Top MSOs Assist Arroyo

Video delivery system startup Arroyo Video Solutions has announced an initial $13 million round of funding that comes ready-made with an enviable endorsement -- the backing of two of the biggest cable operations in the U.S. (see Arroyo Broadcasts $13M Round).

The firm's A round is led by Doll Capital Management (DCM) and Foundation Capital, but also includes unspecified contributions from Time Warner Investments, a sister company of MSO Time Warner Cable, and Comcast Interactive Capital, an affiliate of cable operator giant Comcast Corp. (Nasdaq: CMCSA, CMCSK).

The funding is just one of a number of recent announcements in an increasingly hot market (see Video Browser Startup Gets Funding, Cox VOD Uses Harmonic NSG, Nokia, Optibase Sign Video Deal, Broadwing Launches Video Services, and SkyStream Demos MPEG-4, EVE).

Its key rivals include Kasenna Inc. and SeaChange International Inc. (Nasdaq: SEAC), which are more established and picking up business as service providers plan their video service launches (see Norwegian Telco Deploys VOD and SeaChange, Net Insight, Kreatel Do VOD). Arroyo must also contend with heavyweight Alcatel SA (NYSE: ALA; Paris: CGEP:PA), which is hoping to dominate the video delivery systems market (see Alcatel, TDC Study Broadband Apps, Alcatel Touts TV Over DSL, and Alcatel Denies iMagic Fadeout).

So how does Arroyo stand out? The startup's VP of marketing and business development, David Yates (a former marketing VP at Atrica Inc.), says the "strategic investments" from Time Warner and Comcast provide an important validation for the company, which plans to unveil its product, along with customers, later in the year.

Yates adds that the company's first major trial is due to begin within the next few weeks at "a substantial MSO," though he wouldn't say whether Time Warner or Comcast were involved.

Arroyo calls its product the Video Services Platform, and Yates says it has been designed specifically for service providers -- whether MSOs, fixed-line carriers, or ISPs -- that want to provide a range of video services across bi-directional infrastructure, such as fiber and xDSL. Yates says the product's attributes include the use of open standards-based technology, such as Intel Corp. (Nasdaq: INTC) hardware and Linux software, which he says will be a major attraction to service providers as they plan and expand their video services. Yates also touts the "accelerator" software function that speeds up Linux processing specifically for video applications. "This gives the platform the performance and scaleability for mass deployment of video services. Proprietary solutions are OK for service providers when they're just getting started, but they'll need open standards-based systems once they need to achieve meaningful scale."

Yates says Arroyo's software is delivered on standard servers that can be attached to existing service delivery systems and communicate with existing systems via an IP connection.

The startup is currently in the process of interoperability testing with a number of systems and software vendors, says Yates, and is making its APIs available to any third party for the development of video applications that can work on Arroyo's system.

Independent analyst and former RHK director Bob Larribeau reckons Arroyo's market timing is about right, and that the MSO investments are a "good indication." Larribeau says that, while VOD is the most mature of the video offerings, network-based digital video recorder (DVR) services "are an obvious extension," and shopping via the television (T-commerce) and interactive video still need to be proved. But, again, Arroyo is in for tough competition. Kasenna, Arroyo's main competitor, is already making headway and also boasts a system that "enables the development of third-party applications," Larribeau says. "Kasenna also uses an open system approach and did very well last year."

Larribeau mentions another player, nCube Corp., which he says is one of a number of companies using "proprietary, high-performance computer technology.

"The existing VOD vendors, including Kasenna and nCube, are pretty hungry. They have been waiting for a long time for the market to develop. Now that is occurring, they are not going to give it up without a fight."

— Ray Le Maistre, International Editor, Boardwatch

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