Optimism for Amsterdam

Tech vendors buoyed by record sales in the run-up to IBC2012

Complete Coverage: IBC 2012

As the broadcast technology industry converges on Amsterdam this week for IBC2012, vendors of equipment, software and services are both encouraged by the year's record sales and bracing for longer-term changes that have touched off a wave of merger and acquisition activity among the leading providers.

Executives at Utah Scientific and Ross Video are among those reporting record revenue so far this year. At Ross, following a 47% revenue hike in 2011, "our goal had been to just hang onto the 2011 number, but we have grown another 25% this year," says CEO David Ross, who adds that the company is now selling its Carbonite switchers at a rate of about 700 a year. "We weren't expecting that, and I'm looking forward at the business with a certain degree of optimism."

At the same time, the vendor community continues to be buffeted by media companies' demand for products to deliver more content to more devices and to streamline workfl ows. Media asset management systems, TV Everywhere solutions, automation systems, channelin- a-box products, distributed production systems and cloud-based solutions have been particularly hot items in the run-up to IBC.

"The Olympics are a great example of the rapid transformation that this industry is making," says Gary Greenfield, president/CEO of Avid, which worked extensively with NBCU as the programmer provided a record level of Olympics coverage to multiple platforms. "It isn't just about the TV screen on the wall, but the full media experience that the industry is responding to....Everyone is a multicaster today."

But those trends have also required broadcast equipment manufacturers to adapt to a world of rapidly plunging prices for cameras, routers, servers and other technologies as clients increasingly deploy low-cost solutions from the IT or prosumer worlds, notes Peter White, director general of the International Association of Broadcasting Manufacturers. "You can buy a very capable kit for a fraction of what it cost five years ago," White explains.

Those challenges are further compounded by the tough economic climate and growing fears that the Eurozone crisis will push other territories into a recession. The IABM will be releasing data from new surveys of the industry at IBC, but its current estimates call for global growth of around 2% in 2012 and relatively "muted growth" in major territories for the next few years, White says.

"Broadcasters in major markets are dealing with flat technology budgets and are very cautious about how they spend their money," says Alain Andreoli, president and CEO of Grass Valley, which is owned by the private equity firm Francisco Partners. "It is all about cost, price, efficiency and building this multiplatform content delivery architecture."

That has encouraged Grass Valley, Avid, Ross Video and other major vendors to develop larger integrated systems that can handle multiplatform delivery in a much more automated fashion.

"There is a convergence of technology, with clients using more technologies that are IP-based and a lot of common off-the-shelf IT technologies," Avid's Greenfield says. "They can no longer have that wall between the broadcast world and the Web world. It is really about how do you bring all of those pieces together," with cloud-based solutions and other technologies.

Media companies' growing demand for products to handle multiplatform delivery has also helped fuel a wave of technology company mergers and investments by private equity firms in the last three years, involving such players as Grass Valley, Avid, Ross Video, Harmonic and Snell. In the last six months alone, Belden announced it was acquiring Miranda Technologies, Cisco snapped up NDS, and Harris unveiled plans to spin off its broadcast division.

"The industry is ripe for consolidation," the IABM's White says, noting that about 25% of the industry has been losing money during the last two years. "You can add the skill sets you need through acquisitions, and strengthen your ability to invest in R&D."

For example, over the last year Ross Video acquired several companies to establish itself in the robotics and virtual-set space, while Grass Valley acquired Dutch company PubliTronic to expand its channel-in-a-box offering.

"You need companies that are very strong and stable financially that can equip their customers for the long-term transformation they are making," says Andreoli, who is eyeing further acquisitions as he expects consolidation to produce several larger companies that will dominate the industry.

A number of these deals are designed to help companies fill out their product lines. Brightcove CMO Jeff Whatcott notes that the company acquired Zencoder, a cloud-based video encoding service used by PBS, Scripps Networks and more than 1,000 other organizations, as a way to expand Brightcove's Video Cloud and App Cloud platform product lines. "We found that a number of clients wanted a platform-as-a-service offering for developers, and the acquisition allows us to offer that," he notes.

This also provides smaller companies with a larger parent to help expand internationally and to cover hefty research and development costs.

But some prominent industry executives worry that the trend toward larger players could actually slow down innovation. "NAB used to have a lot of interesting small players doing some very cool technology and some bright engineers that grew some great companies organically," Ross notes. "But I think with the brand awareness that has become a dominant force in the way broadcasters think and acquire equipment, some of the smaller players have been hurt. And that has hurt some of the innovation and diversity that comes from the smaller players."

Utah Scientific marketing director Scott Bosen agrees. "It becomes difficult, I think, for bigger companies to put investment dollars in the right place," he says.

Bosen also points out that acquisitions have caused some customers to worry about the future of product lines backed by acquired companies. "The deals have created some uncertainties that have been good for Utah Scientific as a good old-fashioned stable company," he says. 

Technical ties between big and small companies don't always have to involve mergers. Ross stresses that Ross Video has created alliances with a number of smaller companies to encourage innovation through tits Open Gear platform.

"We now have 37 partners and we are seeing a lot of really cool things coming out of a lot of these smaller Open Gear partners who wouldn't be nearly as successful if they didn't have the ability to participate in an industry standard like Open Gear," he explained.

While Ross Video continues to eye acquisitions, its CEO adds that the company has little interest in being acquired. "I get phone calls fairly regularly about private equity wanting to purchase Ross Video and I have zero interest in that," he notes, in part because he feels it would distract the company from its focus on customer service.

"Being an independent company, we are in a much better position to make long-term decisions on what customers want and to do things that are in the interest of the customer," Ross says. "If we were run by accountants, we might have extended service plans and premium support for people who want to call us in the evenings. So I really appreciate being able to make more personal decisions about how we treat our customers and being able to say that calling Ross for customer service is free."

It has also allowed Ross Video to triple the size of its manufacturing facilities at its Canadian headquarters, a strategy the CEO believes has helped it achieve efficiencies and a number of product innovations. "Our manufacturing team is present at every design review and has veto power if they feel that the product will not hit a quality standard," Ross says. "If we built our products in China, I can't imagine maintaining that quality."

Grass Valley's Andreoli stresses, however, that his company's acquisition by private equity firm Francisco Partners has actually strengthened its ability to pursue a long-term strategy. It also has enabled Grass Valley to improve its ties to customers by reorganizing operations to create a more "customer-focused" management structure.

While private equity companies traditionally had a three-to-five year investment window before seeking to sell an asset, Andreoli notes that changes in the financial market have lengthened the investment cycle, and Francisco Partners has always taken a long-term view.

"Francisco Partners has always made investments for the long term," he explains. "They still have investments they made in the 1990s in their portfolio."

Other disagreements can be found surrounding the immediate impact of information technology.

Avid's Greenfield, for example, downplays the potential impact of competition from larger, traditional IT companies like Apple and Adobe. "If this weren't such a great industry, we wouldn't be attracting other players into the industry," he says. "I think it is good for the industry because it is keeping us and other companies on our toes."

Greenfield and others also argue that their longstanding focus on the broadcast industry gives them the expertise broadcasters want.

Andreoli notes that traditional IT companies have gone in and out of the market over the years because they are focused on much larger markets than broadcast. "They haven't shown the consistency in their commitment and investment in the market, and broadcast customers are careful about committing with them," he says. "Grass Valley has been in this market for over 50 years and has the in-depth knowledge of video technology and this industry that our customers want and that no IT company has."

For the moment, technologies from traditional IT vendors are also playing a relatively limited role in live broadcast, others argue. "When you are looking at serving up files residing on hard drives, it makes sense to be working in IP and an IT-based infrastructure," notes Ross. "But when we are working in live product, I think it is a very different game. In live production, uncompressed baseband is still alive and strong."

Bosen agrees but notes that uncertain economic conditions are changing purchasing decisions. While Utah Scientific is having a record year, much of that is being driven by large projects that have been in the works for a year or two. "Going forward, I think there is a big question mark about the state of the economies going into IBC," he says, making broadcasters very cost-conscious.

"For the next five years, we have to keep in mind the financial pressures on customers," Bosen adds. "They are tending to buy a minimal piece of equipment rather than something that will last 15 or 20 years."

Those financial pressures, coupled with the need to find low-cost, automated ways of distributing content to multiple platforms, will require a much greater reliance on IT and cloud technologies, others argue.

"The shift to IT is a profound change that everyone ignores at their peril," argues Chyron CTO Bill Hendler. "There is such tremendous investment on IP networks and IT network and routing technologies that gives them economies of scale that can't be matched by dedicated niche hardware."

To help companies make that move, Chyron will be announcing some partnerships at IBC to help clients integrate their broadcast infrastructure with IT equipment and will be demonstrating a number of cloud-based solutions for streamlining multiplatform delivery.

These technologies also open up tremendous opportunities for collaboration and centralization of workflows, both Hendler and Avid's Greenfield note.

"By taking advantage of IT technologies, such as the cloud, we were able to announce Interplay Sphere at NAB," a product that will help stations and producers managed distributed productions, Greenfield says. It will be released Sept. 8, and Avid will showcase it at IBC.

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