Consolidation in the Streaming Media Sectors

RGB Networks Acquires RipCode

In June, RGB Networks announced it had acquired RipCode, a company that focused on software-based transcoding solutions. RGB Networks had made a name for itself in the ASIC-based world of telecommunications-grade chassis for standards-based MPEG-2 and H.264 transcoding, but it lacked a mobile strategy.

“We needed a three-screen strategy,” said RGB’s CEO, Jef Graham. “Yuval Fisher, whom I hired as CTO [in 2009], did an evaluative matrix and found that RipCode offered the key components we needed for a mobile strategy.”

Fisher had pointed out that RGB also needed integrated mobile and PC format delivery systems that could eventually be merged with the company’s flagship product, the Video Multiprocessing Gateway (VMG). With trials underway in 2010 for a number of telecommunications companies, Graham decided that making an acquisition was the best strategic move for timely response to trials.

Walmart Acquires VUDU

One of the major acquisitions by a retailer occurred early in the year: Walmart announced that it had acquired VUDU. The VUDU platform is integrated into internet-ready TVs and Blu-ray players, and the company had sold products through Best Buy for some time before the Walmart acquisition.

Almost immediately after the announcement, the products were pulled from Best Buy shelves, and those interested in the service had to scramble to buy VUDU-enabled products on eBay. An even bigger issue came along, though, when customers realized that particular services, such as the adult entertainment, had been pulled from the ongoing service offerings.

“On February 25, 2010 to comply with the policies of our parent corporation, VUDU discontinued operating the AVN After Dark channel,” VUDU announced on its website. “If you have previously purchased content on this channel, you will receive a credit for that amount in your VUDU Account. Previously rented content will not be refunded.”

As recently as the 2010 holiday season, VUDU and Walmart were pushing the ability to view online versions of purchased movies as a way to drive brick-and-mortar sales of physical DVDs, a sizable revenue stream for Walmart. As Engadget pointed out when Walmart made the announcement, Amazon offers 

a similar service with Disc+, and the CinemaNow acquisition by Best Buy allows a similar functionality for DVDs purchased at Best Buy stores.

“The only question now,” Engadget mused, “is if customers will start asking ‘which streaming service does this connect to?’ before they run out to buy a new Blu-ray instead of simply looking for the lowest price or other promotional tie-in.”

Beyond the acquisitions, two other pieces of news bear consideration, perhaps positioning 2010’s strategic decisions as the shapers of the 2011 competitive landscape. 

Qualcomm Stops FLOing

Less than year after keynoting a Streaming Media event, and slightly more than a year after absorbing Digital Fountain’s streaming media team, the powers that be at Qualcomm announced the end of MediaFLO. 

The concept behind MediaFLO was one of a sideband transmission in major cities that provided multicast delivery of dozens of standard-definition and high-definition channels of streaming video. The service was subscription-based, meaning that consumers had to both buy a device and pay for the ongoing service, in much the same way as a cell phone or pay TV. We questioned that model in late 2009, just prior to the holiday season, when FLO was making a concerted consumer push; it appeared that not many consumers would pay to carry around a small screen to watch TV in limited geographic areas.

As recently as July 2010, however, Qualcomm announced a nonbinding memorandum of understanding (MOU) with a company in Taiwan to “explore the creation of a broadcast mobile media operator using MediaFLO technology in Taiwan.” The company shows no signs of the impending shutdown of the MediaFLO service.

While Taiwan has a pay-TV penetration of 81%, and the MOU may yet prove the country to be an ideal location for this type of service, in the end, the spectrum in the U.S. was worth more than the FLO service. On Dec. 20, 2010, Qualcomm announced the sale of the FLO spectrum to AT&T, Inc. Many observers expect AT&T to use the additional spectrum to increase its high-speed data services to 4G because its 3G data services have been hammered by the popularity of the iPhone.

Hulu Abandons IPO Plans

A few months after the launch of Hulu Plus, the company that set out to redefine the viewing experience for episodics and films on the web scuttled plans for an initial public offering (IPO). Hulu Plus is a subscription service that allows viewers to watch what Hulu once offered for free with advertising; the new service also requires viewers to sit through commercials, making it one of the first services to double-dip on revenues. 

“Today we have 30 million users, 800 million ad streams and 235 content partners,” said Hulu CEO Jason Kilar at NewTeeVee Live in November, noting that growth happened in less than 36 months. “In quarter three [2010], we have 352 advertising clients and expected revenue within the 2010 calendar year will be $240 million. That’s up from $108 million last year.”

Still, the company’s decision to abandon its IPO plans may be a cautionary tale for others in the space, such as RGB Networks, that are planning IPOs in 2011.

“We hope to IPO a year from now,” RGB Network’s Graham said in a June 2010 interview, “and [the three-screen strategy] is the strategy we’ll take to market.”

This article originally ran in the 2011 Streaming Media Industry Sourcebook as "Streamticker: Mergers, Acquisitions, and Investments."