Espial hoping to tap into global TV market as providers take aim at Netflix

Espial Group Inc. is hoping to stay ahead of the adoption curve and continue to capture market share and grow globally in the next year, says CEO Jaison Dolvane.

Espial, a supplier of IPTV software that allows users interact with the Internet through their TVs, was an early adopter in the IPTV market. That has kept it ahead of the game, allowing the Ottawa-based company to become a leading international supplier of IPTV software solutions.

IPTV software gives telecommunications services companies, such as BCE Inc. and Rogers Communications Inc., the ability to use web-based content and offer IP services such as movies on demand. Dolvane says offering these types of services is becoming essential in TV providers’ competition with new players such as Netflix Inc.

“They have to move towards open platforms and be able to innovate and add new services. Their current platforms don’t let them do that,” says Dolvane. Espial’s TV browser gives providers the ability to offer a faster, easier user experience with more innovative services instead of the traditional text-based platforms.

Espial has been in the IPTV market since the early 2000s. Originally, it was focused on the hospitality market, offering video-on-demand services in hotel rooms. It has since moved to solutions for cable and satellite providers and smart TVs. Today’s shift in ways people consume TV content is providing Espial with an opportunity to use its industry expertise.

“We’re sort of on the early part of the adoption curve, where all the different operators are going to adopt new platforms that are going to allow them to innovate quicker, provide more service velocity, allow better user experiences, and just overall, deliver a more competitive service to their customers,” says Dolvane.

Clarus Securities analyst Eyal Ofir says this opportunity will increase Espial’s stock price. He gave Espial a “buy” rating and a one-year target of $4.00 in a note to clients before Espial released its third-quarter report in October.

Ofir says many operators are standardizing with the RDK framework, the next-generation, open operating system for set-top-boxes that Espial provides. Ofir said Espial is in discussions with more than a third of the top 70 global cable operators, which could have major financial implications. If Espial captured 10 to 20 per cent of the cable market, it would represent a one-time license revenue of more than $82 million, with recurring revenue of more than $12 million annually, he says.

Espial’s report for the third quarter that ended Sept. 30 showed an increase in revenues of 32 per cent, to a record-breaking $5.1 million, from $3.8 million in the same period a year previous.

Where revenues increased most was in professional services. Espial reported revenues of $400,000 for professional services in the third quarter of 2013, which rose to $2.6 million in the same quarter of 2014.

During the third quarter, Espial announced that Sharp Corp. selected Espial’s TV browser for its mid-range smart TV models in select areas. Kirk Edwardson, director of marketing for Espial, says high-performance browsers are a critical element of smart TVs.

“Smart TV shipments continue to increase as consumers access Internet video and other apps directly from their TV sets,” Edwardson said in a press release. Espial supplies an HTML5 browser that makes navigating smart TVs easier and faster for users.

Espial also expanded its ability to target European Pay TV service providers during its third quarter when it showcased its European Digital Video Broadcast solutions to European cable operators at IBC in Amsterdam. European revenue for the quarter was $2.3 million compared to $1.1 million in the third quarter of 2013.

Espial reported a third-quarter profit of $200,000, translating into earnings of one cent per common share, which compared to a two-cent loss per share in the same period a year earlier.

Still, the company’s stock price fell 11 cents on the day the company released its third quarter results on Oct. 23, to $2 per share, and it has continued to decline. As of the morning of Dec. 4, the price per share was $1.44.

Ofir says investors may be confused about Espial switching pilot projects.

“During the Q3 conference call, management revealed that one of its pilot projects was pulled,” says Ofir. “While it was replaced with another pilot, investors did not understand why an operator would pull the plug on a pilot, and hence the stock is down.” A new proof-of-concept trial will take place through to mid-2015.

Dolvane remains optimistic about the company’s position. He says the global television subscription industry generates about $250 billion in revenue every year. Although Netflix is seen as a threat to the cable and satellite providers that Espial is selling its browser to, Dolvane says only four or five billion dollars of that revenue has been captured and it will take time for new competitors to make a bigger impact.

Until then, Espial will provide the tools that cable and satellite providers will need to maintain their subscribers. Dolvane says Espial’s strategy is to stay ahead in the industry as providers switch to IPTV services.

“We feel that we’ve got a pretty big opportunity,” says Dolvane. “The next year is really about continuing going down that path and adding new customers and continuing to execute that strategy.”