Zattoo buys Magine TV consumer biz, should merge instead

Cloud-based OTT video network Magine TV has ended a prolonged period of radio silence with news its B2C business is being sold to chief rival Zattoo, which will inherit the guts of the operation and shutter the service effective end of February. European consolidation has taken another victim prefigured as a potential Netflix killer – sliding what remains of the company quietly into the back office shadows.

Zattoo and Magine TV are two similar companies whose business models have shifted in recent years to focus on being B2B technology vendors, so it would not surprise us if Zattoo were to make a similar move in the next couple of years – scrapping its consumer-facing service and going pure B2B. Both are Swiss software companies; both have earned their stripes in Germany; both are in a critical state of flux.

Ball park recent estimates had Magine TV at around the 400,000 subscriber mark, while Zattoo has said this week the reality is just 150,000 active users.

So, by getting out of the B2C biz hard and fast to focus on B2B fortunes, Magine TV could end up becoming a more legitimate competitor to Zattoo in the software and services supplier space, where the latter has openly proclaimed it wants to challenge Netgem – another similar company emerging from consumer products to business services. That therefore begs the question why Magine TV and Zattoo did not seek a merger, implying that the Zattoo B2C offering is looking healthy.

That said, previous estimates have shown Zattoo at around 550,000 active subscribers paying €9.99 a month, as well as 34 million monthly views on the ad-supported tier, as of a couple of years ago, and we now believe the paid subscriber figure to actually be something closer to 170,000 – following the pulling of its direct to consumer operations from the UK, Spain and Denmark about a year ago. Clearly there have been some challenges, but our numbers show Zattoo growing by around 10,000 subscribers a year in Germany and Switzerland, its two remaining markets, so it might not be all doom and gloom for Zattoo and inheriting Magine TV’s B2C business means one less competitor on the market.

Magine TV began in Sweden then surprised the world by not only launching, but holding its own in Germany, followed by Spain, the UK, and Thailand, enjoying a rapid rise a few years ago when it was heralded by many as a market disruptor. Obviously, this dream was never realized and has since been preceded by an even quicker descent. Magine TV even said it managed to pick up 1 million subscribers in Germany within its first five months – achieved on an investment round of $19 million in 2014.

Magine TV enjoyed early success in Europe by getting its business model just right, which was because broadcasters in Sweden and Germany are open to third party OTT as a way of extending their reach. This is not the same as in the US where broadcasters are worried about disrupting existing relationships with the big pay TV operators and cutting off established revenue streams.

Its model was built on partnering with networks and channels, including public broadcasters ARD and ZDF, as well as ProSiebenSat.1, RTL, Discovery, Turner, Viacom, Eurosport, VOX, Bloomberg TV, Al Jazeera and Sport 1. Magine TV streamed live broadcasts, came with 7-day catch up and a movie catalog in Sweden via its film2home acquisition. Magine TV also struck deals with LG, Panasonic and TP Vision (for Philips branded TVs) to make its app available on their respective smart TVs.

Another reason Magine TV was pegged as a potential Netflix challenger was its TV for Me service, for which the company had built a recommendations engine it spoke proudly of – saying viewers would not be disturbed by one-size-fits-all suggestions. It had also filed patents for video content recognition and had a partnership with US company Prodea Systems for co-marketing with its IoT systems.

We also know Magine implemented a multi-CDN strategy, building its own tools to evaluate CDN performance by region, the quality of streams, costs and reliability of each CDN provider – and a little over a year ago it selected Limelight Networks to replace legacy delivery infrastructure to replace an unnamed supplier.

Existing Magine TV subscribers will be given two months free access to the Zattoo Premium service. On the B2B side, Zattoo customers include Swiss mobile operators Swisscom and Salt, powering apps and ongoing development for each.

Nick Brambring, CEO of Zattoo International, said, “We regret that we are losing Magine as a partner in the development of a market for modern TV distribution in Germany. In return, we are gaining more users and can therefore invest even more in our product.” Magine TV’s customer service will remain available until February 28, 2019.