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Modulus Broadcasts $10M Round

Light Reading
News Analysis
Light Reading
9/27/2005

In a sign of IPTV's advance towards high-definition streaming, video encoding startup Modulus Video Inc. has scored $10 million in Series B funding. Thomas Weisel Venture Partners led the round and was joined by existing investor Trinity Ventures. (See Modulus Video Raises $10M.)

Based in Sunnyvale, Calif., Modulus develops MPEG-4 AVC video compression systems for satellite, cable, terrestrial, and IPTV networks. As broadcasting increasingly shifts to high-definition (HD) programming there’s a need for more cost-efficient compression -- particularly on the part of the telcos, who are competing with satellite and cable companies that are already providing several HDTV channels.

The H.264/MPEG-4 AVC standard offers a higher rate of compression than the commonly-used MPEG-2 standard, while maintaining comparable picture quality. This allows IPTV providers to deliver more channels over the same amount of bandwidth, and entice subscribers by adding HDTV channels to their lineup. (See HDTV Pushes Telcos Toward MPEG-4.)

"[Modulus] has really made the right choice by choosing to focus on H.264. It seems to have clearly emerged as the codec of choice," says Mangesh Pimpalkhare, a partner at Thomas Weisel Venture Partners who has joined Modulus’s board of directors.

At the onset of Modulus' founding in 2002, the company saw the potential of H.264, and skipped over thus providing both MPEG-2 and a focus on the MPEG-4 AVC standard from the beginning. It has raised $18.5 million to date; its first round came in April last year, when it netted $8.5 million from Trinity Ventures.

The company, which employs around 50 people, mainly makes its sales by partnering with other vendors -- it has an OEM (original equipment manufacturer) agreement with Motorola Inc. (NYSE: MOT), as well as deals with Scientific-Atlanta Inc. (NYSE: SFA) and the Microsoft Corp. (Nasdaq: MSFT)/ (NYSE: ALA; Paris: CGEP:PA) pairing.

Chairman and CEO Bob Wilson says the company has also sold systems directly to Telefónica SA in Spain, but "more often than not, we’re working with a large company that’s doing system integration" for a service provider.

That sets up a dynamic where Modulus is partnering with its potential competitors, like Scientific-Atlanta. Others in the MPEG-4 encoding space include Harmonic Inc. (Nasdaq: HLIT), Tandberg Television, and Thomson (NYSE: TMS; Euronext Paris: 18453).

Modulus says it has a head start on other equipment vendors, which all started off providing MPEG-2 systems; now "virtually all of them are making plans to shift to MPEG-4," says Wilson.

"MPEG-4 is definitely going to be a key technology just because no matter how much improvement in bandwidth you can get, there’s always a benefit to going for more," says Pimpalkhare.

He adds that since the standard is just at its beginning, "it’s going to improve dramatically," leaving a lot of room for innovation. "One thing that was really interesting is the MPEG-4 standard is very decoder-focused. The decoder side of things is a mature market, but in the encoding end, there’s really not many [vendors] out there."



IPTV providers are looking for the systems. Wilson notes that sports help drive HDTV. In Europe, where HDTV hasn't caught on as fast as in the U.S., TV and telco providers are preparing to shift in time for the World Cup in Germany next year.

Whether they offer HDTV channels yet or not, operators are keen on making the switch to MPEG-4. Last month Video Networks Ltd. (VNL) in the U.K. touted its HomeChoice triple-play service as "the world's first revenue-generating broadcast television service delivered exclusively using an advanced compression technology" when it shifted to using MPEG-4 AVC for all of its channels. (See Video Networks Shifts to MPEG-4.)

— Nicole Willing, Reporter, Light Reading

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