Streamticker 2006: The Deals That Reshaped the Online Video Space
Popwire, originally founded by a group of programmers that had created Ericsson’s video codecs, benefited from the financial umbrella of Teleca, a national telecom, to mature CompressionMaster and its other products. But being under the umbrella of a conglomerate also stifled some of the moves Popwire wanted to make. Its acquisition by Telestream, then, allowed Popwire to move back out on its own as a wholly-owned subsidiary of Telestream named Popwire AB.
Telestream, itself a small company, saw the acquisition as a strategic move.
"Having the resources to make this acquisition happen reflects eight years of building our company into the successful business it is today," said Telestream CEO Dan Castles. "Our solutions serve a broad spectrum of media workflows from the consumer to the compression expert all the way up to complex enterprise workflows. As industry needs continue to grow, this acquisition enables us to better offer more diverse media encoding applications."
The acquisition brings Telestream a core team of programmers that has telco and UNIX/Solaris experience, which allows Telestream to expand its product base into mission-critical areas it might not have been able to reach with FlipFactory, as well as into the Macintosh platform, where Popwire was considered a leading innovator.
The acquisition also provides Telestream a seasoned marketing arm in Europe that can work jointly with the Telestream international marketing team at a time when the encoding/transcoding market subsegment is quite strong and growing briskly. With the impending spike in market demand for high-definition MPEG-2, VC-1, and H.264 encoders and transcoders to encode content for Blu-ray and HD DVD discs, Telestream may find itself in the proverbial sweet spot.
Nokia Acquires Loudeye
Back in the day, Encoding.com, under the leadership of Martin Tobias, focused on ripping CDs to create samples for online music stores. The idea was that customers would listen to a 20–30 second clip and then purchase the physical CD which would be shipped to the customer’s home.
Fast forward to the iTunes era, where consumers rip their own CDs and where many songs—and now videos—are downloaded directly to a consumer’s hard drive, after listening to samples online. Encoding.com, now called LoudEye, had changed its business model too, shedding its U.S. white-label music store business and CD sample database and content catalog to Muze.
This left Loudeye with the white-label music service business in Europe, a fragmented market where iTunes was not as dominant. That business, which accounted for almost 75% of the company’s total revenues, covered approximately 75 music stores for a variety of customers.
Nokia’s decision to acquire Loudeye, then, provides the mobile carrier the opportunity to consolidate the European music services marketplace at a time when mobile handsets are gaining popularity as an always-available entertainment device. Nokia now owns the encoding and distribution services, as well as the playback devices that sit on the networks of Nokia’s primary customers, the mobile phone network operators. With the exception of Apple, Nokia appears poised to be the only company that has its hand in every part of the value chain.
Nokia paid approximately twice annual revenues, or $60 million, for Loudeye.Akamai Acquires Nine Systems
According to a press release announcing the deal just before Thanksgiving, Akamai intends to integrate StreamOS—Nine Systems’ streaming management tool—into the Akamai framework. Akamai had tried for years to put together such a tool, but found the market less lucrative than it is rapidly becoming.
"We are excited about offering a new and comprehensive solution for the delivery, management, and control of online media assets," says Paul Sagan, president and CEO of Akamai, in the press release. "Nine Systems has established itself as a leader in the creation of powerful web-based tools for businesses to easily produce, publish, and distribute their streaming and downloadable media. Integrating Stream OS into our delivery network will allow Akamai to more fully support asset control, rights management, and media reporting to better enable our customers’ digital media businesses."
The news of the Nine Systems acquisition casts doubt on the likelihood of Akamai acquiring Limelight—which would mean buying a system that closely mimics its own edge-caching delivery model for on-demand content—now that Akamai has a streaming media content management system within the fold.
"This is a big win for our customers, and for companies requiring rich media management, publishing, and robust delivery," said Troy Snyder, president and CEO of Nine Systems. "Nine Systems’ rich media publishing and management tools already power the online media experience for some of today’s best-known companies in the music, broadcast, sports, entertainment, inspirational, advertising, education, and government markets. By joining forces with Akamai, our customers will have access to the leader in accelerating content and applications online, supported by a combination of the most experienced teams in the industry."
The deal, closed at the end of 2006 and was accomplished in both cash and stock, with approximately $7 million in cash changing hands and almost 3.1 million shares of Akamai common stock being used to acquire all of the outstanding common stock, preferred stock, and vested and unvested stock options of Nine Systems.
What’s Next?
That is primarily a question for next year’s Sourcebook (not to mention the next five issues of Streaming Media), but suffice it to say that 2007 should yield significantly more M&A activity, along with a few key IPOs.
Besides corporate culture integration—the primary determinant of success in most mergers and acquisitions—product maturity will also be key to continued success. Adobe, for instance, is working on several new products that will be released in the first half of 2007. Several of these tools will leverage the combined strengths of Acrobat and Flash.
"The motion forward is around personal and project spaces where people can communicate around certain issues and topics," says Ricky Liversidge, a product marketing manager at Adobe. "It’s like having my personal meeting room, a URL where you go forward and store documents."
Another area where momentum will continue to grow—and has begun to reach critical mass—will be the movement of content to portable media devices. By mid-2006, several companies had begun to leverage portable media playback to craft complex social networking sharing scenarios (such as Microsoft’s Zune) while others had begun to use the video iPod as a way to deliver "video manuals" or "how-to" content to consumers and technicians at the point of need.
Finally, expect to see some other names enter the mainstream media’s attention in 2007, including a resurgence of Facebook, more attention paid to blip.tv, and plays for underlying technology companies like On2.
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