Roku, perhaps best known for its boxes and dongles that connect TV sets with OTT video services, is looking to drive another, and potentially large, business line: software licensing deals with pay-TV operators around the world.

In Europe for example, Roku supplied the software for Sky’s streaming box, which made its debut in the UK two years ago.

“Internationally we will be expanding in retail, but we believe that there is an opportunity to perhaps even eclipse our retail success with pay-TV operators internationally,” said Steve Shannon, Roku’s GM of content and services, speaking at APOS 2015. 

“We have a great pipeline right now,” he said. “Sky was the first, helping us expand through Europe with this co-branded model.”

Sky, plus minority investor 21^st Century Fox, both have stakes in Roku.

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Competition is heating up at home for Roku, which sells a variety of devices to help people find and stream internet video on their TV set.

Consumer hardware remains an important revenue stream but company executives see an opportunity to ramp up software services for businesses, especially for pay-TV operators.

Roku’s GM of content and services, Steven Shannon, spoke to Media Business Asia on the sidelines of APOS about the company’s expansion, and how he sees both the hardware and software sides of the business developing.

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Plans to ramp up licensing revenue outside the US were formalized under a new program called Roku Powered, unveiled in September 2014, around a year after the deal with what was then BSkyB.

For its Powered program, Roku oversees the hardware and the software rather than working with third-party set-top box manufacturers, which would place it in more direct competition with pay-TV middleware providers such as Nagra and Cisco.

Instead, Roku source boxes from its own suppliers at cost, while charging operators a licensing fee for its software.

Operators can design much of the interface to their own needs, although some elements, such as the app store, search function and actual box, which are all co-branded, are less flexible.

“[There’s] quite a bit of customization, but we are not looking to change our chipsets or anything like that,” Shannon said.

The program forms a key component in Roku’s ambition to embed its software across multiple screens and with various stakeholders in an OTT world.

For every hardware employee, the company has 30 people working on software, Shannon noted.

“Our goal is to be the operating system of television,” he said.  

“We really view ourselves as a software company,” he added.

“We will be deploying that operating system in as many places as we can, be it streaming sticks, streaming players, pay-TV operator boxes, television sets. That’s our goal.”

Advertising Opportunity

In the US, this has also opened up an advertising business, with Roku matching third-party data with viewing on its platform to help sell inventory.

Most channels on Roku are ad-supported, and are the fastest-growing section of viewership, Shannon noted, representing about a third of viewing hours streamed through Roku devices.

Rising viewership provides the scope for more targeted advertising, which is needed to sustain ad revenues in environments where advertisements are easily avoided, Shannon argued.

“The 2.5 minute ad pod is not going to last - consumers aren’t going to stand for it much longer,” he said.

“That’s going to have go down to 90 seconds, maybe 60 seconds, and so how do we maintain the television ad business as it is, while improving the consumer and value proposition.”