Have you ever heard of PacketVideo? Apparently not. It’s just another US start-up that develops cellular products. It appears, however, that the company has some connections with Israel. Comverse (Nasdaq: CMVT) invested $30 million in PacketVideo in February, when PacketVideo held its latest financing round. The company raised $100 million, at an estimated market value of $250-300 million.
PacketVideo was set up in 1998, when cellular, 3G, and video were synonymous with success. Video streaming on cellular – the real-time transmission of video files over cellular handsets – combined all three technologies. At present, the capital market is taking quite a cool attitude to what used to be the hottest sectors only a year or three years ago. The very need for cellular video is being questioned today, and there are also question marks about demand for video broadcasts on a 5.5x4 cm. screen. Why should anyone pay hefty sums for a service that is unlikely to give them much joy?
It is therefore surprising that PacketVideo succeeded in raising $100 million in such a bad period. The financing round is the last in a series of rounds in which the company raised a total of $140 million, mainly from strategic investors, including Intel, Siemens, Sony, Qualcomm, Sonera, Time Warner, and CSFB.
Several well-known Israeli companies also operate in PacketVideo’s market. The most prominent among them are London Stock Exchange-traded Emblaze and Jigami (formerly Net2Wireless), Nehemia Davidson and David Rubner’s venture. In its heyday, Jigami helped raise Sensar’s value to $4 billion. Comverse sources believe that PacketVideo outperforms all its rivals, due to its advanced technology and, no less importantly, its seasoned management.
Emblaze CTO Dror Ginzberg disagrees with this view of PacketVideo’s technological superiority. “Technologically, we’re ahead of them by 12 months. We’ve just held a large event in Korea, in which we presented video over cellular networks – the real thing. People familiar with both companies told us afterwards that they don't hold a candle to us. PacketVideo is a typical US company with astounding self-promotion capabilities, but when it comes to technology, we have the upper hand,” Ginzberg said.
Perhaps it’s the PR and marketing capabilities that are the key factor in a company’s business success, we asked Ginzberg. He replied, “I’m involved in the technological side of things, but as far as I’m concerned the most important thing is sales and marketing. They’re not successful in day-to-day business activity. We never lost a competition against them. We beat them in a big way on the market. As far as I’m concerned, there’s no competition at the moment. They’re not making even a single dollar in revenues, whereas we have real sales. Last year we sold $30 million worth of products, and that’s quite a sum. They can be considered our competitors only on the PR level.”
PacketVideo’s technology allows video file transmission using all cellular protocols and technologies. The company claims that its product is the first to transmit MPEG-4 files over cellular handsets. PacketVideo CEO and co-founder James Brailean was one of the developers of the standard intended to transmit wireless video and audio broadcasts.
Still, this is not exactly a revolution. PacketVideo’s product is being tested by 17 communications operators, including Finnish company Sonera, but even Comverse sources pointed out that the company’s technology and its niche are still undergoing economic feasibility checks.
The objective of Comverse’s investment in PacketVideo is not clear. However, PacketVideo’s field of operation integrates well with Comverse’s vision of the future cellular market, and Comverse is currently on the lookout for products that will allow it to continue its growth, which started in the mid-1990s, when cellular products turned out to be such a hit with consumers.
However, the application that catapulted Comverse to the top – the call answering service – is no longer a technological feat or a leading application. The acquisition of Exalink indicated the direction in which Comverse is headed: Data communications-based advanced applications. Video streaming may become the winning application among cellular users in the years ahead. This prospect, combined with the successful financing rounds, turn PacketVideo into a leading candidate for acquisition by Comverse.
A company source told us, however, that PacketVideo may hold an IPO when the capital market picks up.
Published by Israel's Business Arena on 14 June 2001