While I expect almost no consolidation in the CDN market anytime soon, in other segments of the industry we’re starting to see quite a lot of consolidation, especially amongst the small ecosystem providers. Three months ago it was Entriq and Dayport hooking up, last month was Onstream Media and Narrowstep and just last week it was announced that JumpTV and NeuLion would merge. Details on the length and complexity of the integration are not yet available and no new company name/brand has been determined.
I expect this is the start of many smaller consolidations we will see in the market over the second half of this year. On paper, many of these mergers make sense, especially since the majority of companies this sized don’t have a lot of revenue and are burning through cash. For JumpTV, they did $8.9 million in revenue for 2007, but their net loss for the year was just over $30 million. NeuLion did $7.8 million in revenue for 2007 and had a net loss of $4 million. If companies of this size can combine services, cut their burn rate and increase their revenue, they have a better chance of being able to stay in the market.
There are easily more than 50 small providers in the market for things like transcoding, Internet TV platforms, webcasting software and the like. While the market is not yet large enough to support so many different vendors and probably won’t be for the new few years, many companies in this space are going to have to look at strategic mergers and acquisitions over the next 8-10 months so they can really start to ramp up their revenue now. For many companies, it is crucial that they put the foundation in place today so that they are a leader in the space years from now when the market really matures.