News Analysis: Too Much, Too Soon?

Optibase is shifting its core focus back to the TV-over-IP market segment and away from a brief fling with non-linear digital video editing.

That’s a stark switch from the company’s public stance six months ago. During the June 2, 2004 announcement of its completion of the acquisition of the assets of Media 100, Optibase’s then-CEO Tom Wyler noted, "The Media 100 acquisition will allow us to leverage our experience in digital video to add editing and compositing solutions to our already wide range of applications. In addition to expanding our product line and adding new customers and channel partners, we are taking on close to 40 highly skilled engineers as well as dedicated sales and marketing professionals who we believe will play a key role in Optibase’s performance in the years to come."

One of Optibase’s experienced managers – Amir Goren – was sent from Israel to Marlboro, Massachusetts to lead the effort. Wyler proclaimed that "Amir’s experience will help Media 100 regain its position as a leading provider of best in class integrated and professional editing and compositing solutions, with strong backing from Optibase."

What caught the eye during a Massachusetts summer, though, looked much less appealing during a New England winter. The honeymoon lasted less than seven months, during which time Optibase brought on a new CEO, Uzi Breier. As noted in a January 7, 2005 press released titled "Optibase to Restructure Media 100 Unit," Optibase is pulling away from its previous comments about Media 100 playing a key future role in the company. "The digital nonlinear editing market does not present Optibase with the most substantial growth opportunity and is not fully synergistic with the Company`s core activities," Breier states.

He goes on to add, "While we will continue to support the revenue-generating elements of Media 100`s business, we believe that this restructuring will enable Optibase to focus more directly on growing the core segments of its business, maintaining its leadership position in the content creation market and expanding Optibase's presence in the IPTV market."

Less the subtlety of the situation be missed, the January 7 press release further notes: "While Optibase will continue to sell and support the existing suite of Media 100 products, certain positions at Media 100 will be eliminated, and research and development initiatives with regard to Media 100 will be considerably reduced in order to improve the financial results derived from this business unit." So much for the "40 highly skilled engineers as well as dedicated sales and marketing professionals who we believe will play a key role in Optibase’s performance in the years to come."

Why is this pertinent to StreamingMedia.com readers? Two reasons spring to mind:

First, while Optibase had the cash to acquire Media 100’s assets, which were available at the bargain basement price of $2.5 million less than one year after Media 100 had $16 million in the bank, Optibase’s purchase was not intended merely as a stopgap to wait out the fluctuations of its core industry vertical, the telecom industry. It was part of a master plan that was not given time to come to fruition. Optibase had a history of producing and selling quality MPEG-2 compression board sets; the Media 100 asset acquisition provided not only next-generation compression boards but also a natural vertical integration of content acquisition, content creation/editing, and content distribution. Media 100 had itself toyed with distribution back in 2000 with its acquisition of Terran and its Cleaner transcoding products, but Optibase—leveraging Media 100’s well-known content acquisition and editing quality—had a unique opportunity to use Media 100’s assets to full advantage across the complete acquisition, editing, and distribution spectrum.

Danny Lustinger, Optibase’s President and CFO, noted in a July 12, 2004 release that Media 100’s next generation product, 844/x, was ideally suited for Optibase’s customer base. "The product targets professionals, from independents to large broadcasters and post-production facilities, as well as advanced corporate, educational, and institutional media departments. These are some of the markets that Optibase already targets for encoding and streaming applications and we believe that customers of both Media 100 and Optibase products will benefit from these product synergies." He went on to say that the Media 100 investments were for Optibase’s long-term benefit. "While we plan to invest resources [in Media 100] that might reduce our profitability in the short term, we believe that such expenditures will enable Optibase to emerge as a leading player in the post production and content creation markets," he said. "Media 100 established an excellent brand in these markets. Its commonalities with Optibase include its professional hardware and software that enjoy high credibility among industry leaders. We plan to leverage this credibility in order to reach a position of leadership."

Second, in its haste to rid itself of a problem child, Optibase appears to be shedding key personnel and engineers during this realignment. Tom Wyler, now chairman of Optibase, noted that one of Media 100’s key assets was its crack engineering team. The new CEO’s decision not only effectively renders the Media 100 R&D efforts null—increasing rumors about the demise of all Media 100 flavors from iFinish and Media100i to the newer 844x—but it also begs the question of Optibase’s core stability and ongoing R&D efforts across the company. This restructuring will be watched with interest as Optibase re-emphasizes its role with MediaGateway (MGW) encoding and server products at its traditional base of tradeshows like Supercomm, which cater to the telecom industry.

The new CEO, Uzi Breier, made a hard decision when he chose to back away from a total vertical master plan, especially given the competence and expertise of the assembled Media 100 business unit team that included Mike Savello, Amir Goren and other industry leaders who helped shape the master plan. But the restructuring will bring about additional challenges that might have been offset had Optibase allowed a longer timeframe or softer landing for Media 100 customers. The January 7 announcement raises more questions that will continue to fuel speculation unless properly addressed.