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Consolidation Wave Hits the Second Screen

The inevitable shakeout of startups focused on second-screen apps and video-recommendation engines was in high gear last week as TiVo snapped up Digitalsmiths and Viggle grabbed Dijit Media.

This fresh string of deals, which follow i.TV’s acquisition of second-screen TV specialist GetGlue last year, are further indicators that many of these startups have created new features driving the integration of social networking and personalization into TVs, smartphones and tablets, but are not necessarily companies that are built to stand on their own for the long term.

“A lot of what these guys are doing are not standalone products,” but features for standalone products, Colin Dixon, chief analyst and founder of nScreenMedia, said.

Dixon expects to see more consolidation occur in the coming weeks and months, but doesn’t believe a large company will suddenly walk in and pick off a bunch of the startups.

TIVO: BETTING ON DIGITALSMITHS

TiVo CEO Tom Rogers said he believes his company’s proposed $135 million acquisition of Digitalsmiths, which makes video discovery and recommendation engines for set-tops and mobile devices, provides both strategic and tangible business value.

In addition to enhancing TiVo’s cloud-based services platform, which will soon include a network digital video recorder, the deal will expose TiVo to a new set of service operators and consumer-electronics partners in the U.S. and abroad, Rogers said.

By way of example, Digitalsmiths has said it has deals with seven of the top 10 U.S. pay TV operators, including DirecTV, Time Warner Cable and former TiVo foe Dish Network.

With respect to future M&A opportunities that fill gaps or enhance TiVo’s platform, Rogers said TiVo will maintain its “cautious, balanced approach.”

Last year, TiVo was rumored to be among a small group of companies interested in buying video software specialist SeaChange International, which, according to industry sources, has been on the block for months.

The Viggle-Dijit deal, meanwhile, matches up two startups seeking to achieve scale on the second screen.

VIGGLE SEEKS SCALE

Viggle, which failed in its attempt to acquire Get- Glue in 2013, will instead get its mitts on Dijit’s NextGuide, a platform that delivers search and alerts via a combination of TV listings and content from over-the-top sources such as Hulu Plus, Amazon Instant Video and Netflix, as well as the Dijit Reminder Button, a TV tune-in tool that can be plugged into websites, banner ads and mobile apps.

Viggle said it plans to integrate the NextGuide and Viggle apps to allow users to check into shows and acquire Viggle Points that can be redeemed for coupons and other rewards. Dijit’s products will also be tied into those of Wetpaint, a company Viggle acquired last year that provides TV-focused entertainment and celebrity news. For example, Dijit’s Reminder Button could be added to Wetpaint articles, Dijit Media CEO Jeremy Toeman said.

With all of its acquisitions factored in, Viggle said it will have a reach of more than 17 million users.

Viggle also hopes to ride Digit’s recent momentum. Dijit last fall said it had deals with BBC America, Fox and truTV to power Reminder Buttons embedded in their websites. Another 15 networks and other “entertainment properties” are in testing.

Toeman said he and Dijit’s eight-person team will be joining Viggle but retaining their base of operations in San Francisco.

But acquiring Dijit won’t solve all of Viggle’s problems. The struggling, debt-strapped company is looking to recapitalize through a $58 million offering.

According to the S-1 filing, Viggle’s current 12-month business plan will require $21 million to cover fixed expenses and capital needs, including employee payroll, marketing funds, server capacity, R&D and office space.

TAKEAWAY

While second-screen apps may be built to last, a consolidation wave indicates the independent companies behind them won’t.