There is much more to the announcement of Australian telco Telstra writing off over $500 million in its OTT video and analytics technology subsidiary Ooyala than first appears. Vendors similar to Ooyala are now essentially worthless, ravaged by the commoditization of video technologies inside cloud technology titans like Amazon Web Services – in what should be triggering alarm bells at companies the world over.
Three and a half years after acquiring Ooyala for $270 million and spending hundreds of millions of dollars more on building it up, the write down of the company to a value of zero encapsulates a shift in the video market which has been approaching for some time. Faultline Online Reporter’s suspicions about Ooyala’s future have been teetering towards red for a while, as customer wins were all but absent and former contacts within the company dropping like flies.
Ooyala CEO Jon Huberman was recruited 10 months ago to turn the company around. Although a write-off of this scale was not the master plan, Huberman insists certain changes, such as cutting off the ad tech arm to focus on one area growing at “an extraordinary rate”, will return value to Ooyala. “I arrived at a company with great technology, but not a great business model,” said Huberman, speaking to Faultline Online Reporter this week.
But first, let us dig into how and why this write-off occurred. Huberman claims nothing more than human error is at fault, but we think it goes much deeper.
Ooyala was focused heavily on the advertising-supported VoD space, building a video player with ad technologies designed to increase engagement and monetization for publishers and service providers. Founded by three former Google employees, ad tech clearly seemed a natural recipe for success, but where Google has pioneered the online advertising industry, Ooyala struggled to tap into a market at a time when not only were ad revenues slipping, but the technologies required to offer this type of platform were also decreasing in value.
After early promise, Telstra took Ooyala under its wing with ambitions of making waves in Asia Pacific, pushing Ooyala technologies to operators and content giants throughout the continent – a harder task than anticipated with SVoD on the rise and much cheaper suppliers entering the market.
Telstra saw its Ooyala investment as strategic and wanted to dominate video monetization among other telcos in Asia Pacific, driving advertising revenues to pump up its own share price. That plan has clearly failed on both sides and there is trouble inside Telstra, as the telco is valued at $43 billion today, down from the $65 billion market cap when it acquired Ooyala in August 2014.
Three years ago, the market was saturated with so called “end-to-end” OTT video technology vendors. Today, integral components of this chain, namely workflow components and packaging, have been sucked into the cloud and their value has significantly diminished.
How we see it is that all the value in OTT video delivery is in the core databases which belong to operators, and now these are more likely to run in the cloud. Not only will billing services migrate there, but everything that comes out of billing, a shopfront, a CRM database, an entitlements database, and new packages which emerge from the combination of them or through what you might call a services management platform. Security has followed, and distribution of video has also moved to the cloud, while at the far end of the chain, delivery of content is now much cheaper due to cost per bit in CDNs coming down dramatically. Essential processes in the chain such as packaging have not changed much in some time, and so have become commoditized and their value has shrunk as a result. Cloud players like AWS now offer almost every step in this chain.
If Ooyala is worth next to nothing today, then we worry for the future of companies including Kaltura, Brightcove, JW Player, Vimeo, Inview, Massive Interactive, Saffron Digital (now NeuLion), Anvato, Norigin Media, Zappware, Stream Group, Booxmedia (Amino) and Perception TV – to name but a few.
Quickplay Media is another significant player, now part of AT&T, and we have seen a similar period of unrest at Arkena, having scrapped its CDN business not too long ago. Meanwhile, Ericsson has basically given its media sector away for free (we suppose that was the value) but has kept the billing and support services side of its business where it sees value, much like Cisco which came out with a rejuvenated video platform last year.
Huberman arrived at a company where ad tech was the biggest business, followed by its online video player and finally the Flex media logistics product. Today, that dynamic has flipped on its head and Flex media logistics is the company’s core business, according to Huberman. This is essentially a CMS for content production, also called media asset management software, with workflow orchestration handling ingest and distribution, plus monitoring and analytics.
“Today we are more like Verizon Digital Media Services or Comcast Media Solutions than Brightcove or Kaltura,” said Huberman, noting that a multi-product model makes Ooyala immune from the commoditization of OTT technologies discussed here. Well, its ad tech product line is soon to be scrapped so Ooyala is down from three products to two products – with a lot of pressure being placed on the shoulders of Flex.
The poor business model Huberman has been tasked with rethinking was apparently not a direct result of Telstra’s takeover, as Ooyala has been left largely to its own devices. Ironically, Telstra’s single major influence, other than the cash, has been growing Ooyala’s relationship with Microsoft and its Azure cloud unit. Ooyala supports the major cloud providers but prefers Microsoft due to its open approach to big data.
A fitting example of Ooyala’s frailties falling victim to commoditization came last year from UK broadcaster ITV, which upped its reliance on AWS Elemental for encoding and playout software to improve the infamously poor quality of its ad-supported ITV Player streaming service. ITV Studios is a customer of Ooyala, using its full-featured workflow with operational and creative dashboards to allow editing, content review and metadata entry. Although Ooyala claims that its ITV contract is unaffected by increasing AWS influence, the concern is that AWS has the infrastructure to supply its cloud encoding clout as well as tying in dashboards, APIs and tools for the production side, at a fraction of the price and in a convenient package.
Huawei has become a major force in video and will have played some role in stealing contracts away from companies like Ooyala. Things could soon go from bad to worse, as Huawei recently announced it will enter the European OTT video market some time in 2018, revealing plans to launch a platform in partnership with Spanish TV group Atresmedia. Given that Huawei is deeply embedded in some of Europe’s largest operators, the news of its foray into a direct to consumer video service should give anyone involved in the industry some serious competition to think about. If Cisco doesn’t get you, Huawei will.
The service will likely be subscription-based rather than ad-supported as it will center around movies, but even pricing Huawei Video on par with mainstream SVoD services in Europe could see Huawei steal away a sizable share of subscribers from established players, given its growing device user base. All we know for now is that free trailers and documentaries will be available from launch.
Huawei’s moves in Europe are worth mentioning because its partner in the venture, Atresmedia, once had an ad serving agreement in place with Ooyala, to offer access to Ooyala’s Spanish private programmatic marketplace Aunia. However, Ooyala confirmed to us this deal is dead, so we feel any attempt to piggy back on Huawei’s rise is unlikely to materialize.
Ooyala’s most recent customer win, its first for a while, came in July last year with ZoneTV, a Canadian start-up targeting the transfer of internet video to the TV. With no disrespect to ZoneTV, Ooyala has traditionally targeted customers with the promise of Sky Sports, Mediaset and RTL Group, for example, so ZoneTV was a small victory in the grand scheme of things.
Mediaset remains on Ooyala’s books while RTL is a lost contract, but Ooyala claims some big customer wins are on the way, starting with a virtual and augmented reality deal this week with Intel Sports for the Winter Olympics, distributing immersive content to regional rights holders for broadcast, mainly handling media asset management.
That said, Telstra is investigating “broader strategic options”, which we can only conclude means cuts will follow and a sale or closure of some of the company looks imminent. Surprisingly, internal cuts have not been made, employing “a few more” people than the 450 employees Ooyala last reported.
“This was a business that Telstra purchased when the market dynamics were very different. There are three key parts of the Ooyala business – ad tech, OVP (video player) and a workflow management system (Flex media logistics). Ad tech has not performed well, and we will therefore seek ways to exit that part of the business. We will increase emphasis on our differentiated Flex media logistics product and we will drive operational efficiencies and leverage our go to market partnerships with companies such as Microsoft,” said Telstra Group Executive Technology, Innovation and Strategy, Stephen Elop, who is also Chairman of the Ooyala Board. He was once the CEO of Nokia, how the mighty have fallen.