software to these television manufacturers. Then there's a part of it that I don't understand, which I think is amazing, which is there's a revenue sharing agreement with the content provider. So it's like cable channels, right? Like cable TV.

• 1:07:43Guy Raz?

  If you're CNN, or let's just talk about a channel, for example. If you're CNN, you get money from advertisers and you get money from cable carriers that pay you a certain amount of money per subscriber. With you guys, it's almost inverted, which is the channels, the content providers, pay you a small fee from their revenue, right? Explain how that works.

• 1:08:07Speaker 03

  So yeah, so it's, I mean, our model is not a traditional cable model, like as you just pointed out. We get paid for distributing content, but we don't bill, we don't have a monthly subscription like a cable operator has. But we do have a billing platform. You know, part of our purpose-built platform for TV is building in tools for the industry to help them, help them sign up subscribers. We can promote them. We can do one-click billing. So we have a lot of influence on signing up subscribers. And so our model is basically if we sign up a subscriber or we do billing, then we get a, you know, we get a piece of that subscription revenue.

• 1:08:43Guy Raz?

  Right.

• 1:08:43Speaker 03

  So that's, you know, go back to the underestimated part of it. That also comes into play in that most media executives, when they start getting into streaming, they underestimate Roku because they all have Samsung TVs or an Apple TVs.

• 1:08:58Speaker 03

  And so they're always surprised when they find out that we're their number one source of customers.

• 1:09:04Guy Raz?

  Right.

• 1:09:05Speaker 03

  If your service has ads in it, then we get, we don't get money from you directly, but we get some of the ad inventory, just the same way like.

• 1:09:12Guy Raz?

  You can sell some of the ad inventory essentially directly.

• 1:09:15Speaker 03

  Right, we can sell.

• 1:09:16Guy Raz?

  You even have, even ad sales division essentially in-house.

• 1:09:19Speaker 03

  Right, and that's actually our biggest business is selling, selling video ads. And it's pretty clear that advertising is a huge opportunity, you know, there's, I don't know, 70, 80 billion dollars a year spent on TV advertising in the US alone, and it's all moving to streaming, so. You know, one of the things that we did that people didn't appreciate at the time, but now they do, is we started something called The Roku Channel, which is essentially free ad-supported movies and TV shows. And when we started it, everyone was trying to copy Netflix. But we were like, in most countries in the world, TV is free and is supported by ads. The US is sort of unique in that the, the industry evolved to the point where you pretty much have to have a paid TV subscription, but you don't, that doesn't need to be that

• 1:10:01Speaker 03

  way, like we can, with streaming, we can offer people free content and just have it supported by ads. And so that's what we did with The Roku Channel, and so it was the first time really there was a lot of mainstream content that was available for free.

• 1:10:12Guy Raz?

  That you would license or that you would outright buy?

• 1:10:15Speaker 03

  Both, I mean, we started out just licensing, but now we're actually producing originals and, you know, it's very popular, people love free, free TV, so.

• 1:10:23Guy Raz?

  Yeah.

• 1:10:23Speaker 03

  That's become a big part of our business in that it generates a lot of ad inventory, so it drives a lot of our ad business.

• 1:10:30Guy Raz?

  Um, as the device became more and more popular, some of your partners started to become competitors too. Amazon developed a, a competing product, Google. They're giants, they were and they are. Did that worry you at all?

• 1:10:48Speaker 03

  Well, of course, giant competitors concerns us, but I was pretty confident in our strategy. I mean, of course, it was risk, but I felt like we had a path to winning, which we have taken and continue to take, which is basically to build a platform that's custom-built for TVs, as opposed to taking something that exists for, say, a phone and porting it to TV. And so it's not just the technology, of course, that's part of it, like one of the, you know, one of the advantages of our operating system is that it costs less to build the hardware, but it's also just the focus. You know incredibly focused on that one problem as opposed to other problems.

• 1:11:27Guy Raz?

  Right.

• 1:11:27Speaker 03

  We're the only streaming company, streaming platform company that that's all we do, that we come to work every day trying to build the simplest, best, cheapest streaming player possible. Our competitors don't do that. They come into work every day trying to figure out how to build a better search engine generally, or how to sell more stuff online.

• 1:11:44Guy Raz?

  Yeah.

• 1:11:45Speaker 03

  And there's still a lot of innovation in the business to happen and we're, you know, we're good at innovation. So, you know, I'm confident that we'll continue to compete successfully.

• 1:11:54Guy Raz?

  And the streaming wars has also benefited you because the more that Disney and Amazon and Netflix and Hulu and all these different companies compete, Peacock and Paramount, like it's better for you because most or all of them want to be on your platform.

• 1:12:12Speaker 03

  Yeah, so the reason this benefited us is because we, because it benefits the streaming companies. When they want to build an audience, you know, they, they start spending money on marketing. How do they want to spend money on marketing? They could buy billboards or they could buy ads on Roku where with one click from the ad, you can sign up for their service. And so those ads actually are just way more effective.

• 1:12:33Guy Raz?

  And in terms of going in different directions, I mean, you have a bunch of things that you're, you know, advertising and obviously the hardware and the software, but what about content? I mean, I know you've acquired content or licensed content from Quibi, the short-lived Quibi. You got, you sort of bought out a bunch of their content and I think you bought This Old House.

• 1:12:56Speaker 03

  Yeah.

• 1:12:56Guy Raz?

  That show on PBS, you own that show. Is there a future where you're going to be a studio and you're going to make your own stuff too?

• 1:13:03Speaker 03

  We are producing originals now, not, not a huge number like on Netflix or on Amazon, but you know, still many millions of dollars worth. We have a show coming out right called Weird Al, you know, a biopic starring Daniel Radcliffe.

• 1:13:17Guy Raz?

  Oh, that's, that's, that's a.

• 1:13:19Speaker 03

  That's a Roku, that's a Roku original, yeah.

• 1:13:21Guy Raz?

  Wow, okay. I didn't know that.

• 1:13:23Speaker 03

  Yeah.

• 1:13:25Guy Raz?

  This business has become, it went public in, I think in 2017. And of course, like many tech companies, you've had an incredible ride. And 2020, 2021, huge growth for Roku. Lots of people are stuck at home. 2022 is different. There's been a downturn across the board in the markets. You know, most tech companies, their stock prices are down 50, 60%. What do you think about that? I mean, you are the head of a public company, so you do quarterly earnings calls and so on. Are we talking about a temporary, I don't know, slowdown?

• 1:14:06Guy Raz?

  Or is this something, are you sort of girding yourself for a long winter of business?

• 1:14:16Speaker 03

  Well, I mean, the way I think about it is the world is moving to streaming. It's a huge trend. You know, the economy is cyclical. That's just the way it is. And one shouldn't confuse the cyclical economy with the fact that everyone is switching to streaming. You know, our business fundamentally has got a lot of room to grow. So we're still seeing good growth. I mean, we haven't given outlook for the next few quarters, but you know, we haven't announced layoffs or anything like that.

• 1:14:46Guy Raz?

  Yeah. This is a question that very few people like, but it's an important question to ask because we're living in a time of incredible wealth. And I don't hold it against anybody who makes incredible, I think it's a great, it's great. I mean, if you make incredible wealth, it's good for you, usually employ lots of people. And you probably are going to end up giving away a lot of that money, but you do have that wealth, lots of it, more money than you could ever use, your family could ever use. What do you, what do you think you would do with it?

• 1:15:16Speaker 03

  That's an excellent question and it's hard to answer. If you think about money and the fact that successful entrepreneurs accumulate it, you're right, they can't spend it all. That's right. In fact, almost a very tiny part of it is what they spend. The rest gets invested. And so the question I think is, well, who should be investing that money? Should it be the someone like me or should it be someone else? And so I think actually people that are earn money successfully through business are good at investing it as well. And so it's actually quite efficient for them to invest it versus someone else. In terms of how you could actually use the money, you know, I have a big philanthropy effort. I, you know, hired a director of philanthropy, but it's

• 1:15:57Speaker 03

  actually very difficult to give away money effectively because there's less accountability versus a company. Like if you imagine putting money in a nonprofit versus putting money in a company, well, the company is measured and is very motivated on being efficient and, you know, makes hard decisions. When it's a nonprofit, they don't have those difficult decisions. They're less efficient and it's easy for them to waste it. I'm not saying that they all do, obviously, because I give a lot of money to nonprofits that I think are being helpful. But, but actually, if I had a choice between putting money in a nonprofit versus a company that we're both kind of addressing the same area, the company would be my choice because it's, it's going to be more accountable and it's going to

• 1:16:37Speaker 03

  do a better job. But if that's your strategy, then you end up making more money from the money that you're investing. So, so I think it's an interesting problem. How do you, how do you use your money most effectively for the world?

• 1:16:51Guy Raz?

  Yeah. What's your main philanthropic like focus?

• 1:16:56Speaker 03

  Well, our, our mission is basically advancing human progress. And there's probably a few different areas where I give money to in that, in that realm. One is medical and scientific research. So, research around diseases, but also research around interesting kind of science things that I don't think are well funded. Like, for example, I'm kind of interested in what causes ice ages. So I give money to a researcher in the UK that the research, his team researches the fundamental causes of ice ages. People don't know what causes ice ages. And for all we know, we're about to have another one. So, scientific research, mental health, you know, mental health and homelessness, which are very closely related. I give lots of money to that. But the focus is mostly on

• 1:17:40Speaker 03

  Not just giving people money, but trying to alleviate like the root causes. So there's a couple of other areas, but those are some of the areas I give money to.

• 1:17:48Guy Raz?

  Um, when you think about, you know, where you've been, where you've come from, where you are today. I mean, you were clearly motivated to make money early on in your life. You talked about this when you were in college, you wanted money and you didn't come from a family of money. And, uh, well, you wanted to feel secure and stable. And you did, I mean, by the age of 31, you had, you know, 30 million bucks. Here you are today. Forget about the money side, but you built a culturally relevant product, a product that there are plenty of, of people who have made a lot of money, but not all of them have had, have had a cultural impact. Where people are actually, their lives are affected by the thing that, that you made, right? And that happened.

• 1:18:31Guy Raz?

  It's changed the way people consume media and content. Do you think that, that your path to success is because of your hard work and your intelligence and, and the grind? Or do you think more of it has to do with, with, with getting lucky and having lucky breaks? Meeting Reed Hastings or, you know, or, or the fact that, that Netflix didn't make the box and spun it out? Or I don't know. How much do you think luck played a factor? And how much, how much do you think just your hard work played a factor?

• 1:19:00Speaker 03

  It's obviously a combination, right? Like it's a combination of I'm, I think some of the key characteristics to at least the way I've been successful are passion, like being very, like I'm, I love technical stuff. And it turns out technical stuff can make you a lot of money. So, you know, having an interest in that, being good at it, but I don't really know why I'm good at it. Growing up with a culture that valued hard work and, you know, being persistent. And where the luck comes in is just how long it takes, I think. And maybe the timing a little bit. So, you know, I didn't, I didn't just happen to meet Reed Hastings. I sent him an email and I tried to, I got myself introduced to him, for example.

• 1:19:40Guy Raz?

  So you had to make the luck happen?

• 1:19:42Speaker 03

  Yeah, I think so.

• 1:19:47Guy Raz?

  That's Anthony Wood, the founder and CEO of Roku. By the way, that new Roku original film that Anthony was talking about, for sure, their most ambitious one to date. It's called Weird, and it's a fake biopic about the life of Weird Al Yankovic. It's absolutely hilarious. And if you want to find out more about the making of the film and how Weird Al conceived of the idea, you can hear my brand-new interview with Weird Al on my other show. It's called The Great Creators, and it's available wherever you get your podcasts.

• 1:20:21Guy Raz?

  Hey, thanks so much for listening to the show this week. If you enjoyed it, please do spread the word. Tell someone about How I Built This, or post about it on social media. If you want to contact the team, our email address is [email protected]. If you want to follow us on Twitter, our account is @HowIBuiltThis, and mine is @GuyRaz. And on Instagram, I'm @Guy.Raz. This episode was produced by J.C. Howard, with music composed by Ramtin Arablouei. It was edited by Niva Grant, with research help from Sam Paulson. Our production staff also includes Casey Herman, Elaine Coats, John Isabella, Liz Metzger, Catherine Seifer,

• 1:21:03Guy Raz?

  Kerry Thompson, Alex Chung, Chris Messina, Carla Estevez, and Josh Lash. Our intern is Susanna Brown. I'm Guy Raz, and you've been listening to How I Built This.