Highview Capital will back Firstlight Media, a user engagement and monetization platform, to acquire Quickplay from AT&T. Following the transaction, Firstlight will merge with Quickplay creating a combined business that will continue to operate under the Firstlight brand.
The sale of the Quickplay business is significant in three respects. First, this type of asset sale has ample precedent in the digital video solutions industry. Second, the sale serves as an interesting case study in video technology, and video asset under-utilization. Third, we believe that the new, combined entity’s prospects are instructive, and provide useful insight into the current competitive landscape.
AT&T acquired Quickplay Media – a provider of OTT solutions and managed media services – in 2016. This type of acquisition has considerable precedent within the industry. In the past decade, Verizon has acquired Uplynk and EdgeCast, Comcast has acquired thePlatform and FreeWheel, Telstra has purchased Ooyala and Videoplaza, and Disney has acquired BAMTech. The outcome of these types of acquisitions is mixed. Telstra ultimately wrote the value of its Ooyala business down to zero, and sold the remainder of its video technology assets to Brightcove; Comcast shuttered thePlatform’s standalone brand, and now markets a wide breadth of solutions through its Comcast Technology Solutions subsidiary; Verizon and Disney, by contrast, have employed their acquired assets to great commercial effect.
For AT&T, we believe that the sale primarily reflects internal, strategic overextension.
First, technology insufficiency is unlikely to have figured in the sale. Quickplay’s technology was and continues to be suited to pure, mass-market, unmanaged OTT distribution, direct-to-consumer offerings, as well as managed network, online and TV Everywhere delivery.
Two, we do not believe that financial viability explains the sale of the business. Although Quickplay Media’s revenues have contracted by 15% year-over-year for the past year, the business remains with a 9% share of the market, and demonstrably has not bled cash.
We maintain that two elements neatly explain Quickplay’s sale: the sheer size and variability of AT&T’s disparate video assets; AT&T’s inability to regroup these assets under a single, clear video and technology strategy.
At the time of the acquisition, AT&T’s intention was to launch its first and only full-blown OTT service – DirecTV Now – atop the Quickplay platform, which was already supporting elements of the U-Verse IPTV service. AT&T now operates five OTT video services whose positioning and strategic mutual exclusivity is far from clear. The firm’s current video services portfolio regroups AT&T TV, AT&T TV Now, HBO Now, HBO Max and AT&T Watch TV. We believe that AT&T’s numerous, separate video units gave rise to an environment where technology procurement decisions – while individually sensible and defensible – took place without any central, collective coordination.
Since the acquisition, HBO has become heavily reliant upon Amazon AWS technology, while portions of the Warner Media business – itself acquired by AT&T in Q2 2018 – rely upon iStreamplanet, an OTT and video processing platform purchased by Warner Media in 2015. Disparate business units’ relying on disparate technology platforms produced an unsurprising result: the underutilization of shared, communal technology assets, in the form of Quickplay Media.
Given this underutilization, sale was the only sensible response; there exists no rationale for retaining technology assets that are not in active use across key media brands and verticals. The sale also allows AT&T to begin to address – and correct – excessive technology heterogeneity.
Highview Capital, the combined firm’s new owner, now possesses a proven technology and OTT delivery platform. We believe that the price was significantly lower than the one paid by AT&T four years ago, even though details were not disclosed. This renders the deal a low risk bet, considering the intrinsic value of the asset.
The combination of the two companies creates a video delivery offering that promises better monetization opportunities through customer engagement. Five players dominate the OVP market, holding almost 60% of it: Disney Streaming Services, Comcast Technology Solutions, Verizon Media, Brightcove, and Endeavor Streaming. In order to succeed, the Firstlight-Quickplay venture will have to offer a meaningfully different way for video providers to monetize video assets or address niche markets, to attract growth that would allow them to blossom. We believe that both targets will be very difficult to meet. We anticipate that Firstlight will maintain its current market dynamic and enjoy some growth in fast growing regions such as Asia Pacific and Latin America. A potential buyout by a competitor, or media provider at a premium in the future is probable.