2011's Online Video Acquisitions Set the Stage for an Interesting 2012
"Cotendo was starting to put pressure on some of Akamai's higher margin revenue and winning some big deals in the market," wrote Streaming Media's Dan Rayburn in a blog post. "With one vendor now controlling the vast majority share of the market, Akamai has no pressure to reduce pricing," Rayburn said. "Pricing for these services will go up, not down, the same way CDN pricing did when Akamai acquired Speedera. I'm sure Akamai will say otherwise, but with Cotendo customers saying that Cotendo was on average 30% cheaper than Akamai, that pricing difference will disappear once the acquisition is done and contracts have to be renewed."
It remains to be seen whether Akamai rival AT&T will continue to use Contendo's technologies once the acquisition is complete, but Rayburn says it will be quite some time before other vendors like Limelight Networks, CDNetworks, Level 3 and EdgeCast see the kind of traction Cotendo reached.
Level 3-Global Crossing
Speaking of Level 3, the network operator that also offers CDN services acquired Global Crossing in early 2011. This acquisition appears to be a good fit for last-mile company that had also had some credit facility issues of its own. Level 3's acquisition of Global Crossing, one of the premier suppliers of transoceanic pipe, means that existing Level 3 customers now have an expanded geographic reach and "a combination of intercity networks and metro networks throughout North America, Latin America and Europe connected by extensive global subsea networks" according to Level 3. Anchored by fiber optic networks on three continents, connected by extensive undersea facilities, the combined owned network in Level 3's hands now covers more than 50 countries.
In addition, Level 3 now has a chance to work more closely with telecom operators based in Asia, one of which was a primary investor in Global Crossing. Singapore Technologies Telemedia will benefit from the tax-free, stock-for-stock transaction between the two companies. Level 3's chief executive officer, Jim Crowe, says Singapore Technologies, Global Crossing's largest shareholder, "are exceptionally sophisticated managers, with holdings in telecommunications and information companies in a number of countries. They know the technology and they know the industry. The breadth of their communications experience and their knowledge of international markets will be a great asset to us."
In a sign of the times, Level 3 also highlighted the acquisition's impact not just on the bottom line but also on the credit profile, as the combined company pro forma in 2010 revenues is $6.26 billion with an adjusted EBITDA of $1.27 billion before synergies ($1.57 billion projected after expected synergies materialize.)
"The combination improves our balance sheet and credit profile immediately upon closing with further improvement as we achieve the benefits of integration. Additionally, the transaction accelerates the achievement of Level 3's target leverage ratio of three to five times debt to Adjusted EBITDA," said Sunit Patel, chief financial officer of Level 3. "Including the benefit of synergies and the cost of integration, we expect the transaction to be accretive to Level 3's Free Cash Flow per share in 2013 and to give us the financial strength to capitalize on the many opportunities available in the global market."
How has the combined company fared? Earlier this year the company announced that it is providing content delivery network (CDN) services to support the live online streaming of TV programming to PC, iPhone and iPad users in Spain for leading Spanish broadcaster Prisa TV.
Yet Level 3 stock is significantly off its 52-week high of $40 per share and as of this writing in early January hovers around $17 per share, just barely above the 52-week low of $14 per share.
UK-based search-engine company Blinkx made an acquisition early in the year, picking up Burst Media "for an aggregate consideration of $30 million to be satisfied by the issue of new Blinkx Shares and, for non-accredited investors, in cash". Blinkx had been after a significant presence in the US advertising and price-per-click market, after getting shot down in 2008 by Miva (now Vertro) with a $41 million offer.
With Burst offering the potential of 130 million unique eyeballs, it's easy to see why Blinkx wants to play in both the price-per-click and online TV network spaces: the cost of services for PPC is about 6% of revenue. Given the significant profit potential, any company that can achieve synergies or economies of scale in marketing and wider consumer reach will be positioned in fairly short order to recoup not only acquisition costs but also leverage significant financial stockpiles to go after other acquisitions.
At the time that Blinkx announced its acquisition of Burst, Blinkx had a stockpile of $52.8 million. According to the company, cash consideration payable under the terms of the acquisition would not exceed $4.5 million. For that small amount, plus shares of a new combined company (new Blinkx shares), Blinkx obtained access to Burst's network of publishing partners.
According to the comScore Media Metrix, at the beginning of 2011 Burst reached over 61 percent of the U.S. online population, was the 36th largest US media property and the 30th largest UK media property on the internet. Blinkx intends to embed "relevant videos and video channel
Whether it's video file fragments, pieces of the wireless spectrum or dollars and cents, tiny bits are having a mighty big impact on the direction of online video
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