SeaChange Gets Softer

Video server vendor SeaChange International Inc. (Nasdaq: SEAC) will spend $25.5 million buying the European business of cable network middleware firm Liberate Technologies to boost its international and software sales (see SeaChange to Buy Liberate Biz).

The deal will also bring SeaChange closer to some of its key European customers: U.K. cable operators NTL Group Ltd. (Nasdaq: NTLI) and Telewest Communications Networks plc (Nasdaq: TWSTY), and pan-European cable player United Pan-Europe Communications NV (UPC) (Nasdaq: UPCOY). (See Brits Do VOD With SeaChange.)

For its money, SeaChange will get customer contracts, 20 staff, Liberate's non-North American intellectual property, and a firmer foothold in a fast-developing market for video and TV delivery systems (see Europe Tunes In to IPTV and SkyStream Wins Euro IPTV Deals . SeaChange CEO Bill Styslinger told a conference call that the business will bring in $20 million in revenues in the coming year.

The deal will also bring the vendor closer to its main source of revenue: Comcast Corp. (Nasdaq: CMCSA, CMCSK). How so? Because Double C Technologies LLC, a joint venture of Comcast (majority owner) and fellow MSO Cox Communications Inc. (NYSE: COX), last week completed the acquisition of Liberate's North American business for $82 million in cash, and SeaChange will have "cross-licensing rights to the intellectual property that Comcast is buying. It won't hurt [our relationship] with Comcast," said Styslinger.

Analysts, though, are puzzled about how SeaChange will derive annual revenues from a business that, on current form, is due to deliver little more than $4 million a year. But Styslinger insists that the European customers are already contractually obliged to business that will deliver $20 million in what he called "high-margin software sales." The deals are in the bag and none expire in the coming year, according to SeaChange.

The CEO says the acquisition, which is due to complete in June or July, meets SeaChange's target of boosting its international sales and increasing its recurring revenues from non-hardware sales. He adds that SeaChange will take on only "relatively minor accrued liabilities" and will assume "no debt to speak of."

SeaChange needs to up its financial ante at present, having suffered a recent revenue setback (see SeaChange Gets SeaSick Over Q4). Today's news helped give its share price a boost, though: It jumped 28 cents, nearly 3 percent, to $10.65.

Liberate's main competition in Europe is OpenTV, but Styslinger said Liberate's software, which sits in the network and on set-top boxes and helps manage and deliver TV and video services, is "very strong in the interactive software market" for European cable firms, while OpenTV is stronger in the satellite sector. But OpenTV has just become part of an IPTV consortium that will certainly make it a tougher opponent in the future (see Amdocs Joins IPTV Crowd).

— Ray Le Maistre, International News Editor, Light Reading