Market Insight

Australian telco increases investment in online video platform to expand its digital business

August 18, 2014  | Subscribers Only

Kia Ling Teoh Kia Ling Teoh Senior Research Analyst – Advertising & Television Media, IHS Markit

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Telstra, the largest Australian telecommunication and information services company became the majority owner of the online video streaming platform, Ooyala in August 2014. The transaction was valued at USD 270 million (EUR 197 million) and will increase Telstra’s share in Ooyala from 23% to 98%. The deal is subject to US regulatory approvals and is expected to take effect after 60 days.

Besides Australia, Telstra has operations in Asian markets including Hong Kong and China. The company recorded sales revenue of AUD 25.5 billion (EUR 17 billion) in 2013 and IHS expects the telecom to note growth in 2014.

Ooyala has been active since 2007 and provides video services to broadcasters, operators and media organizations across all devices. It also helps companies monetize their video content through its cloud-based software and analytics capabilities.

Ooyala will continue to operate independently after the acquisition. 

Our analysis

The acquisition complements the two businesses’ interests, considering the following:

1) Ooyala needs financial backing to accelerate its business growth

The aim of the acquisition on Ooyala’s side is to boost its growth. Financial backing at this time is strategic, in line with the CEO’s intention to leverage the business. Ooyala is smaller in size compared to its key competitors, NASDAQ-listed Brightcove and venture capital-backed Kaltura. In order to take on this competition, a capital boost that allows more investments in people, infrastructure, R&D and technology is necessary for Ooyala’s business development.

Furthermore, Telstra’s existing network coverage and business relationships can enhance Ooyala’s position in the market. Though based in the US, 45% of Ooyala’s clientele is international. Online video advertising is expanding fast in Southeast Asia and Ooyala has identified the region as a strategic priority for its business expansion. The company established its operation in Australia in 2010, from where it plans to target Southeast Asia. Ooyala will also be able to make use of Telstra’s extensive business presence in the region, while Telstra capitalizes on Ooyala’s capabilities to generate new content and services.

2) Telstra needs digital media expertise to respond to the complex online video landscape

Telco companies have generally struggled to enter the digital space, often acting solely as a data provider. IHS forecasts online video advertising to grow 21.2% in Australia in 2014 and 23.1% in 2015. By 2015, 14.9% of all Australian display advertising revenue will come from video. The acquisition of Ooyala, fits with Telstra’s aims to expand its video capabilities (content and advertising).

Despite its business concentration in the East, the buyout is seen as a response to counter threats posed by US-based AT&T and Verizon, in providing cloud computing and video conferencing services. Both operators recorded more than 5 million IPTV subscribers in 2013, ten times that of Telstra’s IPTV device, T-Box. Ooyala provides real-time analysis and claims to be one of the few with a real-time dashboard, Ooyala Now. This service could help to reinforce Telstra’s T-Box. In a recent partnership, Foxtel (a Telstra pay TV company) deployed Ooyala’s technology to power its new online streaming channel, Presto. Now under the same umbrella, both businesses can work more cohesively together.

In Asia, Singaporean telco, Singtel has taken similar initiatives. In June 2014, it fully acquired advertising technology companies Adconion and Kontera Technologies through subsidiary, Amobee. Telstra has taken a slower approach in its digital expansion. It initially “tested the water” by injecting a mere USD 61 million (EUR 45 million) for a 23% per cent share of Ooyala in 2012 before the current add-on to 98%. This mirrors a more traditional, prudent approach to digital media and is similar to RTL’s (the largest European broadcaster) partial acquisition of SpotXchange (online video marketplace) in August 2014.

Traditional media players have been hesitant to meaningfully expand to the digital space and adopt advertising technology. Until now, TV broadcasters and telcos have made little progress in exploring ad technology. They have only just begun to identify the importance of their data and employed it to improve targeting online. However, their involvement in automated trading and wider ad technology has been rather limited. The Telstra acquisition of Ooyala in Asia and the RTL acquisition of SpotXchange in Europe will act as an accelerator for traditional media companies to become more substantially involved in what is still a largely unfamiliar, but increasingly significant area.

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