Fueling All That Video

 | Jun 26, 2012 | 9:30 AM EDT  | Comments
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BCOV

In good old-fashioned online newspaper websites, video has been popping up all over the place lately -- and typically by a reporter who has received about an hour of training. Most of the videos have weak production values, don't add much to the storytelling and are quite small, to boot. But, by golly, there is a corporate mandate to get more visuals into stories, and so they shall be done.

Most of these are produced via tools from Brightcove (BCOV), a global provider of software and services that allow companies to manage, publish and distribute digital media across the Internet. The company's primary product is its Video Cloud solution, which helps simplify the process of taking video from a broad range of sources and publishing it to an equally wide range of Internet users and devices.

Broadband Internet connections, as well as the fact that you can hardly find a device these days that isn't Wi-Fi enabled, means exploding demand for constant access to video content. The company's platform provides an end-to-end solution for video content, in which clients can analyze how their video content is consumed and maximize the profits on it.

Headquartered in Cambridge, Mass., Brightcove has more than 300 employees and nearly 4,000 clients, including the likes of Honda (HMC), Macy's (M), CBS's (CBS) Showtime and New York Times (NYT).

Online Video Platforms (OVPs) are companies that offer services to manage the complexity of getting this video content online in an efficient way, and in a way that allows the content providers to easily monetize it. Brightcove is one of the earliest pure OVPs in existence, having been founded in 2004 by chairman and CEO Jeremy Allaire.

Before founding the firm, Mr. Allaire worked for venture capital firm General Catalyst. It was there that he honed his skills working in broadband media, mobile content, e-commerce software and digital identity.

Tablets and smartphones are the primary drivers of increased video consumption, and most analysts expect this trend to accelerate over the next decade as hardware improves. Morgan Stanley analyst Katy Huberty expects 80% annualized growth in worldwide tablet shipments through 2013.

That's key, because a recent report by video platform provider Ooyala indicates that tablet owners average 30% more video-viewing time than do desktop users. Despite the growth of Internet-connected devices, the biggest hindrance over the past decade has been mobile bandwidth speeds. But, with network speeds at double-digit annual growth, video content will only become more desirable to consume online, especially as the quality of the delivery improves.

Just a few years ago, most video publishers built their own systems for managing and delivering video content. But the complexity of doing so, combined with the advent of third party OVPs, have shifted the landscape. As firms begin to increase budgets to place more video online, the requirement to adequately monetize this content has become a priority. OVPs -- and specifically Brightcove, as a leader in this industry -- provide the solutions to manage the entire process for content providers, and this is where the future of this sector lies.

According to a research firm that tracks Internet usage, Brightcove is used in 29% of the top 10,000 most-visited websites. The firm's Video Cloud platform delivered 743 million video streams per month in 2011, more than any other provider.

Another potentially large growth driver for the firm is its newly created App Cloud solution. It's a platform for building, deploying and managing applications -- or apps -- across phones, tablets and PCs. Apple's (AAPL) well-known and successful App Store is a perfect example of the tremendous growth this segment is experiencing.

At the close of 2011, total time spent using mobile apps exceeded time spent viewing content on the Web. That speaks to the growth potential, as mobile apps are expected to grow at 57% annually over the next few years. Although it represents a tiny portion of Brightcove's $60 million in revenue, expect it to become a significant driver of sales moving forward.

Brightcove shares debuted in February, and were initially priced at $11, but they quickly reached a high in the mid-$20s before selling off a bit as of late. We will learn a lot more about its finances when the company reports second-quarter earnings, set for Aug. 2. Analysts estimate the company will lose $0.13 a share on $19.8 million in revenue, and forecast a loss of $0.10 a share on $20.7 million revenue in the third quarter.

Brightcove stock is still up 40% from its initial public offering price, and has gained 12% from its first public trade. This could be a sleeper, so put it on your radar as an essential software and services provider to Web-based video producers.

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