Encoda Is a Harris Need$340 million acquisition entwines two of automation's giants 10/10/2004 08:00:00 PM Eastern
Two of the automation market's biggest players will come together in November when Harris Corp. completes its acquisition of Encoda Systems Inc. for $340 million in cash. The move brings together two complementary automation systems.
"The Harris system is optimized for single stations with up to 10 or 20 channels," says Howard Lance, chairman, president and CEO of Harris. "But the Encoda system is optimized for very large and complex applications, literally extending to hundreds of channels."
Both companies are about more than automation. Harris is known primarily for its transmitter, networking and automation products, all of which have a strong presence in station facilities across the country. Encoda's core business is traffic, sales and billing software, and more than 600 broadcast and cable customers around the globe use the company's system. The value of its contracts, which stands at approximately $200 million, helped make Encoda an attractive acquisition.
"Encoda's model is to put in place multiple-year contracts that provide a solid revenue base," says Lance. Most of those contracts are for three to five years.
The purchase follows months of study by Harris, which was investigating new segments in the broadcast market. Jeremy Wensinger, president of Harris Broadcast Communications Division, says the research showed that, to grow, Harris would have to reach into stations' back offices.
Inheriting Encoda doesn't come without challenges. In recent years, the company's billing contracts have been vulnerable to new competitors offering fresher software. (The core of its code was written in the early 1980s.) Wensinger says one of Harris' priorities will be to accelerate development of next-generation traffic and billing software. "You can have a very sticky product that works, but stickiness only lasts so long, especially when technology is all about doing it faster, cheaper, better," he says. "We're painfully aware that the barriers to entry of our competitors are probably in direct proportion to lack of investment at Encoda. So I think that's an opportunity for us to bring the new product to market in a quicker way and offer a future-proof platform."
As for automation, Wensinger hopes to bring out the best of both architectures and create a system that customers can never outgrow.
Encoda's revenue for the 12 months ended June 30 totaled $124 million from five lines of business: traffic and program scheduling for broadcasters (58%), traffic and program scheduling for cable operators (8%), automation (19%), Arkemedia digital asset management (1%) and ad-agency work (14%). Harris' revenue for the same period was $287 million.