Espial Group Inc. is counting on a mass-market phenomenon that sees consumers continue to switch to online TV services, while communications providers and electronic manufactures run to keep with up technology that can meet that demand.
“This entire marketplace is very disruptive right now. We happen to be selling to consumer electronic manufacturers, who are focusing on Internet connected devices to do video and we are also selling to PayTV operators. And part of what we do is try to drive synergies between them,” says Espial CEO Jaison Dolvane.
This trend is pushing the OTT market to develop technologies that get Internet signals to the TV, without overloading household broadband traffic.
Dolvane says every operator and service provider (telecommunications or cable companies) will have to provide video services, while all consumer electronic devices – TVs, Blu-ray players, new devices like Apple TV – will have to connect to the Internet. Dolvane says Espial is on the frontier of the internet-TV convergence, partnering with major players at all levels.
“There’s gong to be a lot of activity in this marketplace. As we intersect a lot of those and they start to embed our products and deploy them, we’ll see the growth” Dolvane says.
Espial may be able to make its mark with its comprehensive product line, which includes products for the central office of network operators (such as Bell and Rogers), the actual network, and consumer home products – TV set-top boxes.
GROWING BEYOND NORTH AMERICA
“Espial has a pretty good product set, and has made decent traction in Europe and Asia,” says Jim Powell, an analyst for Laurentian Bank Securities.
Espial announced in November it is looking to add OTT (Over-The-Top) video – Internet streaming capabilities for high-quality TV – to its product line, entering a large market that Rory Altman, director of Boston consulting firm AltmanVilandrie & Co. says is quickly growing.
Altman says eight to 10 million Americans (or roughly 2.5 per cent of the American population) have already abandoned their pay-TV services in favour of free access to titles online. This trend is known in the market as “cord cutting.” Meanwhile, another 30-40 million “cord shavers” are supplementing their pay-TV services with online TV. Altman says research suggests that by 2015, eight per cent of Americans will have cut the cord, and more will reduce their channel subscriptions.
This trend is pushing the OTT market to develop technologies that get Internet signals to the TV, without overloading household broadband traffic.
EXPERIENCE PAYS OFF
Espial’s edge in the market could be its experience in developing user-friendly interfaces for navigating video titles and options, says AV&Co. director Jonathan Hurd. This will be a key factor for web services, he says.
“Working with service providers all over the world, Espial has developed a lot of expertise in what makes a good user interface,” Hurd says.
It will take some time before Espial can smooth out its lumpy revenue line and move into a positive financial position.
Google TV is an example of a recent entrant into the web video world and Hurd says it has not been receiving great reviews.
“I think one of the reasons that a company like Espial is better positioned [to enter the OTT market] is that they do have that experience and understanding of the customer video experience.”
Espial partners and competes with large network providers at the same time. For example, Dolvane says it partners with Ericsson to compete with Nokia.
“Bottom line is they’ve got platforms that are on their last legs,” Dolvane says. “They need to upgrade platforms to address competitive threats, rapidly bring out these services, and turn them off if they don’t work – and do it cost effectively.”
Every quarter Espial is adding new company subscribers to its products. Hurd says Espial derives its success from its partnerships, which Powell agreed are valuable.
Espial is confident it has the products to emerge as a leader in the Internet TV market. “If you’re going to be in this marketplace for the next decade you’ve got to pick the best horse to ride,” Dolvane says.
SHORT-TERM FINANCIAL CHALLENGES
While Espial has its sight set on a bright future for Internet TV, its current financial situation is nothing to boast about. As Powell noted, Espial is burning $500,000 to a million dollars in cash every quarter. But he also noted Espial has restructured its operations to cut back on losses.
Dolvane says it will take some time before Espial can smooth out its lumpy revenue line and move into a positive financial position. Right now, the short-term goal is to continue to break even and decrease losses.
Espial calls itself a “pseudo-public” company, as venture capitalists hang tightly to their original holdings and are not looking to trade any shares.
Espial saw a small jump in revenue in the first quarter of 2010, reporting $3,793,983 in revenue compared with revenues of $3,083,121.
Second and third quarter revenues were almost equal to those of last year.
Espial has been able to cut losses markedly in 2010. Espial reported net losses of $0.8 million in the second quarter of 2010, compared to a $1.1-million loss the same period last year and a net loss of $677,434 in the third quarter, compared to a $993,442 loss in 2009.
Last month, Espial announced it received a $3.5 million loan facility from JLA Ventures, Espial’s largest shareholder. In a statement, JLA says the loan will help Espial “build additional strength” to its balance sheet.
Powell says this might indicate that Espial is unable to get a bank loan at a good rate and, as a major shareholder, JLA would not want Espial to tank. However, Powell says it’s comforting that JLA thinks Espial is a not a risky borrower.
SHARE UPS AND DOWNS
During Espial’s IPO in 2007, shares were offered at $7 and hit the $9 mark in the first couple months of trading. However, by the end of 2007, the price had dropped to $3. Throughout 2008 the decline continued to $0.35 by the end of the year. In 2009, shares fluctuated between $0.35 and $0.80. The stock price sat at $0.75 December 1, down from $0.91 at the end of October.
Espial calls itself a “pseudo-public” company, as venture capitalists hang tightly to their original holdings and are not looking to trade any shares. But the illiquidity of the stock, combined with Espial’s meagre market cap of $10.5 million, make the shares risky, Powell says.
“Institutional investors don’t want to put money in because they can’t sell out shares without bringing down share price,” he says.
Powell says it was good sign that Espial managed to survive the economic downturn of 2008-09 and did not have to dilute itself.
Powell also says Espial’s 2008 acquisition of Kasenna was a smart move because it helped the company grow.
While Espial is a small company in a market full of big players, its reputation and experience may allow it to shine in the IPTV market, which analysts agree is continuing to gain traction.