A reinvigorated and albeit much smaller SeaChange International made an unexpected acquisition this week, picking up Danish streaming specialist Xstream in a cash and stock deal totaling a value of $5.5 million. SeaChange has long cited the importance of increasing SaaS revenues over its core product revenues, yet its last few financial reports will have done little to calm investors’ nerves – and the move is another reminder of the US vendor’s escape to Europe.
Although we were surprised to see SeaChange dipping into the M&A pool given the major recent cutbacks, the transaction is interesting considering the vendor last month emphasized a multi-vendor approach following a deal with Russian OTT video platform provider Total Video.
So, SeaChange will inherit Xstream’s flagship MediaMaker video platform to bring features to its own video framework including accurate capacity dimensioning, hyper scaling, bottlenecks clearance, content caching, load balancing, testing, and proactive maintenance. These techniques and technologies combine to support MediaMaker in handling 30 times normal streaming traffic in extreme cases (hence the name, presumably).
Xstream claims to serve more than 5 million active subscribers globally, generating $6 million in annual SaaS (Software-as-a-service) revenues, making the acquisition price of $4.6 million in cash and 541,738 shares seem rather low. SeaChange expects to achieve several million dollars of cost synergies through the merger within the first half of 2020, and Xstream’s respectably sized SaaS business aligns well with SeaChange’s ongoing revenue mix transition from perpetual licenses to a SaaS or subscription-based business model. SeaChange has previously warned about top line pressures from a SaaS shift but has assured investors that the shift improves visibility into and predictability of revenue growth.
That said, SaaS service revenues at SeaChange have plummeted, reflecting the company’s overall shrinkage, down to $60,000 in the three months ended October 2018, from $479,000 in the same period a year earlier. That is one dramatic fall from grace, no doubt about it, but at least SeaChange seems to have a streamlined focus which is more than we could say for it a year and a half ago.
In percentage terms, SaaS now accounts for 0.32% of total revenues, down from 2% a year ago. Through this pitiful picture, we can clearly see SeaChange’s thinking behind the Xstream acquisition. In fact, every service sector saw revenues decline in the year period, while in the separate product revenues segment, advertising jumped from $243,000 to $1.8 million, and hardware – by some miracle – from $190,000 to $1.16 million. Its flagship video platform, however, saw revenues slashed in half from $10.4 million to $5.2 million.
Red flags were raised about the company’s technology a few years ago when it was seemingly ousted from the Canal Digital Kabel account in Norway by Ericsson. Our data shows Telenor-owned Canal Digital Kabel in Norway had used an Xstream OTT infrastructure on its ADB-supplied set top since around 2011, but the Norwegian operator then migrated its set top-based on-demand service from Xstream to an Ericsson video platform (now MediaKind) around 2013 in order to benefit from QAM. It also had a project with Cisco/NDS several years ago (now Synamedia), but this has since been terminated.
However, SeaChange CTO Marek Kiełczewski came to Xstream’s defense, telling us, “The Xstream platform provides OTT services for customers that are connected using cable as well as DTH and OTT. Ericsson has not displaced Xstream as a supplier to Canal Digital, I believe you might be talking about Telenor Norway and its TV platform where I believe Ericsson might still be a supplier, but that was a legacy platform.” Faultline Online Reporter will be sure to have a catch-up conversation with SeaChange at NAB in April so stay tuned.
Xstream said its MediaMaker OTT platform delivered “flawless” matches during the recent World Cup tournament for customers including Canal Digital, while claiming rival streaming services experienced buffering, delays and cuts.
Kiełczewski also told us Xstream has a patent application pending which deals with media asset management and more specifically the ingest workflow.
Other major Xstream customers include Dimsum’s Star Online in Malaysia, Indian SVoD service ALT Digital Media Entertainment (owned by Balaji Telefilms), Nordic IPTV and broadband brand Altibox, and Our Star Club.
Logistics was also a deal breaking factor, as SeaChange CEO Ed Terino said, “Xstream’s engineering resources are in close proximity to our engineering and development organization in Warsaw, which will enable an accelerated integration and provide for increased velocity of roadmap deliveries. In addition to leveraging Xstream’s experienced engineering resources, we expect to realize cost synergies in sales, marketing and administrative functions, including the consolidation of multiple locations into our Warsaw offices this fiscal year.”
As Faultline Online Reporter noted back in May last year when SeaChange announced its new streamlined product lineup, the new face of SeaChange is comprised of cContent (CMS), cBridge (transaction management), cAds (ad management) and cView (UX).
While the core technologies of cFlow are essentially the same, there has been a big CMS effort focused on scalability. The updated cContent CMS product recently helped one unnamed customer handle over 1,000 content checks before the workflow process, as new VP of marketing Kurt Michel told us at the time, with cContent providing metadata enrichment for matching viewers with content and scaling this accordingly with subscriber base growth.