Ominous Netgem reshuffle shifts multiscreen business to Vitis

French video technology vendor Netgem, a connoisseur of ambiguity, filed a set of alarming financial results this week in tandem with news of a new CEO appointment. Normally executive reshuffles are of little to no interest here at Faultline Online Reporter, but the fact co-founder Joseph Haddad has vacated his position is difficult to digest as anything other than a death sentence for Netgem as a video business.

In doing so, Haddad has – in a sense – sold out, as shareholders this week approved the transfer of the multiscreen platform business to Vitis, the specific subsidiary which houses the VideoFutur fiber services business. On last count, Netgem held a majority 53.2% share in Vitis.

The reason – VideoFutur is Netgem’s light at the end of the tunnel.

VideoFutur experienced strong revenue growth with a year on year increase of 42% to €3 million for the first quarter of 2019, while total revenue plummeted to €6.6 million, from €11 million a year earlier. The lost revenues are a direct result of Netgem’s aggressive strategy change initiated a few years back, so while the changing face of Netgem is nothing new, when the very person who initiated this new roadmap jumps ship, it doesn’t exactly instill confidence. Haddad will, however, remain loosely at the company as Chairman.

VideoFutur’s rise to prominence on the Netgem books, rocketing from 19% to 45% revenue contribution in just one year, is emphatic and also ironic considering rumors have swirled about Netgem seeking a buyer for the business. Surely at this run rate the VideoFutur business will account for the lion’s share of Netgem revenues by next quarter.

In fact, VideoFutur’s growth appears to have directly influenced the CEO switch, as Mathias Hautefort will move from his position as President of Vitis into the Netgem driving seat. Clearly this is about implementing sweeping services-centric business changes across the majority of Netgem operations, considering how more than 50% of net revenue in Q1 came from services for the first time in Netgem’s history.

It comes as Netgem etched out a three-headed reorganization strategy this week. It will separate out netgem.home, covering connected devices;, the TVaaS business; and Vitis, the French fiber ISP and content provider. But as Netgem shareholders approved the transfer of the multiscreen platform to Vitis, it appears the latter two businesses are in the process of merging, while the former, which provides TVaaS to operator including the UK’s EE and Ooredoo Oman, could soon be spun off or sold in our view.

A few weeks back launched its personalized Internet TV service in Ireland, bringing live channels and on-demand content from Irish DTT broadcaster Saorview through one UI for the first time to Irish viewers. It claimed a successful one-year stint in the UK market as reason for expanding to Ireland.

The seeds were sown in mid-March when Netgem inked a deal with Chinese telco equipment giant ZTE to take the European fiber broadband market by the horns, in which ZTE will provide fiber network infrastructure, as well as set top and gateway hardware, while Netgem will supply its middleware to operators – likely tier 2 or 3 contracts. Video might not be entirely forgotten though, as Netgem says it will bring its software assets and relationships with content publishers to the collaboration, through its experience in integrating local systems for pay TV providers in Europe.

Perhaps then the deal is a match made in heaven, with ZTE supplying its optical fiber network infrastructure portfolio, while Netgem sticks to its guns in software while maintaining its content roots. This may pave the way for a more straightforward future for Netgem than the convoluted back story it – and we – have endured.

“Mathias Hautefort has demonstrated, in the Group and before, his ability to develop service activities at the intersection of technology, media and telecoms. His appointment significantly strengthens the transformed Group’s ability to return to growth” said Haddad.

“Netgem can build on its proven expertise experience in Services, coupled with an industrial capacity and innovation in Connected Devices, and a healthy balance sheet,” noted Hautefort.