As we approach IBC once again, the foremost European broadcasting convention, held in Amsterdam every September, those that are doing well in the world of pay TV, start to line up discussions with analysts ahead of the show. Those doing less well, try to make sure they keep their heads down, but at least attend it anyway, because failure to make IBC is seen as some kind of admission that your business is on the skids.
Among those approaching IBC with a confident air are bound to be members of the encoding market, a side of the pay TV business that has gone from strength to strength over the past few years and looks set to continue in that vein, as every video experience needs some form of encoding, and the largest encoder business that remains independent is now Harmonic.
Last year’s news for IBC was that it could finally reveal that the Deutsche Telekom IPTV head end system would be from Harmonic, ahead of Tandberg Television, and one of the key European accounts for IPTV. There are fewer and fewer tier one telco encoder wins out there, and none we know of this year.
In terms of genuine revenue, rather than future possibilities, Harmonic remains tethered to the fate of cable operators, adding Edge QAM to cable operators such as Comcast in the US, and KDG and Virgin in Europe. And last week rival Arris announced that Comcast was once again ordering Edge QAM, which almost certainly means that Harmonic is also benefiting from those orders. Its quarterly results would certainly suggest that, with revenues up 34% for the past quarter to $53.3 million and a net income of $6.2 million compared to net loss last time of $2.9 million.
David Price Vice President, Business Development at Harmonic told us this week, ‘We have been deploying our Electra 7000 encoders, the ones using the Ambarella chips, which can encode a frame in one go, at many 100s of sites,’ which includes both AT&T U-Verse and T-Online France, both Microsoft Mediaroom customers. ‘They output a 1080i stream for around 4 to 6 Mbps. We reckon we are 15% to 20% ahead of other encoder makers in harnessing those chips, and these solutions will be universally adopted by all of the DTH satellite players. It is also true that capex at Comcast in the US is up significantly as it builds out its new on-demand capacity to deliver more and more free on demand streams, which are really taking off in the US.’
But what Price really wants to talk about is the acquisition of Rhozet, purchased a week or so back for just $15.5 million in cash and stock. If the cable business is what drives Harmonic’s quarterly revenue, and new the IPTV and DTH business was, for the most part, last year’s news, Harmonic is really looking for another leg to its revenue ‘ web video, and we would expect demonstrations to feature on the Harmonic stand at next month’s IBC show.
In December last year Harmonic completed the acquisition of VoD server business Entone, having first announced the deal back in August, paying $45 million in cash and shares for a company considered one of the leaders in IPTV VoD installations, which can boast PCCW, the largest IPTV installation in the world, as a customer.
Harmonic sees a natural integration between its offline encoding product, which encodes for VoD servers, and the Entone VoD server business. But many broadcasters and TV operators are now seeing two new potential revenue streams emerge, web video and mobile TV, and both of these represent opportunities for Entone, even if they don’t require the encoding power of the top of the line Harmonic encoders.
It must be understood that for the existing major broadcasters and real time pay TV businesses, real time encoders are its lifeblood, whether that is cable, DTH or IPTV. But increasingly offline encoding is being invaded by off the shelf servers, cheap as chips, which often deliver slower than real-time, software based encoding, on Dell, HP and IBM servers.
These are never going to cope with the demands of taking a real time stream from a satellite source, playing it out in MPEG 2 and re-encoding it in High Definition MPEG 4, and outputting 2 or 3 different screen sizes for IPTV re-sizing applications, such as mosaic and picture in picture. For that you need decades of encoding know-how and specialist chip architectures.
But increasingly, non-real time video is what is needed in the world of internet TV and to some extent mobile TV. The systems needs to decode once, taking their own sweet time, and store the outputs. But web delivery and handset delivery each have their own problems, and that’s where Rhozet comes in, which has been quietly winning business at Amazon.com, ESPN, MTV Networks, Yahoo and Comcast’s thePlatform unit.
‘We were just another customer,’ said Price, ‘we put a Rhozet front end on our Entone video server for a few customers and they said it worked well, giving them multi-format, multi codec outputs, so we investigated and ended up buying the company.’
Over the past two years alone there has been a proliferation, rather than consolidation, in the number of video formats that are seen on the web including Microsoft WMV, Microsoft SilverLight, DiVX, Apple Quicktime MPEG 4, Adobe Flash Video, to name but a few. Not only do content owners have to support services which specialize in just one of these formats, but increasingly consumer services have to offer multiple formats. There are also multiple transport schemes, which need to be supported. Video may be captured in one format, edited in another, served live in a third, delivered on-demand via the Web and mobile in half a dozen more and then finally archived in yet another.
Certainly advertising servers need to serve advertising video into all of these formats simultaneously. But the resolution of the stream served will depend upon the quality of the connection, and so multiple resolutions of each video type can be required. This leads to a new type of video server architecture, where one format of video is input, and multiple codec versions in multiple resolutions are created and stored on a server, ready to be called. Here transcoding, after the first compressed file has been created, is more efficient than making multiple encodes, so Rhozet is strong in non-real encoding and transcoding and the company name comes from the famous Rosetta Stone used for translating ancient languages as well as the Greek symbol ‘rho’.
Much the same can be said of the problems of delivering video over a cellular link to a wireless handset. There is no point delivering video faster than the broadband service the handset is subscribed to, or in higher resolution than the handset’s screen, or with a codec that it does not support.
The two tools that Rhozet sells are Carbon Coder and Carbon Server, we presume the name was derived from the carbon copy that used to be created when people used carbon paper and two sheets in a typewriter.
Carbon Coder is a stand-alone application that handles transcoding between major formats, as well as providing additional functions like standards conversion, logo insertion and timecode burn-in, while Carbon Server is a management tool that manages a network of Carbon Coder engines to accelerate transcoding for high-volume applications.
The mission in these types of environments is no longer how rapidly, or how tightly compression can be completed, but how appropriately the output can be for the remote device and for the IP route connecting the server to that device.
There will remain a philosophical debate for some time to come over whether or not we need servers that offer just about any type of video output file or if the world requires devices like Apple TV, which sit at the device and convert from any format to one that is suitable for your TV or other device. The latter comes from the understanding that there are many services on the web already, and many of them insist on using their own single selected video format, so devices like Apple TV get these formats to a TV.
But over time more and more video server farms will have to deal with multiple video types in and multiple types out, so it’s likely there will be a role for both types of devices for some time to come and Price even gave the example of someone taking a video of a plan crash or other breaking news event, using their handset, and then transferring that video to a TV news service for inclusion in a TV program.
The question remains whether or not you need the specialist real-time understanding of video that Harmonic has, to take advantage of a development like Rhozet or if start up rivals like TeleStream, Anystream or Digital Rapids are better placed to ride the web video trend.
Harmonic may trigger a race to land this type of capability, and being a consolidation in web streaming, but we stand by our assertion that Harmonic itself should be a target for acquisition, being the last independent encoder business of substance, since Tandberg Television was acquired late last year by Ericsson, to fill out its own IPTV offerings.
That deal went though at a value of $1.4 billion, almost precisely 4 times revenues, and a similar valuation for Harmonic might lead to a $1 billion transaction for Harmonic, which currently stands with a stock market value of about $675 million.