In Dec 2010, I posted an article about the online video ecosystem and some M&A activities and opportunities in the space. A lot has changed in the market since, and its time we revisited the online video space and see how have things changed over the last ~2.5 yrs (since I wrote the article).
One thing cannot be denied -- over the course of these couple years online video as an industry has matured quite a bit. You might have seen, several companies (also mentioned in the article) resorted to capital markets -- Brightcove (Nasdaq: BCOV), Tremor Video (used to be called Tremor Media - NYSE:TRMR), Yume (NYSE: YUME) -- and are holding up pretty well. Then there's KIT Digital that went public, filed for Chapter 11 bankruptcy, renamed itself to Piksel and launched again in the public markets. Things such as these, are tell-tale signs of a maturing sector.
Well, one thing hasn't changed and that is that content still continues to be the undisputed king, and the king continues to serve more and more online video netizens on more and more connected devices. Not only are companies such as Netflix, Hulu, HBO, acquiring and streaming more content online, but with the improvement of Internet speeds, they are also ensuring that the content is streamed in extremely high quality formats. So-called 'Ultra HD' technologies such as 4K and 8K (which streams video at over 4 times the resolution of 1080p) are hitting the streaming video market and content providers such as Netflix, Youtube, etc. are offering handful of content in such high quality formats. Netflix, as a company, has been on a roll. Its stock price is close to an all time high. The company has focused on acquiring content, both domestic and international. Here is a nice article about Netflix's three-pronged approach to content acquisition. The company also made some significant advancements in video delivery quality including its initiative earlier this year, called OpenConnect. through which it offers to partner with service providers and store video content deep in the service provider's network for better QoE. Hulu, another content company, is also making news. It is rumored to have received multiple bids of close to $1B - not surprising given that they were able to generate revenues of ~$700M in 2012. Redbox, a Coinstar (CSTR) subsidiary, offering kiosk DVD services, recently announced its move towards streaming video. On the devices front, the war on digital home real-estate continues to be fought amongst streaming boxes such as Roku, Apple TV, Google TV (including its $35 Chromecast dongle); gaming console companies such as XBox, PS3; IPTV manufacturers such as Samsung and Sony (planning to come up with its own Google Chromecast-like dongle); set-top box providers; and even home router companies such as Netgear, and others. One of the players Boxee got taken out by Samsung for a rumored $30M - not surprising given that Boxee was unable to come up with a strong strategy.
Video advertising market is also getting some traction. One of the biggest M&A in that area was of AOL acquiring Adap.tv for a good $405M (in cash and stock). Some think that was an over-valued acquisition and a desperate move by AOL to save itself (given how little cash AOL has in its banks before the acquisition) - but Tim Armstrong feels otherwise. Good thing is market reacted positively to the acquisition. Two other IPOs mentioned earlier, of Yume and Tremor Video, were in the video ad industry and are currently trading at close to $270 and $350M market cap respectively.
ISPs continue their efforts to offer CDN services through acquisitions and partnerships as before. Recall that its reduction in transit costs and QoE that's driving ISPs to want to offer CDN services (not CDN revenues which is really small). Interestingly, however, this time around it is the CDN companies (i.e. Akamai) and content companies (i.e. Netflix), in addition to the networking vendors, leading this effort. In Nov 2012, Akamai acquired Verivue a company that offered Licensed CDN services to network operators. Soon thereafter, Akamai formed an alliance to foster collaboration between CDNs and ISPs. This drove more ISPs to offer CDN services. Today most of the service providers either offer their own CDN solutions (through organic or inorganic growth) or have forged partnerships to offer CDN services. Earlier this year, Netflix began offering its OpenConnect service, which comprises of common-of-the-shelf (COTS) hardware and CDN software to ISPs to help them store content (Netflix content) closer to the users. On the network vendor front, one of the biggest acquisitions (by deal value) was Cisco's acquisition of NDS for a whopping $5B. The acquisition was mainly to beef up Cisco's Videoscape product portfolio to serve service provider customers.
Talking about Cisco (one of the leaders in the telepresence space) one thing sorely missing from my previous article was the Enterprise Video market. Video has been a critical part of the enterprise for content dissemination and collaboration. In fact, video is being integrated with different enterprise applications -- be it collaboration, or training, or webinars, or sales enablement, or marketing -- every aspect of the enterprise is using video to get their work done efficiently. There have been sizable acquisitions by Cisco of Tandberg in 2009 for a whopping $3.3B. The acquisition closed in 2010 and since then Cisco has been leading the Telepresence market. Over the last few years there have been several enterprise video deals to talk about. In March 2011, Polycom acquired Accordent, a player in the video content management system for $50M. Later that year, in Oct 2011, Polycom made another acquisition in the enterprise video space by snapping up venture-backed video conferencing company called Vivu, for an undisclosed sum. In July 2011, Logitech acquired an Italy-based video conferencing company called Mirial. In March 2012, Avaya, a VoIP communication giant bought Radvision, a video conferencing compamy for $230 M. In May 2012, Juniper made a strategic investment in a video conferencing start-up called Vidyo. Although Skype has a video conferencing aspect, I am not particularly including the $8.5B acquisition of Skype by Microsoft in the mix of enterprise video M&A. It was nonetheless, a big and important M&A deal.
The other big trend in the technology world is Network Functions Virtualization - NFV (a term
which was coined by service providers and networking vendors, and refers to L4-7 network and security services that can be virtualized and run on common-of-the-shelf (COTS) x86 hardware at the service provider
edge). With NFV and the adoption of flash storage capabilities, there will be more and more service providers such as Orange (Ftance Telecom) continuing their journey of offering caching and CDN services at the
service provider edge.
One thing cannot be denied -- over the course of these couple years online video as an industry has matured quite a bit. You might have seen, several companies (also mentioned in the article) resorted to capital markets -- Brightcove (Nasdaq: BCOV), Tremor Video (used to be called Tremor Media - NYSE:TRMR), Yume (NYSE: YUME) -- and are holding up pretty well. Then there's KIT Digital that went public, filed for Chapter 11 bankruptcy, renamed itself to Piksel and launched again in the public markets. Things such as these, are tell-tale signs of a maturing sector.
Market Trends
Well, one thing hasn't changed and that is that content still continues to be the undisputed king, and the king continues to serve more and more online video netizens on more and more connected devices. Not only are companies such as Netflix, Hulu, HBO, acquiring and streaming more content online, but with the improvement of Internet speeds, they are also ensuring that the content is streamed in extremely high quality formats. So-called 'Ultra HD' technologies such as 4K and 8K (which streams video at over 4 times the resolution of 1080p) are hitting the streaming video market and content providers such as Netflix, Youtube, etc. are offering handful of content in such high quality formats. Netflix, as a company, has been on a roll. Its stock price is close to an all time high. The company has focused on acquiring content, both domestic and international. Here is a nice article about Netflix's three-pronged approach to content acquisition. The company also made some significant advancements in video delivery quality including its initiative earlier this year, called OpenConnect. through which it offers to partner with service providers and store video content deep in the service provider's network for better QoE. Hulu, another content company, is also making news. It is rumored to have received multiple bids of close to $1B - not surprising given that they were able to generate revenues of ~$700M in 2012. Redbox, a Coinstar (CSTR) subsidiary, offering kiosk DVD services, recently announced its move towards streaming video. On the devices front, the war on digital home real-estate continues to be fought amongst streaming boxes such as Roku, Apple TV, Google TV (including its $35 Chromecast dongle); gaming console companies such as XBox, PS3; IPTV manufacturers such as Samsung and Sony (planning to come up with its own Google Chromecast-like dongle); set-top box providers; and even home router companies such as Netgear, and others. One of the players Boxee got taken out by Samsung for a rumored $30M - not surprising given that Boxee was unable to come up with a strong strategy.
Video advertising market is also getting some traction. One of the biggest M&A in that area was of AOL acquiring Adap.tv for a good $405M (in cash and stock). Some think that was an over-valued acquisition and a desperate move by AOL to save itself (given how little cash AOL has in its banks before the acquisition) - but Tim Armstrong feels otherwise. Good thing is market reacted positively to the acquisition. Two other IPOs mentioned earlier, of Yume and Tremor Video, were in the video ad industry and are currently trading at close to $270 and $350M market cap respectively.
ISPs continue their efforts to offer CDN services through acquisitions and partnerships as before. Recall that its reduction in transit costs and QoE that's driving ISPs to want to offer CDN services (not CDN revenues which is really small). Interestingly, however, this time around it is the CDN companies (i.e. Akamai) and content companies (i.e. Netflix), in addition to the networking vendors, leading this effort. In Nov 2012, Akamai acquired Verivue a company that offered Licensed CDN services to network operators. Soon thereafter, Akamai formed an alliance to foster collaboration between CDNs and ISPs. This drove more ISPs to offer CDN services. Today most of the service providers either offer their own CDN solutions (through organic or inorganic growth) or have forged partnerships to offer CDN services. Earlier this year, Netflix began offering its OpenConnect service, which comprises of common-of-the-shelf (COTS) hardware and CDN software to ISPs to help them store content (Netflix content) closer to the users. On the network vendor front, one of the biggest acquisitions (by deal value) was Cisco's acquisition of NDS for a whopping $5B. The acquisition was mainly to beef up Cisco's Videoscape product portfolio to serve service provider customers.
Talking about Cisco (one of the leaders in the telepresence space) one thing sorely missing from my previous article was the Enterprise Video market. Video has been a critical part of the enterprise for content dissemination and collaboration. In fact, video is being integrated with different enterprise applications -- be it collaboration, or training, or webinars, or sales enablement, or marketing -- every aspect of the enterprise is using video to get their work done efficiently. There have been sizable acquisitions by Cisco of Tandberg in 2009 for a whopping $3.3B. The acquisition closed in 2010 and since then Cisco has been leading the Telepresence market. Over the last few years there have been several enterprise video deals to talk about. In March 2011, Polycom acquired Accordent, a player in the video content management system for $50M. Later that year, in Oct 2011, Polycom made another acquisition in the enterprise video space by snapping up venture-backed video conferencing company called Vivu, for an undisclosed sum. In July 2011, Logitech acquired an Italy-based video conferencing company called Mirial. In March 2012, Avaya, a VoIP communication giant bought Radvision, a video conferencing compamy for $230 M. In May 2012, Juniper made a strategic investment in a video conferencing start-up called Vidyo. Although Skype has a video conferencing aspect, I am not particularly including the $8.5B acquisition of Skype by Microsoft in the mix of enterprise video M&A. It was nonetheless, a big and important M&A deal.
What's Next for Online Video ?
So what should one expect to see over the next couple of years in this space ?
A lot needs to be done in the video advertising world. TV advertising today is a $270B market, where as video advertising is just a small fraction of that (according to research it is at $4B in 2013, expected to grow to $9B in 2018). The reason its so small is that video ads are more often not relevant - as a result of which users either skip the ad (if possible) or browse away -- resulting in lower CPMs and lower overall impressions. Why are ads not relevant ? you ask. Well, firstly there isn't much metadata in the video and so the ad server/network is not able to match the content properly with the ads - resulting in a mismatch. Secondly, even if there is metadata, the viewing habits vary from one viewer to another and therefore demands a good amount of analytics for ads to be effective. The state of nirvana is reached when ad serves as content and it becomes difficult to tell those apart. This brings us to the two main trends that we can expect to see on the content front.
Firstly, companies (both content and technology) will have to find ways to put more searchable metadata information within the content. Video search will become easier, as will targeted advertising.
Secondly, with a lot of investments and activities now focused in the big data and analytics space, I expect to see those technologies applied to the the video ad market. There are a few venture backed companies like Skytide, Tubemogul, offering some sort of analytics in the online video vertical. But with the humongous amounts of data that has been gathered about online video viewing habits of users, I expect to see a lot companies offering features and capabilities to ensure that video advertisements are relevant and intelligently placed so as to increase both CPMs and aggregate number of views, and reduce drop-off rates of ads.
