Market Insight

SeaChange acquires Xstream

February 14, 2019  | Subscribers Only

Cecilia Zhu Cecilia Zhu Research Analyst, Service Provider Technology

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Video software specialist SeaChange has acquired the Xstream, a privately held Danish OTT video and TV cloud platform provider, for a total value of $5.5 million.

Our analysis

SeaChange’s purchasing rationale is logical from a financial perspective. The company’s revenue derived from total video UX solutions declined by 80% YoY in 2018, including different product areas such as Rave (SaaS OVP), Nitro (UIs), Nucleus (Set-top box software platform), according to IHS Markit’s Video UX Technology market tracker.

SeaChange has a longstanding presence in video back-office, content management, and advertising solutions, but has struggled to win new deals, and to derive new revenues from its substantial North-American centric customer footprint. The company made a few attempts to retain value of its OVP business. First, it has been transitioning its core products to operate within a cloud environment. Second, it has moved into the managed service environment as an attempt to differentiate via business model. However, those efforts were not rewarded effectively with new customer wins or revenue growth.

The deal is more than a simple combination of two video software businesses. Using the merger as a catalyst for change, SeaChange seeks to reboot itself in the video technology space.

Faced with the task of identifying the right business model for OTT, SeaChange revamped its product portfolio over the last 12 months, to offer a new end-to-end cloud-based PaaS platform (Panoramic) and a new workflow consisting of multiple software tools to control, manage and personalize video content for content providers, operators and aggregators (cFlow). SeaChange’s strategy was clear: to move away from legacy closed systems towards more open and scalable workflows, to create an ecosystem by partnering with multiple vendors to better meet the capacity, and ultimately to reduce the growing complexity of OTT content delivery.

The deal will prepare SeaChange to pursue a market expansion strategy around OTT, as its client base shifts towards over-the-top video delivery. By taking over Xstream’s signature product MediaMaker, SeaChange will be furnished with sound end-to-end OTT technology needed to seize opportunity in the OTT software market, without reliance on incremental improvements to existing products. Effectively out of the deal, SeaChange will acquire a modest blue-chip customer base from Xstream, including Telenor-owned Canal Digital and Altibox.

Xstream is a pure play vendor and one of the earliest entrants in OTT. Since it sold the majority stake to Danish private equity fund Capidea in 2014, the company expanded into Asia Pacific whilst still maintaining a core focus on EMEA. Being a relatively niche player in the market, Xstream’s main challenge was to compete against leading OVP players in the industry, mainly from North America, such as Brightcove, Comcast, Quickplay. By joining hands with SeaChange, Xstream can be exposed to a larger scale of potential customers benefiting from SeaChange’s strong presence in North America.

From an operational perspective, the deal serves as an economic opportunity for SeaChange to restructure its engineering resources, following a period of layoffs in the past. The close proximity of the two companies’ R&D teams in Warsaw will enable smooth integration and create cost synergies, which will help improve margins and cash flows for the new combined entity in the long term.

The SeaChange-Xstream deal serves as another example of the consolidations in the OVP solutions segment. Over the past three years, AT&T acquired Quickplay Media, Google acquired Anvato, IBM acquired Clearleap, Disney acquired BAMTech, Neulion acquired Saffron Digital. IHS Markit expects more consolidations to take place driven by increased OTT streaming demand.

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The Video UX Technology Market Tracker provides accurate data and analyses including total market value, vendor market share, forecasts, and market trends on a continuous basis to help clients make better business decisions in the digital video software market.

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