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RGB Networks Acquires RipCode

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Jef Graham, CEO of RGB Networks, is excited. He senses movement in the video space, and his company is making moves of its own, namely acquiring RipCode.

"When I first became CEO of RGB Networks about five years ago," said Graham during a Monday phone interview, "I was surprised how few companies had approached the opportunity of the video space with a carrier-grade hardware/software combination. Today, it seems that everyone's trying to figure out how to get into the video game."

Part of the Sunnyvale, Calif.-based company's strategy involves a three-screen solution, moving beyond the traditional MSO or telco world where IPTV was the major play and into a world that treats the desktop and mobile devices as equal delivery platforms to IPTV.

"We needed a three-screen strategy, which has been championed internally by Yuval Fischer, whom I hired as CTO a year ago," says Graham. "He did an evaluative matrix, and found that RipCode offered the key components we needed for a mobile strategy."

Moving Towards IPO
The acquisition, terms of which have not been announced, is an all-stock deal. Graham says RGB plans to IPO in about one year's time, which was part of the appeal to RipCode's investors.

"We hope to IPO a year from now, and this is the strategy we'll take to market," says Graham. "With 150 current employees and a valuation currently at $200 million prior to the acquisition, my investors wanted to understand why we needed to acquire the expertise of a 25-person company instead of building our own solution."

"The reasons that Yuval laid out were sound," he says. "First, he determined that best solution for video delivery to PC and mobile requires high density transcoding; we had that solution already in our Video Multiprocessing Gateway (VMG)."

"Second, he pointed out that we also needed integrated mobile and PC format delivery systems on the same robust VMG platform," says Graham, "and that trials are underway this year, making an acquisition the best strategic move for timely response to trials."

RGB itself is already profitable, with $150 million lifetime sales, having shipped more than 10,000 units of its nine-product family to over 200 global customers in the cable, satellite, telco, over-the-top, and government arenas.

"Both sets of investors have chosen to invest into the new RGB," says Graham, whose current investors include Accel, Kleiner Perkins, and Comcast. "The confidence that the three-screen strategy gives both sets of investors is a testament to RGB's ability to deliver and RipCode's critical involvement in the three-screen strategy that will take us to an IPO."

The new company will maintain the Austin, Texas-based presence that RipCode has had since its inception, with mobile and Intel-based solutions being vetted at that location.

When asked about competition from the likes of Israel-based Optibase, whose MGW series offers similar telco-grade robustness to RGB's VMG, Graham and Ramin Farassat, RGB's vice president of marketing and business development, both said that they don't see much competition from companies only doing a portion of the three-screen strategy.

"Optibase lagged behind in bringing HD to the table," says Farassat, "while we integrated HD into our chassis from the beginning. Where we see the most competition is from companies like Harmonic or Envivio, whose 1 RU servers are running on standard Intel architectures."

"These standard servers have been the only other option," he says, "and they aren't hardened the way most of the other NEBS-compliant equipment in telco and MSO racks are, which means significant overhead in terms of redundant systems just to achieve a level of fail-over and robustness that our VMG chassis inherently provides."

Brendon Mills, CEO of RipCode, said the ability to rapidly integrate RipCode's software solutions into RGB's VMG was a natural step for the smaller company's mobile and ad-insertion solutions.

"Pairing our Intel-based software / hardware solution with an ASIC-based hardware transcoding platform makes strategic sense," says Mills, adding that he sees the number of players within the transcoding market rapidly decreasing over the next 18 months.

Scalability is Key
Mills also gave an example of a government customer that RipCode brings to the table. In December, RipCode announced a partnership with Harris and Lockheed Martin in support of Valiant Angel, a strategic military effort to transmit video from unmanned aerial vehicles (UAV) or "drones" flying above the battlefield to in-theater battlefield devices used on the ground.

All this convergence on a robust platform isn't inexpensive, but Graham explains the necessity of having a big-gun solution for telco or MSO environments.

"On the high end," said Graham, "a fully loaded VMG chassis might sell for $1 million, and would be capable of doing 400 streams of video. In one trial example, we are ingesting one stream at a cable company but needing to send 14 streams out to IPTV, desktop and mobile platforms. We feel we have the only totally integrated solution that can scale and meet video service provider reliability standards."

"The chassis is integrated into a single management system, and all modules are hot-swappable," says Graham. "Yet each chassis can start with just one module-transcoding or ad insertion or mobile delivery-and then expand to multiple modules per chassis."

"Not only do we have ad insertion for IPTV, but the RipCode acquisition gives us a fully ad-insertion solution for mobile delivery," says Graham. "We see that we will use a variety of processor types to deliver the total solution: for ad insertion, FPGA; for transcoding, ASIC; for mobile delivery, Flash and Silverlight and Intel blades."

Graham finished with an example in which he sees a typical customer buying into a multiple-chassis solution.

The first chassis in a typical solution would handle ingest and possibly transcoding from MPEG-2 to H.264, or vice-versa," Graham says. "The second chassis might handle national ad insertion, while subsequent locations might each have a chassis to handle local station ingest and local ad insertion."

The newly combined company has a valuation today of over $220 million.

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