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by mavis scanlon
THIS WEEK, DIVA EXPECTS TO ANNOUNCE TWO ADDITIONAL CHARTER DEPLOYMENTS ? IN ST. LOUIS AND DALLAS.
Six months after it withdrew an initial public offering, video-on-demand provider DIVA Systems hopes to best its competition in the race for new customers.
?The market for additional VOD customers is wide open, and Diva has active conversations with all of the operators,? says Hendrik Hanselaar, Diva's president and CEO. ?While we cannot pre-announce ourselves, we can say that our customers talk very favorably about their results, the good rate of return VOD is providing against their digital investments and reduction in churn. In effect, what this has created is a substantial return business and increased market commitments,? he adds.
Diva says it has commitments or deployments in 29 markets in which MSOs are deploying VOD. But several of those commitments are from AT&T Broadband, which has deployed VOD only in Atlanta and Los Angeles so far, and is taking its time rolling out VOD to other additional markets.
But even Diva's 60% market share of the 15 current VOD markets is somewhat misleading. Both SeaChange and Concurrent Computer reported higher VOD revenue than DIVA for the first quarter.
While the market wants to know what's happening five years from now, ?in the short-term, the measure [of how well a company is doing] is revenue,? says Bill Styslinger, president, CEO and chairman of SeaChange.
SeaChange has made headlines lately with its steady stream of VOD announcements, including agreements with Comcast, Cablevision Systems and Adelphia. But Diva counts Insight Communications, Charter Communications and AT&T Broadband as its customers. Insight and Charter, at least, are aggressively pursuing interactive services including VOD; some of the reasons Charter chose to partner with Diva may bode well for further MSO agreements and deployments.
This week in fact, Diva expects to announce two additional charter deployments ? in St. Louis and the Dallas/Ft. Worth area.
Like most operators, Charter saw the potential in VOD several years ago, says Stephen Silva, Charter's SVP-corporate development and technologies. After an extensive process that involved all the VOD providers, Charter chose Diva due to its ?solid solutions? from a technical point of view, as well as its integrated back-office solutions and a navigator that was superior to all others, Silva says. Charter made a small investment in the company and Silva was put on DIVA's board to provide guidance.
?I still think [Diva's navigator] is superior to anything else in the industry,? he says.
While all VOD providers must allow customers to see what's available on the service, Diva's is the only navigator to offer full-motion video previews, Hanselaar says.
Diva has the suite of services and rights-management expertise, now it just needs to expand its customer base. In addition to international expansion, it hopes to expand its footprint with its current customers.
There's no doubt VOD is a tough marketplace right now, Silva at Charter says. From what analysts call the ?lumpiness? of orders to the highly competitive operating environment, four VOD providers may have a tough time surviving the next couple of years, until growth rates start to expand in the 2003-2004 time frame. By then, notes cable analyst Gary Farber in a recent report, cable-network upgrades should be largely completed, digital-TV penetration rates should be in the 40 to 50% range ? automatically widening the prospective VOD audience ? and content from studios should be more widely available, enabling VOD providers to supply more content.
The question for Diva is can it survive? It needs to raise money fast. Diva's cash, cash equivalents and short-term investments fell to $57.4 million as of March 31, from $76.8 million at the end of December. That's enough to last through September, according to a May 3 Securities and Exchange Commission filing. Hanselaar says that the statements in the SEC filing were somewhat conservative and that the cash will last beyond the date noted in the filing. In addition, he says, there is cash coming in.
Currently Diva has three streams of revenue ? from products, services and licenses. VOD product revenue was $4.5 million in the first quarter, or 65% of the company's total revenue of $6.9 million. Like other VOD providers, the March quarter showed a sharp increase from the same period in 2000.
But the company's engineering and development costs alone are far larger than the total revenues being brought in. For the March quarter, Diva's engineering and development costs, at $9.3 million, equaled roughly one-third of its total operating expenses.
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