French set-top box (STB) vendor Netgem is to purchase French video rental chain Videofutur. As well as physical media outlets, Videofutur also operates its own over-the-top (OTT) multiscreen video delivery platform, offering transactional and subscription VoD to PC, Mac, Smart TV, tablet and smartphone devices. This is the target of the acquisition, for which Netgem has offered €0.15 and €4.50, respectively, per Videofutur share and convertible bond in a cash deal, or one Netgem share for every 20 Videofutur shares and three Netgem shares for every two convertible Videofutur bonds in a share-base deal.
Netgem also added mobile data to Wi-Fi offloading technology to its product offering in June 2012, with its acquisition of French company Plugnsurf.
One aspect of this acquisition is the opportunity it offers for Netgem to bolster domestic revenue by expanding Videofutur's existing OTT video business. Netgem's French revenue has declined 42 per cent year-on-year, on average, from €142M in 2009 to €28.1M in 2012. This is a direct result of SFR's choice of Sagemcom and Cisco over Netgem, - its incumbent supplier, to provide the hardware for its 2010 launch of the "Evolution" IPTV platform.
In contrast, Netgem's international business has grown 138 per cent year-on-year, on average, from €3.9M in 2009 to €53.1M in 2012. This has been the result of winning deals with 16 international pay TV and OTT operators over the period: Algeria Telecom, Elisa, H1 Telekom, Iusacell, Mediaserv, Melita, Monaco Telecom, Net+, Netia, P&T Luxembourg, Sure, Telecom Slovenia, Telstra, Viasat-Viaplay, Yousee and Zeop.
More interesting in this context, is the inclusion of Videofutur's multiscreen video distribution platform within Netgem's international product portfolio. Just as Videofutur's strategy has shifted from physical media to online video distribution, so has Netgem shifted its strategy away from IPTV STB hardware to one which is focused on software and services for pay TV operators and other IP video service providers. Currently, only six out of the 16 operators in Netgem's international customer base have launched multiscreen services, presenting immediate upsell opportunities for this newly acquired multiscreen platform. Larger operators have tended to develop, or at least integrate, their own multiscreen platforms. However, smaller operators, where Netgem has been successful in growing its customer base, lack the resources to do this and tend to prefer end-to-end solutions. As smaller Telcos look to upgrade their initial IPTV platforms, the ability for Netgem to offer an integrated end-to-end IPTV and multiscreen solution could prove a competitive advantage, just as its ability to provide a combined STB and middleware platform did in winning the above customers.
Netgem's acquisitions are in line with a broader industry migration towards IP, software and service centric products. Nearly all major STB vendors have been acquisitive in the wider IP video and software and services spaces over the past several years: ABD with Pirelli Broadband, Cisco with NDS, Motorola with Dreampark and Secure Media, and subsequently, ARRIS with Motorola Home, Pace with 2wire, Bewan and Latens. In particular these vendors are looking to use software and services to grow and maintain revenues and improve margins as the service provider CPE business faces increasing commoditisation through fierce price competition. This is also in line with a much wider industry trend to leverage a pay-tv subscription into a whole suite of service offerings. This is driven in large part by MSOs seeking to find new revenue sources through new services, as well as becoming more entwined in the consumer's whole-home media experience. This has the triple-pronged benefit of increasing operator ARPU, reducing churn, and meeting consumer demand for advanced service offerings with a signal bill to pay and a single customer service experience. This represents the Fifth Play for MSOs, and the equipment providers that position themselves appropriately to provide these solutions would seem to have increased revenue opportunity.