DG FastChannel's $30 million acquisition of Pathfire last week consolidates two major players in the digital-file-delivery business and could make it easier for broadcasters to receive and play back high-definition commercials and syndicated shows.
The deal combines the leading digital-ad-delivery firm with the dominant distribution service for syndicated content and other long-form fare, such as network news clips and video press releases. One major goal: to offer stations the same streamlined workflow for high-definition fare that they have for standard-definition.
Both companies use IP-based satellite delivery and “edge servers,” which eliminate the labor-intensive process of recording a linear satellite feed onto videotape or server storage. Once content is captured in the edge server, the software-driven systems use the Internet to confirm receipt and retrieve any missing bits. Files can then be automatically transferred to other servers for playout or production applications.
DG FastChannel's Spot Box systems reside in some 4,500 TV facilities—including stations, networks and cable interconnects—and are used by more than 5,000 advertisers and agencies. Pathfire's Digital Media Gateway technology is installed in about 1,400 U.S. TV stations and used by leading syndicators Warner Bros. and CBS Television Distribution and by affiliate news services ABC NewsOne and CNN Newsource.
Dallas-based DG FastChannel has only one major competitor in digital ad delivery, Level 3 subsidiary Vyvx; Atlanta-based Pathfire has scant competition for the file-based delivery of syndicated and news content, with the exception of the networks' proprietary distribution systems.
Publicly traded DG FastChannel, which is acquiring privately held Pathfire through a stock purchase, has been working steadily over the past few years to consolidate the file-based content-delivery market, despite some financial ups and downs that included a NASDAQ delisting notice in early 2006. The former DG Systems acquired competitor Media DVX for $10 million in April 2005, then merged with privately held FastChannel Network last year in a tax-free, stock-for-stock transaction worth $36 million. Earlier this month, it announced it will acquire the advertising-distribution business of video post-production and duplication firm Point.360 for $34 million.
The deal for Pathfire, which had 2006 revenues of roughly $16 million, will be “a bolt-on transaction” for DG FastChannel, says DG Chairman/CEO Scott Ginsburg: DG's main business is spot delivery while Pathfire has focused on delivering syndicated shows. He says the acquisition will allow DG to further diversify by tackling the nascent business of delivering movies electronically to movie theaters, as well as to open up online advertising possibilities.
“It leverages our core competencies and gives us a backup network that makes us unique,” says Ginsburg. “Pathfire squarely puts the combined entity in a position to participate in the digital-cinema transition, and it positions us as the industry leader in distributing long-form content.”
On completion of the Point.360 and Pathfire deals, DG should have annual revenue of $113 million-$118 million and EBITDA (earnings before interest, taxes, depreciation and amortization) of $35 million-$38 million.
Broadcasters and syndicators have edge servers from both companies, including legacy FastChannel and Media DVX units, and they don't expect DG and Pathfire to consolidate their functions in one box anytime soon.
But they express hope that, in the long run, consolidating the companies could help pave the way for the file-based delivery of high-definition commercials and syndicated content, which has been a challenge due to both the higher bit rate that high-definition requires and varying HD mastering formats. So far, delivery of the small amount of HD advertising and syndicated content available has been accomplished manually, a step back in time from a workflow perspective.
For example, ABC-owned stations that broadcast the hi-def version of Sony Pictures Television's Jeopardy! have to record a scheduled satellite feed onto a server or high-definition videotape, says Dave Converse, VP/director of engineering for ABC Owned TV Stations.
“We did a work-around,” he says. “That's not where anyone wants to be, but we wanted to get the show on air.”
ABC stations follow a similar process for commercials, he says. “We get very few HD commercials, and we have to handle them manually. We don't get a lot, so we haven't built a workflow for it. We're replicating the standard-def workflow for HD, but we're just at the very beginnings of that.”
Both DG FastChannel and Pathfire have been working separately to make their products hi-def–capable. DG delivered its first HD spot last November, a commercial for the Bond film Casino Royale that was broadcast by Discovery HD Theater, and Ginsburg says about 20 stations have installed the necessary equipment for DG's HD Now service.
For its part, Pathfire has organized an HD Conclave of broadcasters and syndicators to develop a standard for distributing HD content. The goal is to create one workflow for both HD and SD versions of a syndicated show, where a single high-definition file would be delivered to a station and a standard-def version could be derived from it. Earlier this month, Pathfire successfully tested file-based delivery of HD content from Warner Bros.' Global Digital Media XChange facility in Los Angeles to Cox station WSB Atlanta, and Pathfire Chief Technology Officer Joe Fabiano says the company remains on track to begin delivering HD syndicated content this fall.
“Nothing has changed whatsoever in that regard,” he says.
Ira Goldstone, chief technology officer for Tribune Broadcasting, has been involved in Pathfire's HD Conclave and hopes that DG will adopt the standards the group has developed. “Programmers and broadcasters have come up with the best way to deliver file-based HD content to stations for playout, and I hope DG FastChannel takes those learnings and moves forward,” he says. “Right now, they've come out with a different specification, and I hope they meld more.”
Preston Davis, president of ABC broadcast operations and engineering, agrees that a single standard for HD file-based delivery would be practical. “I think it makes a lot of sense to have a single format for HD distribution on platforms like that.”
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