The Battle for Tiny Bits
Inconsistent playback is the same issue explored in two Transitions, Inc. reports on Android handset and tablet video playback, where core services of Android didn't necessarily translate into consistent playback of RTSP or even YouTube videos (even on a variety of playback devices from the same handset manufacturer). With DASH being implemented on a number of handsets, mobile devices, and desktop operating systems, Transitions has issued a challenge to companies that are building DASH-compliant players: Set up interoperability testing early in 2012, regardless of whether the DASH players being coded are in beta or gold master.
blinkx Offers a Cautionary Financial Tale
The Battle for Tiny Bits also has a broader impact on the flow of funds into privately held and small cap public companies, given the popularity of tech stocks in general and investments in the online video space in particular.
While we've discussed a number of acquisitions in the "2012 Streamticker" article, including an interesting basis for privately held Telestream, Inc. to be acquired by a private equity investment firm, let's consider how the Battle for Tiny Bits is shifting the landscape in online advertising.
Consider the case of blinkx, a video search engine company that is attempting to monetize its base of metadata by playing large in the online video advertising space.
blinkx acquired a publishing group, Burst Media Corp., in early 2011, providing the potential of 130 million unique eyeballs on blinkx video search engine results. Once the acquisition was completed, blinkx needed to add online advertising as part of the mix. As such, blinkx announced its intent to acquire Prime Visibility Media Group. Like the Burst Media acquisition, which was completed with a similar cash-and-shares formula, blinkx planned to acquire Prime
Visibility Media Group for $36 million in cash andintended to partially fund the acquisition through a placing of 6.5 million new shares. The company claims that number represents about 1.8% of its issued share capital, with new and existing investors.
On the surface, the deal looked easy enough, given the limited dilution to shares and the fact that Goldman Sachs had just begun coverage of the company, predicting a target price of $3.88 within a year's time. Something didn't sit well with the investment community, however, and market reaction was swift. The company's 60% sales increase to $44.6 million for the 6 months from April to September wasn't enough to offset concern about the acquisition price. Goldman reversed course, putting a new predicted target at $2.10—below the 52-week high of $2.57—and the stock went in to free fall, plummeting to 78 cents before recovering and rising to $1.16, the current trading price at the time of this writing in late December.
The reason this flanking maneuver is worth mentioning as part of our reporting on the Battle for Tiny Bits is this: With all the growth opportunities in the world of online video, the sky appears to be the limit when it comes to investment dollars. As such, the industry is prone to another bubble if we don't remember the basics of the financial models and the history lessons we can learn from the cable industry.
In many ways, blinkx is simply mimicking the historical assembling of eyeballs for an upstart cable channel. The model of buying a cable network, growing it, and then "flipping" it to a larger network has been around since the mid-1980s; the early history of the cable wars is littered with tales of empty companies that tried and failed to gather enough eyeballs and find the right buyer—in that order. Just like the incremental aggregation of small files (segments)
makes the concept of HTTP delivery of video attractive, so too does the aggregate growth of a number of small publishing platforms in the quest for building up television-sized audiences.
Resistance to online platforms, though, faces a serious challenge: Just like early cable channels competing against the big three broadcasters, it may be as much a fight against stasis as anything else.
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Acquisitions and mergers in 2011—including Cisco-Inlet, Polycom-Accordent, Akamai-Cotendo, and Thoma Bravo-Telestream—will have a significant impact on the online video landscape in 2012 and beyond.
12 Mar 2012
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