Convergence

Creating a new Video Infrastructure Leader

There is a significant trend in the media industry blurring the boundaries between media content creators and media delivery service providers. Several examples illustrate this convergence: The impending merger between NBC Universal and Comcast; The BBC bypassing traditional distribution methods and connecting to consumer directly through the iPlayer; BSkyB going beyond its core service provider franchise and creating sports and news content; MLB.Com and Hulu as an alternative to what was traditionally viewable only on TV; and strategies like “TV Everywhere” in the US cable market. While the business model changes are by no means well established, what is clear is that the traditional boundaries between content creators and service providers will continue to blur at an ever increasing pace.

Given this convergence of business models, we believe that the underlying infrastructure will also converge into a more integrated platform that optimizes the entire workflow.
This convergence will enable companies to collapse and even eliminate repetitive functions from content acquisition to delivery, enhance video quality, lower costs, and facilitate end-to-end asset management and control. Let us consider a few examples of such optimizations. Today, our customers acquire encoded media through a contribution network, decode the media and then route the baseband video to an ingest server, which then re-encodes the media into a centralized storage system where it is likely to be further transcoded before any human being can begin to edit the raw media content – an enormous investment in infrastructure, loss in quality resulting from multiple conversion steps and a higher latency from acquisition to editing. Similarly, many of our customers are forced into completely separate islands of production and distribution for media that flows into a traditional transmission network versus media that is delivered to the web and mobile devices. The combination of Harmonic and Omneon allows us to address a new set of solutions that can eliminate many of these inefficiencies.

The combination of Harmonic and Omneon brings unparalleled strength in providing solutions to a converged video infrastructure given the complementary product and technology adjacencies of the two companies.
Harmonic provides mission-critical solutions to service providers as the market leader in compression, video stream processing, edge and access technology, with a strong product portfolio for contribution, distribution and multi-screen delivery. Omneon’s market leading playout and production servers, video-optimized storage systems and media management software is a core part of the media production and playout solutions for content producers around the globe. The combined company has industry leading technology and the broadest expertise in video compression, processing and delivery; in video optimized storage, production and playout; in media processing and media management. Not only are the technologies complementary, we see the potential to leverage our technology adjacencies and innovate in a way that few other companies, if any, can.

In addition, the two companies have a heritage in serving the mission-critical needs of global media companies, with the attendant emphasis on rapid responsiveness and world-class support. Harmonic counts among its core customers 24 of the top 25 cable companies, 17 of the 20 largest pay TV operators, 9 of the 10 top satellite service providers and many of the leading Telcos around the globe. With over 2000 deployments in over 85 countries around the globe, Omneon has deep and broad customer relationships with content providers including 8 of the top 10 Fortune 2000 media companies, and most of the large commercial as well as public funded broadcasters. A key part of the success that each company has enjoyed stems from understanding that our infrastructure is critical to our customers’ revenue streams, and ensuring uncompromising support and rapid responsiveness.

In addition to the strategic rationale for the business combination is bolstered by a significant R&D focus on video technology and a robust business model together with strong growth prospects for the joint entity. Together we bring significant scale. This move continues Harmonic’s strategy of diversification in both markets and geography. Almost 55% of the revenue for the combined entity will be from international markets with an increasingly diversified customer base. Harmonic will also have a network of nearly 250 channel partners globally. This strong business model, with approximately US$80M in combined R&D investment in 2009, allows the company to continue to invest in video – a sector that is poised for strong growth – driven by the move towards new models delivering video to an increasing proliferation of devices, increasingly personalized and time shifted content and the move to high definition and now 3D TV.

In conclusion, we are excited about the prospect of bringing Harmonic and Omneon together to create the leader in complete converged video infrastructure technology, and in so doing, continue to enable media customers around the world to produce and deliver high quality video more efficiently and effectively.