Why Roku’s Big Reversal on Ads?

It’s no secret, video content is the most prolific type of internet data transferred today!

Long gone are the days of not having anything to watch. Take YouTube for instance. Every day, more content is uploaded to that one site than the total content created by the TV networks in their first 40 years of service. With all of this fresh video content, we also see numerous ways to monetize it. Pay per View, subscriptions, crowd-funded, etc. Of course, the most popular way for the majority to bankroll their video productions has been through advertising.

An area that the inventor of Roku has seemingly stood against.

Well, until recently, that is. Why the change? Read on…

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We have seen the Internet TV hardware races heat up and we’ve seen them simmer down. In the lead, the entire time has been Roku, and that is not by accident. Since its launch in 2008, this has easily been the preferred way of connecting one’s TV to the internet.

This story of success comes down to the insight of one man. Anthony Wood. I do not believe it to be hyperbole to call him a visionary. He was an inventor of the original DVR, and from this, he cemented his understanding of supplying video content when the viewer wanted it.

Wood knew what was coming around the corner. Our lives have become increasingly full, and as such, it was necessary for people to watch their shows when their schedule permitted, not according to the notions of the network. The strength behind this novel approach lies in consuming video content that you were otherwise going to miss. Instead, you are guaranteeing yourself the ability to watch what you wanted, rather than just letting it fall by the wayside.

But Wood was not content to stop there…

A few short years after the DVR’s debut in 1999, Anthony cold-called the owners at Netflix. Wood must have made a name for himself as Hastings accepted without batting an eyelash. He figured that the television was where people wanted to watch their content but people were limited to their laptops and phones for all the videos that had captured their attention. Netflix loved the idea…as long as Wood agreed to become an employee. Netflix had been spitballing a similar notion before the meet-up though they never pursued it. And now Anthony Wood was standing right in front of them.

Then YouTube made its techno splash!

Oh, what a splash it was! In 2005, YouTube hit the net with incredible success. The big guys like Amazon & Netflix took note. So much so, they decided that they would be just fine as a streaming service too. Why create the hardware when everyone was just going to be on their computers anyway. Anthony Wood disagreed. This is why I call Wood a visionary. Even when some of the top names in the industry were becoming naysayers, he knew different.

This doesn’t mean the past couple of calendars work was for not. Netflix figured they weren’t in the market for both a hardware and a streaming division, and so they cut the hardware. Officially anyhow. They actually backed Wood & the “Netflix now turned Roku device” because they still knew there was a market in living room TV entertainment. The stats show that individuals consume more content from the comfort of their couch vs. the loneliness of the office chair.

So Netflix became the #1 investor of the Roku device.

As an aside, Anthony wasn’t the most successful of gentlemen at this point. His DVR company, Replay TV, was sorely miss-calculated on two fronts. First, it was way too expensive. Double the cost of its competitors DVR, TiVo. Second, Wood had built a very convenient feature into his DVR. The ability to skip the commercials between the show just recorded. This nifty ability ended up getting the company sued by numerous TV networks. The networks claimed that the device injured their ability to sustain this public service since the networks were supported by Ad revenue. This lawsuit was the fatal blow for Replay TV.

This is just one of many public examples of Wood lacking affinity for advertising.

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Wood learned from these mistakes, as seen with the first Roku device launched in 2008. Its shelf price was at just under 100 bucks. More importantly, Wood learned something of even greater value. The advertisers were not the enemy. So he decided to further incorporate advertising into his business model. This year, Roku leveraged advertising to the tune of 3xs that of the revenue made from its hardware division. Plus, advertising in the digital sphere is going to quadruple in spending over the following decade.

Roku has learned the benefits of working with others within the industry instead of despite them. So much so, they have positioned themselves as the advertisers they once bucked.

You, too, will be able to take advantage of this massive influx of Ad revenue.

There are a couple of elementary requirements you must first meet. The in-depth channel plan we showed you in our recent blog post can help with these. If advertising is your business model, you will be able to succeed following the steps we layout there.

You will need to put in the work when it comes to promoting your channel. Advertisers are just not that interested in showing ads to a few of your die-hard fans or friends. The starting requirement is that you have ten thousand installs of your channel onto your audience’s Roku devices. That number is not as lofty as it might sound. Generally, with the proper promotion and a decent channel, this is obtained in about 3-4 months. You will also need about a thousand or more ad requests per day. Since one viewer can generate up to eight requests an hour, this is also easily obtainable.

The takeaway here is that this can only work if you let people know. Some of this will come organically, sure, but you will definitely need to let your target audience know that your channel exists to get the rest of them.

Anthony Wood understands if you have a distaste for ads. As a matter of fact, most do. In the days when cable ruled, commercials were often spited in everyday conversation. Yet, the commercials just kept coming. Why? Because they got results. And they still do, so regardless of your personal taste, take a page out of Anthony Woods’s playbook. If you are looking for more revenue from your network, take a look at advertising.

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Garrett Cunningham
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