Market Insight

Telstra raises stake in Ooyala to 98 per cent

August 12, 2014

Tom Morrod Tom Morrod Research Director | Consumer, Displays, Media, Security & Telecoms

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Australian telco Telstra has purchased a further 75 per cent stake in online video platform (OVP) Ooyala for $270m. This comes on top of its $61m investment over the past two years in 23 per cent of Ooyala, bringing its total share in the company to 98 per cent. The deal will see Ooyala operate as a wholly owned subsidiary of Telstra, working as an independent business unit out of Silicon Valley.

Ooyala is one of the largest OVPs globally, providing video streaming, monetisation and analytic services across the media, enterprise and education industries.

Our analysis

As an OVP, Ooyala is responsible for taking video from clients, managing and processing it into different formats, and delivering it to whatever web-based application/device required. Several high-revenue aspects of this process, such as CDN transport and transcoding, are usually outsourced – with the core value offered residing in the software that integrates and simplifies complex functionality, and in the proprietary value-added analytics and monetisation solutions.

In the media and entertainment space (not including finance, enterprise or education), which typically comprises 30 to 60 per cent of an OVP’s business, the majority of deals are with broadcasters rather than pay TV operators – persuading content owners to deliver content over-the-top (OTT). This business model has seen the total OVP market for media and entertainment grow at a rapid pace over the past five years, reaching $465m in 2013, and is expected to see it continue to grow through to 2018, particularly in Latin America and Asia Pacific.

Therefore, purchasing Ooyala, and running it as a separate business unit, could be seen as simply an investment in improving Telstra’s bottom line. Ooyala has a high percentage of business in the media and entertainment industries, in which OTT video delivery is growing quickly, and has grown its own business rapidly with a strong emphasis on advanced client analytics and methods for monetising OTT content. With financial backing from the Telstra Group, Ooyala will be well positioned to expand fast, potentially more so than other, privately funded rivals such as Brightcove and Kaltura.

However, it is unlikely that increasing revenue by adding a fast growth company was the sole reason for this acquisition. Companies that own infrastructure used for transport, such as fibre, satellite or terrestrial networks, typically see steady revenue from the leasing of their networks. However, with the rapid increase in digital content, and connected devices, much of the growth in the market for content delivery has come from companies that re-sell capacity, and provide other services bundled on top of it, such as linear and non-linear playout, asset management, discovery, storage and monetisation.

This has led many transport infrastructure providers, particularly those with satellite and terrestrial networks, to invest in storage and processing services – SES runs its Platform Services division; both Eutelsat and Intelsat run similar managed service groups; TDF has launched its own Arkena managed service division; while Arqiva has expanded rapidly into Playout through the Turner facilities in Hong Kong.  This situation has less precedence in the telco/fibre space, as satellite and terrestrial media leasing revenues heavily outweigh that of fibre. But recently there have been moves in this direction, with Tata Communications purchasing CDN provider BitGravity, and more notably Verizon heavily investing in its Digital Media Services (VDMS) division, acquiring a CDN provider in Edgecast and media managed service provider upLynk. 

Telstra itself has a managed service business centring on fibre distribution, with other small plays in CDN, media web services and storage – and indeed it manages the distribution of its own online video service, BigPond. However, its purchase of Ooyala gives it an instant significant presence in media managed services that puts it in a similar bracket to VDMS, operating as a telco with CDN and media asset management services on top. While there may be benefits in traffic management from operating a CDN together with fibre services, the business proposition here is primarily cross-sell – content providers ultimately need both delivery and processing services, and being able to offer all these services together can help to potentially upsell new services, and increase client retention amongst the core transport business.

 

Organization
Ooyala Telstra
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