The OTT/Cloud Video Field Consolidates

Cloud/OTT Consolidation: Imagine Buys RGB Over-the-top (OTT) and cloud-based video are complex undertakings that have a tremendous number of moving parts. They also are sectors that promise to generate a tremendous amount of revenue in the future. This leads to the very predictable reality that a lot of vendors - from startup to established - are interested in supplying OTT and cloud platforms to cable operators and other video service providers.

This mix of challenge and potential also is a perfect recipe for the fast consolidation. In late January, Imagine Communications announced that it agreed to buy RGB Networks. RGB, according to Imagine, brings it expertise in video packaging, cloud DVR and ad insertion. It also has an established customer base.

The deal was the latest in a series for Imagine. Last year, Harris Broadcast acquired Imagine Communications and split the combined company in half. Imagine is dedicated to media software and networking technologies. The other half - GatesAir - took Harris’ transmission operations. In April, Harris - now renamed Imagine - acquired Digital Rapids, a company that specialized in creating software-based workflows for the processing and generation of IP video. In October, Imagine acquired the OpenTV advertising group from The Kudelski Group and, finally, the RGB deal was announced on Jan. 26.

The goal was to create a one-stop shop for video providers approaching the OTT and cloud video sectors. “About a year ago, we began to work on creating a platform for helping our customers migrate from where they were to IP and eventually [to delivery] all the way over the Internet,” said Imagine CTO Steven Reynolds.

RGB clearly is not a startup. Patrick Lopez, the CEO of Core Analysis, said the company’s technology may not be cutting edge, but that the tradeoff - getting an established firm with customers under contract - was worthwhile from Imagine’s point of view. “From that perspective, the company has solid technology and a big customer base,” Lopez said. “That’s probably what ended up being attractive to Imagine. They filled some holes from the product strategy standpoint and brought some new technology into the company.”

The IP/OTT video sector has all the ingredients for aggressive consolidation. On one hand, there are multiple complex and still unsettled tasks that must be addressed. For instance, the adaptive bitrate (ABR) streaming sector still is working through how best to provide content to devices using different operating systems and with widely diverse form factors and other characteristics.

In addition to ABR, said Brett Sappington, the director of research for Parks Associates, OTT and cloud-based platforms require content management systems; sophisticated and highly innovative user interfaces (UIs); advertising technology that pushes the envelope compared to legacy approaches; futuristic recommendation engines; and security/digital rights management (DRM) technology. In some cases, each of these categories has subcategories. For instance, creating UIs for mobile and stationary devices can draw on different skill sets.

The second reason that the category is enticing to the vendor community is that the initial bolt-on approaches that simply added OTT and cloud to legacy infrastructure are highly inefficient and must be replaced. OTT/cloud-based video seeks to replicate the basic task that cable operators historically have performed - provide video entertainment to subscribers - but do so in a different manner. Thus, parallel silos have emerged. There is a lot of overlap between OTT/cloud platforms and legacy broadcast and VOD infrastructure. In addition, mobile platforms add yet another silo.

All of this inefficiency simply means that consolidation will come sooner rather than later. Indeed, the starting gun essentially is the general acceptance that OTT and cloud-based video are likely to be a lucrative business. Clearly, that has become the common wisdom. Imagine’s acquisition of RGB is one of many deals by companies trying to dominate the still coalescing OTT/cloud video sector. “Companies are starting to understand that it is better to acquire technology than to build it themselves,” Lopez said.

Sappington said that need for an end-to-end system to support so many tasks is leading the big companies to create best-of-breed platforms that can be one-stop shops for cable operators and other providers who want to be in the game. This, Sappington said, reduces the available target customers for the remaining small firms that support only one or two of the tasks at hand. This accelerates consolidation.

Parks’ Sappington provided another example of the acquisition in the sector. He said that during the last few months, Ericsson has acquired Technicolor’s broadcast services division, Microsoft’s Mediaroom, Azuki Systems, Red Bee Media and Fabrix Systems. All of these companies are aimed, in one way or another, at the IP/cloud video sector. Sappington says other large firms have made similar runs of acquisitions.

The sector will be interesting to watch going forward. “None of us know how it will evolve,” said Imagine’s Reynolds. “We do know that it will evolve very quickly.”

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