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Video software

Zodiac Flirts With M&A Play

Zodiac Interactive may start to pursue acquisitions this year as the interactive television software and apps firm tries to maintain a revenue growth ramp it's been riding since its founding seven years ago.

Nothing's on the front burner yet, but M&A is one strategy the company will consider in 2010 as it tries to land more MSO deals for its services and software, Zodiac CEO Brandon Brown told Cable Digital News Thursday during a stop in the Denver area.

Brown admits that Zodiac's interest in acquisitions "hasn't gone past the first phase of due diligence, but we'll be taking a more serious look at that this year."

He's not showing his hand on what companies are of interest to Zodiac, though firms that can provide over-the-top video capabilities might fit the bill. The good news for Zodiac is that there is no shortage of startups and smaller ITV companies. The challenge will be finding the ones that are making significant revenue, or at least have some true, long-term potential.

"Will we do something in 2010? I don't know… but it has to make sense," said Brown, who joined Zodiac as CEO last April. (See Zodiac Signs CEO.)

Zodiac's eagerness to at least flirt with an acquisition strategy is coming into play because it's going to be difficult to keep up its growth rate any other way.

Zodiac is privately held (it's entirely employee-owned and claims it hasn't had to raise a nickel of capital from outside sources), so it doesn't report financials, but Brown says the company has been "in the black since day one," with an average annual growth rate of 100 percent since it got off the ground in 2002.

That rate came down to earth last year, with growth between 15 and 20 percent -- quite an accomplishment in a crummy economy, but not exactly the level Zodiac's accustomed to. Zodiac's not predicting its revenue growth for 2010 yet, but Brown said its employee base will rise from 135 today to past the 160 mark to handle the amount of business Zodiac expects.

Absent any new blood, Zodiac's near-term growth is coming from products such as PowerUp, an ITV framework that works with different types of set-top middleware, presentation engines, and underlying operating systems. That framework automates a process that "mutates" applications so they can be optimized for low-end and newer, more powerful classes of set-top boxes, all from the same creation process. This way, developers making tru2way apps don't have to manually recode them for older boxes such as the Motorola Inc. (NYSE: MOT) DCT2000.

That system is also designed to optimize the relatively weak processing power of those older-generation boxes so the applications that run on them still look visually attractive, and not like a clone of Yar's Revenge. [Ed. note: Best. Game. Ever. For the Atari 2600, anyway.]

Taking things a step further, Zodiac this week introduced the 2.5 version of PowerUp, adding an element that allows MSOs to bridge set-top apps to the mobile handset world. Remote DVR management is an obvious candidate for that. (See Zodiac Touts Set-Top/Mobile Integration.)

Zodiac has already notched two MSO-wide deals for PowerUp that will involve about 10 million set-tops. Zodiac's not disclosing them, but Time Warner Cable Inc. (NYSE: TWC) and Cablevision Systems Corp. (NYSE: CVC) have been among the vendor's larger customers.

One of those carrier-level PowerUp customers (one that already has Zodiac's system running on 6 million boxes) has signed up to use a new design kit Zodiac's creating for third-party app developers. Brown says the kit, due out in the second or third quarter, will give operators the ability to create their own app stores. Akin to the Apple Inc. (Nasdaq: AAPL) approach, but not as grandiose, this would give cable a platform to offer a sizable batch of one-off apps that could be free, paid, or subscription-based, Brown said.

— Jeff Baumgartner, Site Editor, Cable Digital News

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