28 January 2010

Netflix Spinoff Roku Seeks Cash for 100-Channel Set-Top Service


Roku Inc., the television set-top box maker spun off by Netflix Inc., is planning to raise $30 million in private funding this quarter and may sell shares to the public next year, Chief Executive Officer Anthony Wood said.

The company, which lets customers stream movies from Netflix and Amazon.com Inc. on their TVs, along with music from Pandora Media Inc., has sold more than 500,000 of its devices, Wood said yesterday in an interview in San Francisco. Revenue may almost double to about $75 million this year, he said.

The funds would help Roku expand its engineering and marketing as competition mounts. Sony Corp., Nintendo Co. and Microsoft Corp. stream Netflix and other services on game consoles, and Samsung Electronics Co. does so through Blu-ray DVD players. To win customers, Wood plans to continue cutting the price of his devices, which sold for $115 in May 2008 and now go for as little as $80.

“It gets cheaper and cheaper, and the box will be free at some point in the not-too-distant future,” said Wood, 44, whose ReplayTV was an early seller of digital-video recorders. “We see hardware margins becoming less important over time and subscription content becoming more important.”

Roku’s fund-raising this quarter will include investments from Menlo Ventures and others, Wood said. He declined to provide the company’s market value. Saratoga, California-based Roku isn’t working with an investment bank and doesn’t have a specific IPO date, he said.

“Obviously our goal is to go public,” Wood said. “If things continue on this trajectory, I think it would be viable to go public next year.”

Netflix Sells Stake

Netflix hired Wood in 2007 to help the movie-rental company move from a mail-order to online service. Netflix planned to release its own box until Chief Executive Officer Reed Hastings decided to stay out of the hardware business. Wood created a separate company, and Netflix backed it with $6 million.

Netflix recently sold its stake to Menlo Ventures, Wood said. Steve Swasey, a spokesman for Los Gatos, California-based Netflix, confirmed the sale and said the company may discuss it with fourth-quarter results today. Roku has raised $24 million from Wood, Netflix and Menlo.

Wood is focused on signing partners to offer viewers more choices and expects to reach 1 million boxes sold this year. In November, the company introduced the Roku Channel Store, which includes the Pandora music service and photos from Facebook Inc. Roku also offers Revision3 and Blip.tv, which stream original shows on the Internet.

Roku is recruiting third parties to create channels and offer products including games and submit them for inclusion on the service. The company is devising revenue-sharing agreements for developers who can sell subscriptions on the service or charge per product like Amazon.com.

Revenue Sharing

The terms will be comparable to other media products, Wood said. Developers for Apple Inc.’s iPhone get 70 percent of sales, with the rest going to Apple.

The plan is to have 100 channels this year, Wood said. That will let Roku generate sales from subscriptions and advertisements, much like cable TV channels.

“We’re not far away from the time when you’ll be able to get the same kinds of channels that any cable operator can offer,” he said.

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