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25 February 2021

Net Insight portfolio stripped from 3 to 1 as revenues go south

Faultline has always paid close attention to the activities of Sweden’s Net Insight due to the company’s pedigree for being ahead of the curve. With the ink barely dry on Net Insight’s latest financial results, the company decided to divest its Resource Optimization business – stripping the product portfolio to the bone less than 15 months after the sale of its Sye synchronization unit to Amazon.

Better known to some by the product name ScheduALL, there were plenty of clues tucked away in Net Insight’s fourth quarter and full year 2020 results that showed an intention to concentrate all efforts on growing the Media Networks arm which houses the revered Nimbra portfolio. Unfortunately for Net Insight, it has been struggling to grow both these remaining businesses, Media Networks and Resource Optimization, even during a period of phenomenal growth for video.

An LA-based facility management software provider called Xytech Systems has coughed up $6 million to acquire the ScheduALL business from Net Insight, which was developed in-house in 2015 as a system for optimizing operating costs with centralized systems like MAM and content workflows. Recouping $6 million for a division that generates upwards of $8 million in annual revenue looks like a steal for Xytech, although ScheduALL has been contracting for some time.

Pairing ScheduALL with another resource optimization specialist serving media and broadcast companies was a sensible solution to the division’s growth struggles. Xytech’s attention may have been piqued by the release of a new SaaS version of the ScheduALL portfolio last year called Evolution, targeting enterprise-grade resource optimization software at broadcast and production teams.

However, unlike many of its counterparts and competitors, Net Insight has been unable to capitalize on 2020 video trends, with full year net sales for Media Networks declining 12.2% to $40 million, while Resource Optimization sales fell 5% to $8.1 million. Combined, the two divisions – which provide internet media transport and asset management – brought 2020 net sales to an 11% year on year decline.

This sustained decline gave Net Insight little option but to cash in. In previous quarters, the company has talked up big wins for the Nimbra IP media transport platform, including a sizable deal at Indian giant Tata Communications last year, which we expected to propel Net Insight’s financial position to a new level. Clearly this mega infrastructure backbone project supporting video delivery for OTT companies, broadcasters, and sports organizations, was not as mega as initially interpreted. There is the possibility this deal is a grower, rather than a shower.

One particularly relevant trend to Net Insight that has surfaced over the past year are watch together features. Popular apps have been launching social viewing functionality to keep people connected with friends and family while viewing content – live or on-demand – in such a way that synchronizes both camera feeds and video streams across the party together in the best way possible, so that viewers in the party are not left out of sync and therefore out of the action.

We say that because Net Insight had such a tried and tested synchronization technology, which it sold in December 2019 to Amazon in a $37.2 million deal. This was a timely deal given the trends we have just mentioned, allowing Net Insight to channel sales and development resources into Nimbra while positioning ScheduALL for a sale.

Sye is delivered via a protocol developed in-house based on UDP (user datagram protocol), including refined ABR technology that is aware of the client’s available bandwidth – providing the highest possible ABR profile at any given time to maintain picture quality and ensure smooth channel changes. We understand that Sye was built with pure IP networks in mind, rather than the hybrid approach that ATSC 3.0 brings where Net Insight has been targeting time synchronization capabilities which is another feature of the Resource Optimization product line.

Net Insight reinvested a smidgen of the Sye cash in March of last year, when it acquired some IP video assets from California-headquartered Aperi – a specialist in virtualized software stacks and functions – for $1.2 million. The deal aimed to improve the competitiveness of Net Insight’s media transport portfolio by covering a larger set of use cases – meaning offering a virtualization stack layer as part of the media transport product line.

Technology including the Nimbra 1060 and the newer Nimbra Edge platform allows customers to evolve their delivery infrastructure, catering for easy implementation of new technologies and protocols, for example supporting popular streaming protocols like SRT and RIST. Live sports, entertainment and news production use cases can all benefit from virtualizing media functions to migrate from SDI to a native IP live production architecture.

Like Sye, we think Aperi could be a wise investment for the future. Blaming an eight-person engineering team for not growing fast enough to support the whole Net Insight business is not the angle we are aiming for.

Also in the fourth quarter, Net Insight upgraded its Nimbra Edge intelligent video delivery platform with enhanced flexibility and reliability for ingesting and delivering live media streams. The new version comes with enhanced monitoring for service providers to access precise information about services running on their networks, as well as built-in synchronization for remote and distributed workflows in the cloud. Evidently, Net Insight has held on to some of its synchronization skills, and the same may be true of its resource optimization credentials.

Combined with the sale of Sye to Amazon in December 2019, Net Insight has made a total of $43.2 million from selling 2/3 of its product divisions. But our concern is that by streamlining its core media transport business, Net Insight could be setting up this remaining and largest 1/3 of the business for a sale, in other words presenting the whole business in the shop window, whether inadvertently or intentionally.