Posts Tagged ‘OTT Video’

Investment Bankers, Others Offer Post-IBC Assessment of Broadcast Technology Industry

broadcast industry technology trends, broadcast industry trends, broadcast technology market research, Broadcast technology vendor financials, Broadcast Vendor M&A | Posted by Joe Zaller
Oct 01 2010

Quite a few people have written about their impressions of the IBC show, and given the huge scope of an event like IBC, each takes a slightly different approach depending on their perspective.  For example, here’s one from Murali Nemani at Cisco, another from David Grubb at Motorola, one from UK consultants MediaSmiths, and an announcement from industry guru Mark Schubin that he’ll be presenting a review of IBC on the 12th of October.  There’s even one from me.  

I always read all these articles, but it’s often the thoughts of non-technical industry observers that are the most interesting, because they focus on the business of the business and where it’s heading from a financial perspective.

For example, Silverwood Partners, a boutique investment bank that focuses on the media technology sector recently published their thoughts on the broadcast technology industry in a 19-page document called “IBC 2010 Post-Show Perspectives.”  Silverwood often publishes documents like this before and after major industry shows as a way to connect with broadcast technology vendors who may be looking for investment banking services.  You can read their pre-NAB 2010 document here, and their pre-IBC2010 document here.

From their point-of-view, Silverwood identifies the following as the key themes that emerged from the IBC show.

  • Industry environment improving
  • Intensifying focus on software
  • Large acquirers have substantial cash reserves
  • Focus on broader video use cases
  • Noticeable de‐emphasis of 3D
  • Concerns on sustainability of recovery
  • OTT – alternatives proliferating

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In the document, Silverwood discusses each of the above in the context of what is driving increased industry optimism; wider application of video technology (beyond broadcast and post production); what’s required to sell to other verticals; and an increased focus on software and MAM to solve complex workflow problems.

As one might expect from an investment bank who make their money through advising on transactions, Silverwood’s document has a few slides on industry M&A.  They contend that large companies have high cash balances, and that “alternative investments for cash are relatively unappealing.”  In other words the industry is changing radically and companies with cash should be using it for M&A in order to better position themselves for the future and buy growth.

They go on to illustrate the need for M&A by discussing how formerly profitable media businesses have been disrupted by market shifts and new technologies, and then graphically show the industry M&A activity from the past 12 months.

Whether you’re a broadcaster, technology vendor, content owner or distribution platform this is interesting stuff.

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You can read the full Silverwood IBC 2010 Post-Show Perspectives document here.

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Devoncroft Digest July 24, 2010 – Earnings Season Begins, More Broadcast M+A (and an IPO), Echolab Rumors

broadcast industry technology trends, broadcast industry trends, broadcast technology market research, Broadcast technology vendor financials, Broadcast Vendor Brand Research, Devoncroft Digest, Top Broadcast Vendor Brands | Posted by Joe Zaller
Jul 24 2010

The Devoncroft Digest is a semi-regular amalgamation of news items I’ve seen recently.  Here are a few of the things that have caught my eye recently.

Earnings Season Kicks Off for Broadcasters and Broadcast Tech Vendors:

Quarterly earnings are starting to roll in from both broadcasters and broadcast technology vendors.  For those who are on an annual fiscal year, it’s a chance to see how the first half of the year went, and to hear management thoughts on the second half of 2010.

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Broadcast Technology Vendor Earnings:

Avid reported their numbers for the second quarter. Sales for the quarter were $162.2m, an 8% y/y increase – and the company pointed out that this was the first quarter of y/y growth for both audio and video since 1997.  The company’s shares jumped on the news.

While discussing uses of cash on the company’s earnings call, Avid executives talked about the amount of cash used for the Euphonix acquisition.  I was not aware of the purchase price for Euphonix, but it turns out that according to an SEC filing, Avid paid 17.6m for Euphonix, including cash of $12.6m and cash of $5m.

For more on Avid’s results, here’s a link to a transcript of Avid’s Q2 earnings call, and an article from Barrons about the results.   

Speaking of Avid, Post Magazine’s Jonathan Moser recently published an interesting Q&A with Avid COO Kirk Arnold about present & future status of the company.  In my opinion, both Arnold and CEO Gary Greenfield have done a good job recently with this type of interview.  One of Avid’s strengths is their user community and the company is clearly working to communicate with their base.  Here’s another example.

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Barco reported strong results for the company’s Q2 and first half of 2010.  In the earnings press release, company President & CEO Eric Van Zele said that Q210 “Must have been our best quarter ever.”  Van Zele also said that Barco is “experiencing explosive growth in demand for our digital cinema projectors and are working very hard to deal with the supply chain issues this creates.”

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Storage vendor Isilon also reported their Q2 numbers this week, and they were pretty good.  The company’s Q2 revenues of $45.1m represented increases of 15% q/q and 56% y/y respectively. The company also had positive net income in the quarter.  Shares jumped 18% on the news.  With Isilon apparently firing on all cylinders and Omneon now part of Harmonic, the storage space is going to be interesting to watch over the next year or so.

IPTV provider KIT Digital published strong preliminary results for their Q2.  In an upbeat press release, the company said that its Q2 revenues of “at least $22.7m” were up by more than 110%.  The company also said that its EBITDA for the quarter would be at least $4 Million

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Broadcaster and Platform Operator Earnings:

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Broadcaster LIN TV reported 2Q revenues of 99.5m, which represents a 21% y/y increase.  The company’s earnings release highlighted the fact that digital revenues were up by 44% y/y, and that political revenues more than doubled versus last year.  Lin President and CEO Vincent Sadusky said: “Our results demonstrate continued, sustained improvement over 2009. Television advertising has experienced a strong recovery and our digital business, which now constitutes 15% of our total revenues, continues to grow and differentiate us as a local multimedia company.”

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According to industry website TVNewswCheck, The McGraw-Hill Companies reported that its Broadcasting Group’s revenue grew by 24% to $25.3 million in the second quarter compared to the same period last year. Increases in national, local and political advertising all contributed to the improved performance.  The company as a whole reported net income for the second quarter of 2010 increased by 16.4%, or $27.0 million, to $191.1 million. Revenue in the second quarter was up 0.6% to $1.5 billion.

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Media General reported that the company’s broadcast revenue rose 13% in the second quarter, driven by increases in automotive and political advertising (publishing revenues fell by 7%). The company’s digital revenues rose by 8% during the quarter.  The company issued upbeat guidance for its broadcast properties saying, that “Broadcast revenues in the third quarter are expected to increase more than 20 percent, mostly reflecting significant Political revenues.”

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Finally, DVD rental and streaming video provider Netflix reported its Q2 results this week.  Although the company’s subscriber, revenue and net income numbers all numbers increased, it was not enough for investors who were looking for higher sales revenues.  The stock tanked.

For more on Netflix, check out the take from website VideoNuze, who penned an interesting post called 5 Key Takeaways from Netflix’s Q2 ’10 Results.

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Broadcast M&A

Echolab Rumors Continue

Since Echolab was suddenly put into liquidation, there has been great speculation about what would happen to the company’s IPR – particularly the Atem production switcher line up.  Well if rumors are to be believed, Blackmagic Designs is set to announce that they have purchased the assets of Echolab.  This is information is not confirmed, but I have spoken to several people about it.  

As many know, Blackmagic made headlines earlier this year when they purchased color correction specialist Da Vinci.    Coincidentally, TVB Europe just published an article about how Blackmagic took Da Vinci’s $200,000+ products into a sub-$1,000 product for the Mac and kept all the functionality.   If this rumor is true, it will certainly be interesting to see what Blackmagic has in store for Echolab’s Atem product line.  Watch this space. 

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Vitec Multimedia (not to be confused with the Vitec Group) announced the purchase of the Focus Enhancements’ Systems Group.  In the press release announcing the deal, Philippe Wetzel, CEO of VITEC Multimedia said “In combination with our recent acquisition of Optibase, this acquisition furthers our objective to provide a complete line of advanced digital video solutions to our customers around the globe. With innovation at its core, the VITEC R&D division — now with more than 100 esteemed engineers — is uniquely positioned to deliver innovative solutions for a wide range of advanced digital video applications — managing the entire video process from source to display.

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Vizrt announced that it has completed the acquisition of Adactus by buying the additional 71% of the company that it did not already own

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Other Broadcast Technology Vendor News

Vizrt’s Chief Commercial Officer appears to have left the company.  According to a press release from online gaming firm 888, David Zerah has become the managing director of Dragonfish.  While at Vizrt Zerah spent seven years as EVP of worldwide sales before becoming CCO.  Vizrt has not yet announced a replacement.

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3D News

The official IBC blog had an interesting entry on 3DTV the other day, which says that 3D will probably only impact the industry in “small dimensions”.

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OTT Video News

As mentioned above, Netflix reported their Q2 revenues.

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NewTeeVee Reports that Redbox readying a streaming offering.  Streaming media expert Dan Rayburn says Redbox Won’t Challenge Netflix’s Streaming Service, Here’s Why

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Digital Cinema

According to the Wall Street Journal, Imax has signed an exclusive 2-year deal with privately held Laser Light Engines. The company says that the resulting laser-power projectors will deliver brighter images for digital cinema, which will be especially beneficial for 3D.

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3D News – RealD Goes Public

3D provider RealD went public this week in a $200m IPO, which raised 33% more than expected, a testament to the strong interest in all things 3D.  The company’s shares were up 22% on its first day as a public company.

The company’s 100+ page IPO documents are worth reading for an overview of the company’s financials as well as the state of the 3D and Digital Cinema Markets.  Files 100+ Page IPO Doc. Worth Reading for Financials and #3D Industry Overview. #3DTV #Broadcast http://bit.ly/bCanRM

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Market Research Note of the Week – Quality Rankings of Broadcast Technology Vendors

This article looks at how a global sample of several thousand broadcast professionals ranked broadcast technology vendors for one of the most important metrics for any technology company: quality.

The broadcast industry prides itself on the fidelity of its sound and images, so the perception of quality is a very important metric for broadcast technology vendors. Many vendors use quality as one of the key components of their market positioning.

To determine the market’s perception of the quality of broadcast technology vendors, respondents to the 2010 Big Broadcast Survey were asked to rank broadcast technology vendor brands for “quality” on a scale of one to 10, with 10 being best in the market and one being the worst.

As with the top 30 innovation rankings published earlier, this list contains a broad mix of vendors including both audio and video companies. There are also interesting similarities and differences in terms of the types of products produced, geographic location and company.

To read the full article, including analysis of the findings, click here http://bit.ly/cY2nZO

Two Investment Banks Offer Post-NAB Thoughts, Insight on Broadcast Industry

broadcast industry trends, broadcast technology market research, Broadcast technology vendor financials | Posted by Joe Zaller
May 18 2010

Two boutique investment banks, Silverwood Partners and Pharus Advisors have recently published notes to clients detailing their impressions of the NAB 2010 show.  Both companies gave me permission to re-publish them here.

 

Silverwood has been involved in a number of broadcast M&A deals including Blackmagic / DaVinci and Avid / Euphonix. Prior to the 2010 NAB show the company published a 40 page report about the broadcast industry for their investment banking clients, which is worth reading to get their full perspective on the broadcast market.  

Pharus has also been involved in a number of industry transactions including Neural Audio / DTS and Virgin Media / Two Way Media. The company published their post-NAB thoughts in their industry newsletter, which also includes a summary of recent M&A transactions in the digital media space, and a comparison of publicly traded companies.

 

 

Silverwood NAB Perspectives:

Revenue Flow versus Work Flow.  Broadcast and media customers are principally focused on sustaining advertising revenue from traditional outlets and driving incremental revenue over emerging outlets. The focus over recent years on cost containment through automation and technology efficiencies has been eclipsed by the need to adapt technology infrastructure to a changing business model.  The Newspaper industry provides an instructive lesson on the need to be responsive to external challenges to traditional business norms.  Technology vendors are faced with customers that have shifting purchasing priorities and that are scrutinizing expenditures on conventional broadcast infrastructure.

 

3D will not Reverse Industry Revenue Decline.  While 3D may drive some additional short term revenue, widespread adoption is still in question because certain content will never lend itself to the 3D medium.  Furthermore, with the exception of large screen environments showing purpose produced content (Avatar, Alice in Wonderland), the current 3D experience requires additional improvement.  There are no clear standards for end user devices (TVs and glasses) so mass end-consumer device adoption – if it is to occur – will take time.  Consider that the ongoing HD transition began with the first HDTV broadcast in 1998 and is still only 40% complete in the US market.  Lastly, production methods themselves must also adapt to the creation of 3D content – there is no consistency in the content acquisition process, much of which is based on trial and error and research.  3D requires a new approach in the creative production process as fast switching and cuts can prove to be nauseating to the viewer.  There are also concerns that poorly produced 3D will lead to negative customer perceptions in the near term which will slow adoption and the long term success of the medium.

 

Pricing is Collapsing.  Years of substantial profitability for media and broadcast customers masked poor cost discipline in the sourcing of technology.   Recent weakness in the advertising market and the broader economic disruption has caused customers to focus on capital budgets and look for more cost effective solutions.  Compounding this challenge, inexpensive general purpose IT infrastructure continues to replace purpose built hardware solutions, creating good enough solutions at attractive prices for many use cases.  This is putting pressure on margins for many traditional Broadcast technology vendors who organized their cost structures for the high price, ‘boom’ years and cannot adapt quickly enough to the changed industry circumstances.

 

Value Separation: Software, Hardware, Connectivity.  Historically, broadcast and post-production customers purchased purpose built solutions where the discrete software, hardware and connectivity components were blended within a hardware solution.  As the hardware portion becomes increasingly standardized, vendors will need to focus on defensible segments of the value chain, particularly within the software layer.  In many cases specialized hardware vendors are effectively software companies burdened with a legacy hardware orientation.  It is expected that vendors will need transformative change rather than evolutionary adaptation to address the fundamental changes in the media technology industry. 

 

Growing Software Opportunity.  It is expected that software companies will continue to be a growing presence in the media technology industry.  Differentiation from IT solutions for incumbent vendors resides in the software layer.  Well-positioned companies have software solutions that extend and leverage basic IT functionality, which will continue to improve in speed and capability.  From a product perspective, technology vendors should examine their product portfolios to identify and extract the unique software functionality that is truly differentiating their offerings.  In addition, the increasing use of standardized IT platform technology is creating a growing market for software vendors that can use the standardization to scale efficiently. 

 

Commercial Opportunity: Customer Diversification.  Well-positioned companies are diversifying and selling to a broader customer base, particularly customers outside the traditional broadcast market.   Targeting other industry verticals is not feasible with a customized hardware solution and an industry focused direct sales model.  In contrast, software solutions that extend standardized hardware and that are deployed through VARs and channel partners can be more easily adapted to large, adjacent industry verticals (Medical, Military, Enterprise).

 

Business Model Disruption.   For NAB exhibitors there remains fundamental weakness in the traditional broadcast technology industry.  The reduction in industry revenues will highlight one of the principal difficulties for many NAB exhibitors: sales and marketing expense is too high for revenue levels.  With pricing pressure, many vendors will need to change to a distribution model or become part of a larger solution that can support the fixed sales expense.   Well-positioned, well-capitalized vendors will have a unique opportunity to acquire established, respected brands with large user bases over the coming year.

 

Service Opportunity – Revenue Flow.  Broadcasters and media companies are faced with a proliferation of technologies and monetization possibilities, and an accelerating rate of technology change.  Historically, broadcasting challenges were solved by buying incremental technologies to plug into an existing well-understood technology infrastructure.  Current business challenges require business model innovation coupled with technology platform innovation to drive revenues across a growing range of end-point devices and outlets.  Given the lack of clarity on the optimal revenue model and the rapid pace of technology change, broadcasters and media customers are reluctant to invest in standalone technology purchases.  This is creating an attractive service opportunity driven by the ability to provide incremental revenue growth with a low barrier to entry, a receptive customer and an attractive ROI.

 

 

 

 

PHARUS ADVISORS

PUBLIC MARKET AND M&A UPDATE ON MEDIA AND BROADCAST TECHNOLOGY INDUSTRY

NAB OVERVIEW

We recently attended the NAB 2010 conference in Las Vegas. We came out of the conference feeling the media and broadcast technology market is experiencing a healthy recovery from 2009. The recurring comment echoed by many industry players was that the deals in the customer pipeline that were stalled in 2009 are now morphing into real opportunities. The RFP activity is showing decent improvement, however, the sales‐cycle continues to be long and spending not completely flowing.

Even though the network spending in North America, which was driven by conversion to HDTV over last few years, is slowing, other factors like changes in customer preferences, and pressure to generate new sources of revenues and reduce costs are expected to continue to drive technology capital expenditure for networks. These new developments are adding new dynamism to the sector, which can be witnessed by the plethora of vendors and solutions.

Here are some of prominent themes that we witnessed at the NAB show this year.

  • Emergence of 3D television broadcasting: As expected, this was the major theme at NAB similar to what was the case at CES earlier this year. TV manufacturers continue to be enthusiastic about this trend. CES expects 4.3 million 3D TV sets to be sold in 2010, with about 25% of total TVs sold in 2013 to be 3D‐enabled. Even though some major players (like DIRECTV, Discovery, IMAX, and etc.) have made announcements over last few months about launching 3D content, a lot of the content producers and broadcasters are still not sure about how quickly this market opportunity will grow in the near term. As a result, they tend to be reticent to make investment in this area at this point.

 

  • Development of multi‐platform content distribution (broadcast, web and mobile) capability: The spending on TV advertising is gradually declining. According to Yankee Group, the TV ad market declined 21.2%, from $52 billion to $41 billion, between 2008 and 2009. During this same period spending on Internet advertising grew as a result of consumers spending more time online and less time watching TV. With more and more eyeballs consuming video content on Web and mobile devices, broadcasters are investing in technologies which enable delivery of content over multitude of platforms.

 

  • Adoption of file‐based workflows: One of the important areas of investment for broadcasters remains implementation of file‐based workflow infrastructure. This is viewed as important by broadcasters to augment flexibility in day‐to‐day operations, facilitate reduction in operational costs, and enable efficient multi‐platform content distribution.

 

Emergence of Over‐the‐Top (OTT) Video and convergence of TV and Internet: The other recurring trend at the show was the focus on growing convergence between broadcast TV and Web video. Internet users are increasingly interested in streaming full length video directly onto their TVs and as a result variety of models are appearing to provide consumers with this capability. According to report by Tender Research from October 2009, about 7% of households will forgo Pay TV subscriptions by 2012 in favor of OTT services and free over‐the‐air television. OTT market is moving very fast with proliferation of enabling devices like Roku, Xbox, and a range of new HDTV models and growth of online video sites such as Hulu, Netflix,

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