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16 July 2020

Netgem defies all odds, achieving fiber operator acquisition status

The shifting strategies of French firm Netgem have long intrigued us here at Faultline. From set top manufacturer, to video software developer, to fiber operator partner, Netgem has tried it all with little financial success, mirroring the story of a lower league sports team restructuring from the darkest depths of back-to-back league relegations. Now, Netgem may finally have maneuvered its way around the changing face of video delivery with the finesse of the French national soccer team, as the company prepares to become a fully-fledged service provider.

Netgem’s latest foray has seen the business acquire Comcable, a French fiber network operator through which Netgem will reinforce its Videofutur pay TV platform, including multiscreen TV and 4K set top.

Last year, Netgem’s cloud-based multiscreen service began being marketed by the Vitis fiber division in France, with the aim of securing distribution deals with partner operators in the country throughout 2020, to build on deployments at fiber operators in the UK and Finland last year. However, actually acquiring a fiber network operator over signing a distribution deal with one was not part of the script.

With just 3,500 subscribers, Comcable is a minnow that fits Netgem’s model perfectly. But the fact Netgem can even afford to make an acquisition of this stature is surprising, which was only made possible by the decision to transfer the multiscreen platform business to Vitis in May 2019, the specific subsidiary which houses the Videofutur services business. That proved to be a smart move, with Vitis growing revenue 54% last year to €14.3 million, while traditional Netgem revenue fell further by 31% to €13.5 million in 2019.

Acquiring Comcable gives Netgem a direct route into Paris and much of the surrounding area, referred to as Ile-de-France, as well as further north in Lille, over to the north-east in Moselle and Meurthe-et-Moselle, and establishes itself on the public network of the municipalities of Jura spanning the northern section of the French-Swiss border. The UK and Finland are Netgem’s two other primary market areas, with Elisa in Finland one of its biggest customers running a next-generation 4K HDR set top.

Netgem last year teased the unveiling of more upscale equipment adapted to the specific fiber market in the coming months, relating to the commercialization of traditional set tops which has caused a sharp reduction in operational costs and long-term contracts. This new connected equipment will be marketed as part of rebuffed business models combining the sale or rental of equipment with value-added services.

Netgem is also charging into the UK market, claiming new contracts with local fiber operators to provide NetgemTV’s global cloud-based management software for connected home services – citing the UK’s advanced fiber deployment catch-up plan as a lucrative opportunity.

Videofutur has long been the company’s shining light, but transforming it into a credible business has taken some serious persistence since initially acquiring the assets way back in 2007. As a quick recap of Netgem’s peculiar backstory, it bought the VoD service Videofutur in 2007, via a French DVD rental company called Glowria, but then a couple of years later Netgem floated parts of the company off, describing it at the time as an enterprise video play. Another four years later and Netgem essentially rebought Glowria all over again when it acquired the remainder of Videofutur in 2013. Then in 2019, rumors of Netgem selling off Videofutur for a second time were loosely rumored.

Netgem CEO Mathias Hautefort said, “This operation allows us to consolidate our objectives for new subscriber acquisitions in 2020 and to offset the commercial impact linked to confinement measures, while preserving our objectives of controlling customer acquisition costs, with a cash return on investment within less than two years.”

Now we are looking at Netgem the operator, who would’ve thought it? The signs of transitioning to a service provider model have been there for well over a year but few thought Netgem would actually pull it off.