Mainstreaming Online Video: The Investment Angles

wsjgraphAdmit it – you’re getting hooked.  You hit “play” on your Google or Yahoo splash page at least once during the day.  A non-firewalled friend sends you a video link at least once a week, and you may have even been one of the 8 million pioneers, er, not so productive Americans, who covertly watched live streaming coverage of the hobbled Tiger Woods win a Monday playoff in last year’s US Open.  I am not even going to mention porn.

CNN Money just announced that a seeemingly unending appetite by marketers for online video has led them to invest in a much larger slate of online programming including additional online news programs.  Driven by advertisers, this move is in lockstep with others including FOX and CNBC and it forshadows whispered plans by the old guard “three letter” networks as well.  Even the social networkers are getting into the act as Facebook and Twitter have both become major referrers to online video content (http://newteevee.com/2009/03/06/changing-nature-of-virality-facebook-and-twitter/)  The verdict seems to be in, despite the early doubts of baby boomers, people are turning to the web for their fix of moving pictures and it is spawning a healthy group of new industries that warrant a close look by investors. 

Wall Street analysts seem to be in agreement that media content is universally shifting from offline to online and that the shift will create a decade-long adoption curve for digital media, content creation and infrastructure.  So who will benefit from this sea change?  There are a few ways to approach the question.  Streaming media is delivered via broadband access and the growing capacity of the “pipes” that deliver the content.  The bottleneck between the content and the computer is easing as will the bottleneck between the computer and the TV ( “home theater” for you folks in the OC).  These infrastructure needs will be filled by larger companies including telecom, cable operators, etc.

For the small cap investor, the best places for participation may be the vendors creating the nuts and bolts technologies surrounding the generation and delivery of the content to the various internet protocols that are a long way from being standardized.  Those players range from startups to .com-boom survivors and they seem to be gaining steam and getting funded, even in a disastrous economy. They can loosly be categorized into a couple of segments – content management and video compression, encoding and streaming.

Content management is the manipulation and delivery of the digital content, making it available and deliverable to the end user – think on demand videos or YouTube browsing (www.youtube.com).  These companies include MacroVision (Nasdaq:MVSN) (www.macrovision.com), OnStream Media (Nasdaq:ONSM) (www.onstreammedia.com) and Kit Digital (OTCBB:KDGL, a new symbol subsequent to a reverse split effective March 9, 2009) (www.kitd.com).

Compression, encoding and streaming companies create the hardware and software that make it possible for the content to travel from the front of a camera into the digital domain and then accommodated for viewing on a number of web-based viewing platforms.  Interesting companies in this space include On2 Technologies (NYSE Alternext US: ONT) (www.on2.com), DiVX, Inc (Nasdaq:DIVX) (www.divx.com) and Vividas.

One company, ViewCast, Inc (OTCBB:VCST) (www.viewcast.com), which has a long history of steady growth, has historically played a key role in the encoding and streaming side of things, but last week announced that it was making a bold leap into content management with its purchase of Ancept, an IBM-platform company that will allow ViewCast to drive additional revenues, take another link in the value chain of streaming media and likely take a greater share of attention on Wall Street. ViewCast is an IR client of the publisher of this blog.

Regardless of your approach to playing the online video opportunity – do play it.  It has become a part of the media fabric across the globe and will soon overtake traditional television as the medium most watched.

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