Killer whales became an endangered species this week as Israeli IPTV middleware specialist Orca gave up its independence to be acquired by French conditional access company, Viaccess, itself a 100% subsidiary of France Telecom.
Although it is based in Israel, Orca Interactive is a UK public company on the AIM market and was acquired at a 100% premium to its recent share value, for a price of $13 million plus what the company had in the bank, taking to total to $21.4 million which is a fairly flimsy valuation considering that Orca has IPTV middleware sales all over the world and once rubbed shoulders with partners such as Alcatel, Nortel and IBM, and at least tier 2 level European telcos.
The recent Orca results show that it had revenues of $6.4 million, up substantially on the $3.3 million from the previous year and had a net loss of $4.3 million. At the year end Orca had some $12.7 million cash, but that has clearly since dwindled somewhat.
Any consolidation deal within IPTV acts as a signal to the market, and we can only hope hat come September, when we step through the halls of the IBC show in Amsterdam, we don’t see another 10 IPTV middleware companies launched like we did last year.
With all that money in the bank Orca had no urgent reason to go look for an acquirer, even though it had been losing money for some time and it could have survived another two or three years as an independent company. However the board has been looking for a buyer since 2005, when it decided that it just didn’t have the market weight to attract Tier 1 telco deals. In the past Israeli messaging systems vendor Comverse has been linked with Orca with a strong chance of landing the catch, because it had cash holding in excess of $1.4 billion, and has conducted a number of recent acquisitions, acquiring French company NetCentrex and billing specialist Netonomy, as well as taking the Kenan billing business. Also encoder designer Optibase has been considered a potential buyer in the past. The company said that it had entered merger talks in January 2007, but they clearly fell through and in May 2006, Orca engaged Jefferies, a US investment bank, to identify candidates and it came up with Viaccess which made its first clear offer in December.
For the past 12 months or so rumors that Viaccess is also up for sale have refused to go away, despite the fact that its technology is a vital part of France Telecom’s IPTV strategy and is expected to form part of its Mobile TV platform once France builds a DVB-H network.
Viaccess has had some modest success in other markets, providing encryption for pay TV services and claims installation on around 15 million European and Asian set tops, some of them DVB-T digital terrestrial devices, while others are for satellite based TV systems. But it is a far cry from the more lucrative cable and satellite devices that Nagravision has as part of Switzerland’s Kudelski group, and NDS has as part of the News Corp organization. Viaccess also has to cope with competition from Naspers owned Irdeto outside of the US, and both Motorola and Scientific Atlanta in the US, making it no better than 6th ranked globally in conditional access, with a number of innovative ‘software only’ suppliers such as Verimatrix and Widevine, keeping it out of IPTV deals as well.
So this looks like Viaccess trying to come up with a strategy to get France Teleom to fall back in love with it, and not only to keep it, but to turn to it for more product.
Haggai Barel CEO of Orca was at the airport, waiting to fly to IPTV World Forum on London, when we caught up with him, and he said the Orca management team is part and parcel of the deal, and has incentives to stay with the company for the next few years.
But isn’t Viaccess the wrong company to be acquiring Orca? Shouldn’t it be Thomson, the company that has already acquired the France Telecom IPTV software that Thales wrote for its MaLigne IPTV service, now productized and called Smartvision by Thomson.
‘It’s true that Viaccess and Orca do not supply the currently France Telecom IPTV middleware, but we see many solutions that are made up from combinations of Viaccess and Orca products, and we see France Telecom as a potential customer,’ said Barel.
That’s quite difficult to see given that France Telecom, Thomson and Sagem have just initiated a joint venture under the name Soft at Home which will use Thomson software and Sagem set tops to push for European standardization in the home.
‘That deal does not use the Smartvision middleware,’ insists Barel, ‘it’s about some of the set top and gateway software, not the underlying IPTV function. And we see convergence as the key route forward for Viaccess at France Telecom.’
What Barel is suggesting is that if a single encryption server is used for IPTV set tops, handsets and even PCs, then the Orca RiGHTv software might be used for service management across all three services. And he points to devices like the company’s Compass EPG software that has a very different paradigm from the box styled Gemstar EPG, using instead an L shared set of menus and the compass metaphor, which he says is written in Java and easily portable to mobile devices and the web.
‘We have been shortlisted in IPTV accounts because of the Compass services guide, and one of our clients said it would not launch without it, and held up its service launch until it was integrated,’ said Barel, ‘and we have written it so that it can plug into other company’s middleware, it doesn’t rely on ours,’ he added.
So far none of the existing Orca customers use Viaccess conditional access, so by tightly integrating the two products lines there may be some immediate prospects there, but Barel admits that the real opportunity is probably from broadcasters wanting more sophisticated DVB-T broadband hybrids, adding DVR, VoD and Web TV, and using RiGHTv as the managing software for all of the broadband based parts of the service, rather like the way in which British Telecom uses Microsoft Mediaroom to offer its BT Vision service. So this is more about Viaccess taking Orca to its existing broadcast clients than Orca introducing Viacccess to its IPTV customers.
To us this looks like Viaccess needs a captive bunch of video literate software engineers in order to differentiate its offerings, and that Orca is becoming the software arm of a 200 person full service TV services company. ‘We will also continue to work with other conditional access suppliers, all those which we have worked with in the past,’ insisted Barel
The transaction needs shareholder approval at Orca Interactive for it to go through, but at that price, it is sure to go ahead.