Wednesday, December 21, 2011

Allot to acquire Flash Networks for $110 /$120 M?

This is the latest rumor from Globe. Allot, who has raised almost $80M a month ago and was rumored to be acquired by F5, then to discuss acquisition of Mobixell or PeerApp last year, has a $500M market cap. Flash Networks has raised over $61M.

The resulting company could be booking about $120M in sales and be profitable.

Allot, in a briefing with Jonathon Gordon, Director of Marketing, two weeks ago was noting: " Our policies focus more and more on revenue generation. With over 100 charging plans surveyed in our latest report, we see more and more demand for bundle plans for social networks and video. We can already discriminate traffic that is embedded, for instance, we can see that a user is watching a video within a facebook browsing session, but we cannot recognize and analyse the video in term of format, bit rate, etc...Premium video specific policies raise a lot of interest these days."

No doubt, the acquisition of an optimization vendor like Flash Networks can solve that problem, by creating a harmonious policy and charging function that actually manages video, which accounts for over half of 2011 mobile traffic globally.

As discussed here and here, video optimization becomes an attractive target for telco vendors who want to extend beyond DPI and policy. Since video is such a specialized skill, it is likely that growth in this area will not be organic. It is likely that the browsing gateway / DPI / PCRF / Optimization segments will collapse over the next 2 years, as they are atomized markets, with small, technology-driven under-capitalized companies and medium -to-large mature companies looking to increase market share or grow the top line.

Monday, December 12, 2011

Carrier strategy against OTT: vertical integration

In an interesting new development, Bell and Rogers, respectively 29 and 36% market share of the Canadian wireless market and fierce domestic competitors, join forces to acquire a majority share (75%) in Maple Leaf Sports and Entertainments (MLSE) for $1.32Bn.

Bell had already started vertical integration by acquiring the remaining 85% of CTV for $1.3 Bn last year and owns also  TSN, TSN2 and NHL Network Canada as well as a minority share of NHL's Montreal Canadien. Rogers owns the Toronto Blue jay baseball team and the broadcast network Sportsnet.

MLSE provides Bell and Rogers with co-ownership of Toronto Maple Leaf NHL team, Toronto Raptor NBA team, Toronto FC MLS team and the Air Canada center.

This is a very good example of vertical integration. The Canadian market is fairly mature, but with a high broadband penetration and a relatively low mobile broadband penetration (75%), growth is coming from smartphone and media consumption. Rogers, with 44% smartphone market share and a blended ARPU of 60$ and Bell with 26% market share and 53$ ARPU are among the most profitable carriers in North America.

At the same time, as competition increases with wireless new entrants (Videotron, Wind, ...) and OTT offers (BBC iPlayer, Netflix...), Rogers and Bell understand that the key to profitability is content. Buying these sport teams is a way for Bell and Rogers to secure premium attractive content for their domestic market, retaining control (duopoly?) of the most sought after premium content franchises in Canada.

Monday, December 5, 2011

Pay TV vs OTT part IV: clash of the titans

We have reviewed and discussed at length (here, here, and here) the fundamental changes that OTT is causing to the pay TV market. As consumer electronics vendors become content aggregators and as more screens get now directly connected to the internet, there is less and less value in a set top box that is an exclusive managed device from your MSO.

Service providers themselves are ambivalent about the box. It used to be the main tangible asset that MSOs marketed to "own" a subscriber relationship, with a safe environment allowing transactions, access control and digital rights management to monetize live and on demand programs.
Lately, it has looked increasingly like a ball and chain that MSOs have dragged, a costly installed base, slow to evolve and adapt to the latest technologies, incapable of competing against better services and cost structures evolved from OTT.

Microsoft, in the latest incarnation of its XBox Live service, has brokered deals with several dozens of content providers beyond existing Hulu and Netlix and  is launching today. More interestingly, Verizon FiOS, Comcast Xfinity and HBO are also part of the package... as OTT apps. The XBox is already a high-density, high-performance gaming and multimedia environment to play online games and stream video. Adding live TV and VOD makes sense and makes the set top box completely redundant. Microsoft innovates by integrating Bing, its search engine, the Kinect, its haptic motion recognition device and voice, with the EPG (Electronic Programming Guide) of the programmer. You can literally search y voice for a show, an actor, a director and see the results aggregated on your screen from various sources.

While you still have to be a Comcast or Verizon cable subscriber to avail of the services in the states, the writing (or rather the screen) is on the wall.

This experiment will no doubt cast a new light on the 35 million XBox live accounts, putting Microsoft firmly shoulder to shoulder with Google's TV efforts (and Motorola's set top boxes) and the next generation of Apple TV.

Soon will be a time when subscribers will buy access from their ISP independently from aggregation and content. Channels and MSOs will compete across new geographies on unmanaged devices, across unmanaged networks. New generation of apps will enable you to discover, access and curate content from your local media servers, the cloud and your traditional providers and present the result on the screen you elect. There is no technological or logistical barrier any longer. The business model of pay TV, subscription, advertising is undergoing changes of seismic proportions.

Openwave changes gear and positioning

In the latest installment of Openwave's transformation, the company sees two high profile appointments to beef up its licensing strategy.

Daniel Mendez and Tim Robbins are appointed at General Managers of Openwave's patent portfolio, in a clear move towards further monetizing Openwave's intellectual property in deals similar to Microsoft's announced earlier this year and generating $18M last quarter in licensing. This deal followed the successful re-acquisition this year of the patents previously sold to the Myriad group.

Daniel and Tim hail from Visto, who acquired and merged with Good Technology and created $350M in license revenue from intellectual property.

What I find the most interesting in the announcement, though, is the change in tag line describing Openwave over the last press releases. Openwave used to describe itself as "a global software innovator delivering all-Internet Protocol (all-IP) mediation and messaging solutions". A somewhat accurate description but really  wishy-washy and referring to "old" technology and positioning (IP communication was a revolution in the 90's and messaging, well, is not really very innovative nowadays). 

The new Openwave is "a global software innovator and the inventor of the mobile internet". That's bold, and while I can imagine many company would and might challenge that Openwave is the sole inventor of the mobile internet, it looks at last like someone at Openwave might have read my blog post from August and taken a clue. I think that is definitively the right positioning for the company to generate more traction. It will be interesting to see how vision and strategy align with the message and positioning over the next year.

Friday, December 2, 2011

OTT wave hits Canada: BBC iPlayer launches

BBC iPlayer is a popular VOD platform from UK's BBC. It is based on subscription and features long form original and archive TV and radio content. iPAD users can download the free app from the app store and browse limited free content or have access to over 1,500 hours of content on day one with an additional 100 hours every month, updated regularly for $8.99 a month.

Canada is the 16th country invaded by the  iPlayer but the first one where Netflix is present. It is going to be interesting to see how both giants are going to react to each other's strategy, no doubt in a rehearsal of a BBC launch in the US. While Netflix is predominantly about films, BBC iPlayer is a TV content aggregator, spanning radio and TV shows, news , concerts, documentary, comedies and more undefinable British genres like Little Britain.

While the launch is currently limited to iPAD, it should not be longh before it spans iPhones, Android, Wii, PS3 and laptop, as in other markets. BBC iPlayer global is a subset of the UK selection, and will propose only TV content at the start. The genres proposed are Contemporary drama, classic comedy, family & kids, classic &period drama, entertainment, modern comedy, Science & Nature, Sci-Fi, Music & Culture, Crime &Thriler, Lifestyle and News Specials & Documentaries.

BBC does not see itself competing against Hulu or Netflix, arguing that they are specialist, providing carefully curated content, to reflect the "voice of BBC", while other aggregators are more generalist in nature. Netflix tends to agree, citing different demographic target for their users. In September this year, BBC iPlayer served 153 million requests in the UK only, with an average 1.7 million viewer a day and a monthly viewing average of 69 minutes for TV (excl. radio). Numbers for outside the UK are not yet available. Most of iPlayer usage is during TV viewing hours, hinting at strong companion screen trends.

I think it is a strong sign, to start and see niche offers transcend their geographical boundaries to go truly OTT. BBC has found a huge following and not only with Brit expats for its acclaimed shows such as Top gear, Little Britain, etc... The walled gardens are crumbling and consumers are the winners. This tidal wave has a tremendous impact on mobile networks (capacity to accommodate video traffic surge), MSOs and PayTV (where traditional service providers need to find a way to protect VOD revenues and remain relevant), and Consumer Electronics (where CE vendors see themselves becoming content aggregators through app stores and native apps enhancing content discovery and access).