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A SeaChange to VOD

5/07/2000 08:00:00 PM Eastern

A dead end at Digital Equipment Corp. turned into an avenue of opportunity for Bill Styslinger, president and CEO of video-server supplier SeaChange International.

He was a top executive at now-defunct DEC in 1990 when he was charged with finding applications for the computer company's powerful new Alpha microprocessor.

"We didn't find any," he says wryly. "So that was kind of a sad circumstance."

What Styslinger and his team did discover, however, was a large opportunity for storing video and making it available through networks. He pushed to set up a cable television unit within DEC to pursue it, getting a go-ahead from company founder Ken Olsen.

Styslinger and his team, which included engineer Edward McGrath and marketer Ed Delaney, first looked at residential video-on-demand. But that required too much expensive disk storage as well as cable bandwidth to be economically feasible at the time.

"You could quickly calculate on a small piece of paper how that didn't work," Styslinger notes. "You were talking $10,000 to $30,000 a stream for the server."

Cable ad insertion, however, was a problem Styslinger considered solvable. Replacing tape-based systems with MPEG-compressed disk storage would dramatically reduce labor and maintenance costs, help eliminate errors and allow cable operators to easily target different geographic sectors of their market with customized spots.

Unfortunately, DEC's core corporate computer business was falling on hard times, and Robert Palmer, Olsen's successor, closed the cable initiative.

Styslinger, McGrath and Delaney asked for permission to go out on their own and left in July 1993 to form SeaChange.

Jumping ship to form a start-up was a bold move for Styslinger, a 15-year DEC veteran. He had come up through the ranks in New York, managing the company's bank and securities business, which grew from $5 million annually to $250 million during his tenure. He also launched DEC's "All in One" integrated office system, which used a combination of terminals, computers, networks and PCs to allow financial professionals to work on documents simultaneously and was a $1 billion-plus annual business in the mid '80s.

It was Styslinger's extensive banking experience that convinced him that digital ad insertion was viable. "We replaced the whole operation with a network with a lot of automation and remote management," he says.

SeaChange's initial seven staffers, all from DEC, set out to build a business on a shoestring budget that was raised mostly by Styslinger and a few friends. Most worked without salary for the first year; Styslinger and his colleagues were too conservative to seek financing from venture-capital firms. "I would say the whole amount was less than $300,000, and that got us through our first 18 months."

Notes Delaney, SeaChange's vice president of marketing and business development, "As I look back on it, there didn't appear to be a lot of trepidation or worry. It just seemed like the right thing to do."

SeaChange delivered its first video-server product, comprising off-the-shelf storage and SeaChange-developed software, to Time Warner Cable in Manhattan in April 1994. The company grew quickly, posting revenues of $5.7 million in 1994, $23.2 million in 1995 and $49.3 million in 1996. It went public in November 1996, raising roughly $24 million in proceeds, and has a market capitalization today of more than $700 million. First-quarter revenues for fiscal 2000 were $22 million.

While snatching up roughly 80% of the U.S. cable digital ad-insertion market, SeaChange has broadened its focus to include near video-on-demand (NVOD) systems, big sellers in Europe; hotel VOD systems; and broadcast servers.

But the next big opportunity, Styslinger believes, is cable VOD. SeaChange's VOD system is currently being tested by Time Warner and Comcast, and the company just struck a deal to integrate its servers with TV Guide's interactive EPG.

With disk-storage costs dropping dramatically, Styslinger foresees a future in which cable operators will be able to offer all the functionality of a personal video recorder from a large headend server.

"The next big move for us is what we started out to do, which is personal television, largely video-on-demand played to the residence," he explains. "You start out with movies, and you add other applications to that. Ultimately, you end up where the infrastructure is able to work like Replay and TiVo are able to work today."

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