Netgem has offer ed to acquire 100% of Videofutur Entertainment Group . Adding Videofutur ' s cloud-based video distribution platfo rm will help Netgem extend the relationships it has with telecoms operators in the IPTV space, but with device and platform-agnostic streaming services such as Netflix set to seriously wound traditional pay-TV monetisation strategies, BMI believes the expanded business will still struggle to make headway.
Netgem reported a 27 % fall in revenues from its activities in France in 2012, from EUR38.3 mn to EUR28.1 mn. This largely relates to the decisions of key customers to switch to other STB providers in pursuit of cost savings and better connectivity capabilities. The development of hybrid pay-TV/OTT hardware, backed up by a more comprehensive software and connected services portfolio, gives Netgem products the multiscreen capabilities that small and mid-tier operators are looking for to defend their fledgling IPTV offerings from low-cost streamed video services. Netgem ' s June 2012 purchase of Plugnsurf resulted in the addition of mobile data to Wi-Fi offloading capabilities to its products, and this is a step in the right direction in light of growing demand for Connected Home solutions .
|IPTV Adoption Highlights TV Everywhere's Potential|
|Household TV Receiver Penetration Rates, 2007-2012|
Videofutur has also recognised the changing video consumption trends and has adapted its strategy accordingly. Like Netflix, the company has moved away from video and DVD rental to online content di stribution, but lacks international reach and access to content from major studios and production companies; this has conspired to limit its availability to France. Nevertheless, this is a useful acquisition for Netgem, which has lost traction in its home market and is seeing stronger revenue growth from its overseas businesses.
Netgem serves 16 telecoms and TV s ervice providers, including Algérie Télécom , Elisa of Finland, Iusacell of Mexico, Melita of Malta, Netia of Poland, Telekom Slovenije and Telstra in Australia. The technology and cloud-based cont ent distribution platform develo ped by Videofu tur should help Netgem in prolon ging the duration and value of its relationships with these operators as well as allowing it to upsell additional services.
Netgem will want to move quickly to recover lost impetus in France after key customer SFR switched to Sagemcom and Cisco for its next-generation STBs. At stake is a fast-growing IPTV market serving more than 12mn customers as of mid-2012 (54% of the country ' s xDSL fixed broadband user base). French regulator ARCEP believes that 35.7% of French households took IPTV services as of mid-2012, up from 25.7% in mid-2011 and 13.2% in mid-2010. IPTV adoption in France is the highest in Europe, thanks to plateauing demand for cable and satellite TV.
However, monetising access to and usage of IPTV services r emains elusive, with many subsc ribers talking free or low-value services. Content, as BMI has noted before, is king in the video market, and making access to that content is crucial to the success of players both new and old. BMI therefore sees significant short to medium term upside potential in Netgem ' s acquisition of Videofutur, but the steady encroachment of OTT offers such as Netflix and dedicated premium channels being developed by YouTube pose a longer-term threat that require further investment and creative development of the resources it has acquired in this deal.