Not Ready for Prime Time: Omniverse Distributors Pick Up the Pieces After Pay-TV Deals Fall Apart

Jeff Baumgartner
News Analysis
Jeff Baumgartner, Senior Editor, Light Reading
6/13/2019



James Smith says he wanted to believe everything that Omniverse One World Television and its CEO, Jason DeMeo, were saying and selling.

"It just looked really good," Smith, the CEO of Flixon Media, recalled when the opportunity to work with Omniverse and develop and launch a premium-level OTT-TV service across the US arose about two years ago.

As a company with a master distributor deal with Omniverse, Flixon and dozens of its partners were in a position to market and sell competitive packages of pay-TV services, including premium offerings like HBO, via the Internet at attractive prices that often undercut those from other OTT and traditional video service providers. A low-priced, full-freight line-up of television programming would be a cord-cutter's dream and be viewed as an attractive option for big and small broadband service providers that were eager to add TV to their data bundles.

Smith said he believed Omniverse possessed a joint venture with a New Jersey-based private cable operator called Hovsat, endowed with distribution rights that gave Flixon and its various partners the legal green light to stream live TV packages to a wide range of connected devices across the US.

But he said those beliefs began to evaporate late last year as major programmers like Discovery Communications began to apply pressure on Flixon about its OTT offerings. Flixon's concerns were amplified in February 2019, when the Alliance for Creativity and Entertainment (ACE) sued Omniverse, alleging that Omniverse was distributing TV programming via the Internet without authorization. That case, with the California Central District Court, is ongoing.

Omniverse initially argued that it was doing everything legally, pointing to a purported 100-year contract Hovsat has with DirecTV affixed with "no limitations" concerning distribution and delivery method. However, on May 31, Omniverse, following a review of the content licensing rights held by Hovsat, ceased the marketing of live OTT-TV services to "single dwelling residential customers" to instead focus on apartments and the broader multi-dwelling unit market.

Omniverse's fate, in that case, has not been handed down by the court, but the lawsuit and other troubles associated with Omniverse have affected Omniverse's various resellers and distribution partners, execs claim.

Smith: Deception has led to loss of dollars, reputation
Flixon and Omniverse officially cut ties before Omniverse pivoted to focus solely on MDUs at the end of May, but Smith says he feels deceived by Omniverse and its leadership, and that this deception has done harm to not only his company but to the ISPs and other distribution partners that Flixon had signed on along the way.

"I feel like I've been brought into a scam. That's the most annoying thing about this," said Smith. "It's not the revenue we've lost… it's about the relationships that we've built. That's the real downside."

But Flixon Media, a business registered in the US that is headquartered in Cyprus and also operates an office in Kerala, South India, did lose a bundle. According to Smith, Flixon, which employs about 25 people and has no physical presence in the US, lost between $800,000 to $1 million throughout its two-year affiliation with Omniverse. "We didn't make a cent out of this," Smith said.

But before things went south, Smith believed Flixon would profit from the Omniverse partnership.

Before teaming up with Omniverse in late 2017, Flixon's business centered on web marketing, generating leads and building websites and landing pages. "But we've always wanted to look at having our own product," Smith said.

Flixon, he said, researched dozens of ideas and white-label offerings before coming across Omniverse's solution. Smith liked what he saw.

Flixon then engaged with Omniverse and, despite having no background in TV and broadcasting, entered into a distribution deal with Omniverse and the development of the Flixon TV service, Smith said.

Smith said Flixon's engagement with Omniverse started in late 2017 and followed with a small-scale pilot of the OTT-TV early in the following year. During those days, Smith said he "definitely" believed that Omniverse's way of doing business was legitimate.

"He [DeMeo] always told us he had a contract with Hovsat," Smith said, recalling that he did see a document showing that Omniverse and Hovsat had indeed had a joint venture agreement.

Flixon, he recalled, paid Omniverse a $25,000 set-up fee and was to pay a minimum guarantee to Omniverse of $25,000 per month.

"We were told that all things would be provided and that it would be [a] plug-and-play TV service," Smith said.

But he said Flixon ended up spending a lot more on app development because the middleware provided wasn't reliable or stable enough for Flixon's purposes, so the company ended up contracting another third party to develop apps for a wide range of streaming platforms.

"We ended up getting dragged into a really big, deep hole," Smith said, estimating that Flixon spent about $75,000 in additional money just for the additional app development, and has lost as much as $1 million when all costs linked to the Omniverse partnership are rolled up.

But once the technical pieces were in place, Flixon began to make progress with a model in which it would team up with various partners, including ISPs, to sell OTT-TV packages based on the purported Omniverse content streaming rights. Smith estimates that Flixon had signed up about 65 ISPs as distribution partners, as well as SkyStream Technologies, a company that markets and sells Android TV media players. About ten in that group had gone live by the time Omniverse shut down its residential service on May 31.

Smith disagrees with an earlier assertion by DeMeo to Light Reading that Omniverse's distribution partners worked on a commission-based business model akin to how the prepaid mobile market works.

"That's never been the case," Smith said. In Flixon's instance, he said the company would pay a minimum guarantee of $25,000 per month to Omniverse. Some projects he was privy to had guarantees as much as $100,000, Smith said. "We would pay the minimum guarantee regardless of whether we had ten clients or 4,000 clients," he said.

Smith said Flixon's master distribution agreement with Omniverse was for $16 per user on the basic TV tier, and Flixon would charge its distributors about $22 per subscriber, with more money paid for higher-level premium tiers.

Omniverse officials and members of its legal team have not responded to multiple requests seeking comment and reaction to Smith's version of events and his description of the financial structure of the former agreements between Flixon and Omniverse.

Other companies believed to have similar master reseller deals with Omniverse include TikiLive and VistaTV. TikiLive declined to comment for this story. VistaTV has not returned messages seeking comment about its experience with Omniverse.

Next page: SkyStream also drawn by the allure of Omniverse



SkyStream also drawn by the allure of Omniverse
SkyStream Technologies, a supplier of Android TV streaming media players, was also intrigued by the potential that Omniverse presented.

According to SkyStream CEO and co-founder Philip Lelle, a big goal of the company was to deliver a legal OTT-TV service of its own that it could market on the streaming platform it was selling to consumers. "That was our dream," Lelle said.

Lelle said that dream appeared to come true in April 2018 when the Omniverse opportunity came to him.

After reviewing the documentation about rights and licenses and having discussions with both Omniverse and Flixon, Lelle said SkyStream signed on as a Flixon distributor in July 2018, agreeing to pay $25,000 to Omniverse along with ongoing monthly commitments on subscribers.

Lille said he was "absolutely" convinced that the documentation shown to SkyStream clearly indicated that the service it would sell was legal. "It's a pretty thick document… everything looked perfect," he said. "I thought we did enough due diligence."

Lelle said his only reservation early on was that SkyStream TV was saddled with some restrictions, including the requirement of a set-top box and being directed not to amplify messaging about cord-cutting. "No cable bashing whatsoever" was allowed, Lelle said.

But SkyStream proceeded with a soft-launch of SkyStream TV in July 2018, but decided not to market it heavily right away. When Omniverse shut down the consumer offering at the end of May 2019, SkyStream TV had fewer than 500 subscribers, according to Lelle.

However, the fallout of the Omniverse association in the wake of the still-pending ACE lawsuit against Omniverse has done more than cause SkyStream to lose those pay-TV customers. Lelle said it has damaged the reputation of his company.

"When this case hit in February, everybody stopped talking to SkyStream," he said. "Now we're trying to get our name, SkyStream Technologies, back out of the red, because everything got pulled over our eyes."

SkyStream was just one of dozens of partners that connected with Flixon.

Flixon declined to name the ISPs that it signed on, but public information posted on the web indicates that several relatively small service providers were among them, including WestPAnet Inc., MI Internet Company, Metroplex Communications, Locality Networks, HBE Internet and URTV Now.

A screen grab from Omniverse's website, circa January 2019.
A screen grab from Omniverse's website, circa January 2019.

Starry-eyed about CenturyLink
But, according to Smith, Flixon and Omniverse were zeroing in on a much bigger deal that was poised to be a game-changer for both -- a deal with CenturyLink.

Before the Omniverse lawsuit hit, Smith said Flixon was invited to CenturyLink's offices to conduct presentations about how CenturyLink could come on board as a Flixon distributor and tap into a hosted video service that it could resell to its broadband customers. Similar to Flixon's work with other ISPs, Flixon would serve as a fulfillment and marketing provider for CenturyLink.

CenturyLink "was literally going to be a Flixon distributor," Smith said, noting that CenturyLink was intrigued by the competitive pricing it would be able to offer to various markets, including the MDU sector. Flixon, he said, had set up the apps, the backend systems, and a 24/7 support team.

"The deal was more or less ready to be signed and ready to proceed on," Smith said. "Then the lawsuit hit [in February 2019] and there were a lot of unanswered questions, and things started getting really concerning."

A person familiar with the situation corroborated Smith's assertion that CenturyLink, Omniverse and Flixon were once engaged in talks about teaming on a hosted OTT video solution. It's not clear if a business engagement involving CenturyLink and Omniverse is ongoing amid the since-scuttled relationship between Omniverse and Flixon, and Omniverse's recent decision to shut down its direct-to-consumer TV business and instead focus on the MDU market.

CenturyLink declined to comment for this story. However, the company's pay-TV business has been evolving in recent years as CenturyLink has steered away from its unprofitable OTT and managed IPTV products. CenturyLink launched a trial of its own OTT-TV service, called CenturyLink Stream, in mid-2017, and then shut it down in March 2018. At the time, CenturyLink said it would "pursue new partnerships to meet emerging market trends in the video space." In Q1 2018, CenturyLink also halted the marketing of Prism TV, its in-footprint, managed IPTV service.

Flixon's Smith said he attempted to have some of his concerns about the lawsuit and other issues addressed at the NAB Show in April 2019 in Las Vegas, where he had an opportunity to meet with DeMeo and an unnamed exec with CenturyLink. Smith said they attempted to allay his concerns about the ACE lawsuit, claiming that one of the plaintiffs in that case, Paramount, had instructed ACE to drop the case.

"We now believe this to be a total fabrication," Smith explained in written comments about his recollection of that meeting in Las Vegas.

Smith declined to detail the full contents of that meeting, "but it certainly was not a professional experience," Smith said. "I left that meeting extremely nervous and thought to myself: What are we actually involved with here?"

Smith said Flixon and Omniverse officially parted ways in mid-April, and all pay-TV customers signed on through Flixon and its distribution partners (Smith said there were only about 2,000 of them at the time) were transferred to Omniverse and a new service branded OmniGo. Smith said Flixon developed the rebranded OmniGo.tv service, with approval from Omniverse, before the customer transfer and the severing of the business relationship.

"We just gave them the book of business," Smith explained, but added that he was surprised to learn that new distributors continued to be signed up via Flixon even after the business between his company and Omniverse had come to an end.

Smith holds that he did not always get timely or straight answers from Omniverse and, upon reflection, harbors regrets about doing business with Omniverse. But he is also of the opinion that Omniverse and DeMeo truly believed the company was on solid legal footing from the start based on their interpretation of the Hovsat-DirecTV contract.

"I don't think he's intentionally gone out there and done something he shouldn't have done," Smith said. "He really believes he's got something special, but I don't think many of us do now."

Smith acknowledges that the way things were put together through the Omniverse were not traditional, but contends that he still felt everything was being done with the right deals and distribution rights intact... at least early on.

In a written document detailing Flixon's experience with Omniverse, Smith explained that he had reached out to an engineer at Omniverse to get a better understanding of Omniverse's headend setup and said he received this response: "I knew that we were definitely not doing things the 'normal' way (IRDs [integrated receiver decoders], etc)…but we weren't claiming to be doing them that way. [W]e just operated under the understanding that all the rights and permissions were in place and were trying to do a new, cool thing that hadn't been done before."

Next page: Subpoenas put a scare into Omniverse partners



Subpoenas put a scare into Omniverse partners
The ACE lawsuit filed against Omniverse in February grabbed the attention of everyone in Omniverse's orbit.

Both Smith and Lelle said Omniverse tried to alleviate those concerns by stressing that the ACE attorneys would be presented with the licensing agreements and the issue would be rapidly resolved.

At that point, SkyStream's Lelle said he "was on the fence" about the whole situation and was still withholding a plan to be more aggressive with the marketing of the SkyStream TV service.

"But if they're reassuring me that they are going to show them (ACE) the licensing documents and it's on, [then] SkyStream can really start to market," Lelle recalled.

Worries among Omniverse distribution partners hit higher levels around March 2019, when several of them were served with subpoenas from the US District Court for the Northern District of Georgia, with responses due to an attorney with the US Department of Justice.

According to a copy of a subpoena supplied to Light Reading, distributors were not told the precise nature of the investigation but they were directed to supply documentation pertaining to the broadcast and rebroadcast of TV programming, set-top boxes, live television streaming services, credit card transactions and PayPal transactions as a purchaser or a merchant, and communications with more than a dozen people or entities, such as Jason DeMeo, Clikia, Omniverse, Flixon TV, URTV Now, MiloTV and SkyStream TV.

Lelle confirmed that SkyStream received such a subpoena and that it originated from the DoJ's complex frauds unit, and that it sought the communications and correspondence with Omniverse and several companies that had associations with Omniverse. "They wanted it all," he said, adding that SkyStream supplied the information but has not heard from the DoJ on the matter since.

A press official with the DoJ declined to comment on the specific purpose of the subpoenas sent to multiple companies that previously had done business with Omniverse through direct or indirect distribution partnerships.

Discovery applies pressure
Smith said he grew nervous when he started to receive letters from Discovery Communications attorneys in November and December 2018 about the programmer's concerns that Flixon was distributing Discovery channels without authorization. Smith said Omniverse assured him then that this issue would be handled.

But the issue persisted, as Flixon got another letter from Nicki Schroeder, a senior director with Discovery's global anti-piracy team, dated April 18, soon after news spread about the new OmniGo service.

"Discovery has not granted a license to any of Flixon, Omniverse or OmniGo to engage in these activities," Schroeder wrote, according to a copy of the letter obtained by Light Reading. "As we have previously made clear in correspondence with Flixon, Discovery's agreements with its partners expressly prohibit such partners from sublicencing or otherwise authorising the public performance, copying, streaming, broadcasting, distribution, display and/or transmission of Discovery's content in this manner."

The letter then sought confirmation that unauthorized use of Discovery's intellectual property by OmniGo has ceased by no later than April 26, 2019.

That follow-up letter gave Flixon more reason to move toward severing its business relationship with Omniverse, according to Smith.

The path forward
Despite the experience with Omniverse, both Flixon and SkyStream intend to re-enter the video streaming business, in one way or another.

Smith said Flixon has access to a VoD library that was licensed directly, and that those rights are still active. The plan now is to offer a skinny bundle of VoD content that mobile service partners can bundle in for free as part of the service provider's subscription.

Lelle said SkyStream still has interest in putting together a legal OTT service and is having discussions with rights holders about the costs, but has already found that erecting a premium OTT-TV offering will cost "millions on top of millions of dollars."

Instead, SkyStream will look to procure content it can afford and perhaps start with a "freemium" service backed by advertising and look to expand from there.

"Obviously it won't be with a channel line-up like we had with Omniverse," Lelle said. "We're going to be resilient on this [and] bounce back. It's just going to take a little bit of time and make sure we're doing it the right way."

Catch up on the Omniverse saga:

— Jeff Baumgartner, Senior Editor, Light Reading

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