Larry Kless' Weblog: KIT digital Makes Game-changing Triple Play Acquisition of OVPs, KickApps, Kewego and Kyte

For anyone who has been following KIT digital's acquisition strategy, it's no secret that KIT has been on a buying spree over the last year purchasing online video technology companies. So, it should come as no surprise that the Prague-based video management solutions provider announced a triple-play OVP acquisition this past Monday, of New York City-based social media KickApps, Paris-based Kewego, and San Francisco-based Kyte, for approximately $77.2 million ($14.8 million in cash and approximately $62.3 million in stock). All three companies – KickApps, Kyte and Kewego – each have been regarded as leading video platforms within the space with innovations in social media apps, mobile video publishing and B2B video solutions. In its press release, KIT outlined the many benefits that the three companies will bring to "the KIT digital family" and that the acquisitions "signal an era of video-driven social media."

KIT digital is a publicly traded company (NASDAQ: KITD) based in Prague, Czech Republic with global offices in 28 different countries and 3 regions, Asia Pacific, Europe and the Middle East and, the Americas, that extends from Canada to South America. Founded in 1998, KIT's VX-one platform offers a full service IP-based video asset management, delivery and monetization solutions for online video, mobile and IPTV-enabled devices, and ranges from commercial video distribution to internal corporate deployments, with a client base of more than 1,300 enterprise customers across 30+ countries.

KIT digital acquired Multicast Media in March 2010 for approximately $18 million, following the purchases of Narrowstep, Visual Connection, Morpheum, Kamera, The Feedroom and Nunet. Both The Feedroom and Nunet brands were both acquired and retired in late 2009. Last year, I spoke with Lou Schwartz, Head of the Americas for KIT digital, and former CEO and co-founder of Multicast Media, who said that the merger with KIT helped Multicast cross sell products among existing KIT customers and take advantage of greenfield markets where it hadn't been able to take advantage of previously.

KIT digital has a global presence and multi-platform three-screen delivery solution, with a greater emphasis than most OVPs on mobile handsets and set-top boxes and IPTV delivery. KIT's revenue is expected to be around $100 million in 2010, and KickApps, Kewego and Kyte, had an combined 2010 revenue estimated at about $25 million.

A triple play OVP acquisition

KIT digital is led by chairman and CEO Kaleil Isaza Tuzman, who described the rationale of the acquisitions:

“These strategic acquisitions complement and enhance our existing product offering while growing our market share across geographies and client verticals. They support the company’s aim to deliver end-to-end solutions covering each major aspect of Internet Protocol (IP) video management for our three primary client verticals: network operators, content distributors and general corporate enterprises. It is important to note that these acquisition discussions pre-date our public equity offering completed in December 2010; we have sequenced events purposefully and the proceeds from that offering continue to be dedicated to support a larger acquisition which we are currently on track to announce later this quarter.”

Will Richmond noted that KIT Digital's Deals Signal "Race to Scale" is Well Underway and it's a sign of "the maturing of the online video market and increasing consolidation." He spoke with Kyte's COO Gannon Hall (who will become KIT's EVP of Marketing relocating to its Prague headquarters) and KickApps' CEO Alex Blum (who will become KIT's Global COO) who both said that KIT's reach will help clients tap into global and green field markets. According to Hall, a concern for Kyte was the "increasing commodification" of the OVP market in the U.S., and for Kyte that meant a more narrow reach of a limited customer base.

Richmond said:

"The bet that KickApps and Kyte are making here is that KIT will be one of the global leaders as video delivery moves to an all IP (online and mobile) model. As Alex said, this is a "race to scale" and with its multiple offices and relatively deep financial resources, KIT is perceived as one of the eventual winners."

However, Gavin Campion, president of KIT digital explained that the acquisitions were not just about consolidation and market share:

“As important as the extended market reach and financial contribution these acquisitions provide, they demonstrate our commitment to ensuring that our 'VX-one' video management platform has market-leading functionality which helps our clients realize value across the video distribution value chain, from securing and capturing the right content to delivering it across multiple channels and social communities,” said “We are intent on becoming the one-stop-shop for the video needs of medium and large corporations, delivering IP video management services from the lenses of the camera shooting the video to the eye of the person watching it on any device—or, as we like to say, from 'lens to lens.'”

Summary of the acquisition benefits for KIT Digital

According to KIT, the benefits to its roll up of the three competing video companies are many, including:

An acceleration of KIT’s product roadmap by 12-18 months by adding several key technology and product features, including advanced social media tools (KickApps), superior mobile publishing and software development kit (SDK) features (Kyte), and behind-the-firewall and digital signage capabilities for enterprise clients (Kewego)
KickApps’ suite of tools deepen KIT’s ability to integrate and deploy new technology assets for accelerated client deployments
Support and extend expertise into KIT’s three major client verticals: around transportation, automotive, manufacturing and fan-based media assets (sports and celebrity sites)
Addition of strong management to KIT’s global team, with R&D and business development in San Francisco and New York
Additional revenue from acquired companies recurring licenses in a software-as-a-service (SaaS) business
The acquired companies have been growing between 20-35% per year
Quality new shareholders, including the appointment to the KIT digital board of Santo Politi, founder and general partner of Spark Capital, the venture capital firm behind Twitter, Boxee and thePlatform

Conclusion: Expect more consolidation in the OVP market

KIT digital stated that the acquisitions of KickApps, Kewego and Kyte were separately negotiated, and the companies have no common ownership. In the past year, KIT digital raised over $200 million, and almost three years has acquired 12 video companies (including: Multicast Media in Atlanta, Benchmark in India, Singapore and Asia, Megahertz in the UK, Accela in Boston and Brickbox in Prague) signaling "its intention to extend its market leadership through acquisitions, complementing its organic growth."

Ryan Lawler noted on NewTeeVee that it appears the tide has turned for once fast-growing OVP segment with KIT's ability to acquire so many of its competitors at fire-sale prices.

"Despite a string of funding announcements from a number of online video platform providers just a few years ago, it seems that capital has largely dried up. While the market for online video publishing continues to grow, it apparently hasn’t grown quickly enough to support the large number of startups offering cloud-based video management platforms.

Joseph Tartakoff also noted on paidContent that the three companies were heavily funded (KickApps raised $30 million, Kyte and Kewego both had raised more than $20 million), and KIT got the three companies at fire sale prices. This suggest, he said, that investors may have at best gotten their money back. Additionally, on Twitter, Rafat Ali said: Not a good exit for KickApps in sale to KIT, v little cash. Flashes of Ning bust in the whole category. http://cnt.to/nre

But according KIT’s chairman and CEO Tuzman, we are now beginning the third wave of video, where you need to use IP video across many different physical and virtual environments and devices, and that the OVP era will be replaced VAMS (Video Asset Management Systems) era. In this video from KIT's video blog series, he discusses KIT’s recent acquisitions and capital markets activity in 2010, as well KIT’s goals for 2010 and beyond and emerging trends in the video asset management space.

Tuzman said that KIT's aim is to garner 50%+ market share in its segment by the end of 2012. through a combination of organic growth and accumulative acquisitions:

“We believe that in five to ten years’ time virtually all mid-size and large companies will be buyers of IP video management software, and KIT is uniquely able to bridge the gap between the traditional digital video systems of today and the Internet-driven solutions of tomorrow. We realize we must move fast, which is why we are complementing growth among our existing customers with an acquisition strategy that sees us consolidating the industry.”

It's clear that KIT is on a mission to win the IP video management and delivery market, and with its reach across the globe into international markets, and with more game-changing plays like this triple play acquisition – it just may become the reigning champion within the space.

About KIT digital
KIT digital (NASDAQ: KITD) is a leading global provider of cloud-based video management solutions for multi-screen delivery. KIT digital's global client base includes approximately 1,300 customers across 40+ countries, including The Associated Press, BBC, Best Buy, Bristol-Myers Squibb, Disney-ABC, FedEx, General Motors, Google, Hewlett-Packard, Home Depot, IMG Worldwide, ESPN Star, Media- Corp, News Corp, Telefonica, Universal Studios, Verizon and Vodafone. KIT digital is headquartered in Prague, and maintains principal offices in Atlanta, Beijing, Boston, Buenos Aires, Cairo, Cambridge (UK), Chennai, Cologne, Delhi, Dubai, Kolkata, London, Los Angeles, Melbourne (Australia), Mumbai, New York, Singapore, Sofia, Stockholm, Taipei and Toronto. For additional information, visit www.kitd.com or follow the company on Twitter at www.twitter.com/KITdigital.

Friday, February 4, 2011

KIT digital Makes Game-changing Triple Play Acquisition of OVPs, KickApps, Kewego and Kyte