Sony announced that it acquired a stake in Norway-based Nevion.
Although the companies described the transaction as a “strategic partnership,” “exciting alliance,” and “a vote of confidence in Nevion,” the companies also said, “Sony will become a leading investor in Nevion by acquiring a minority stake in the company through a share purchase agreement.”
Neither the terms of the deal, nor the percentage of Nevion acquired by Sony was disclosed in either company’s press release.
However, Norweigan financial newspaper Finansavisen reported that Sony acquired 45% of Nevion, making it the company’s largest individual shareholder. Nevion’s existing PE investors, Herkules Capital and Selvaag Invest, will remain shareholders (albeit diluted by 45%).
According to Finansavisen, Sony and Herkules each have two board seats, and Selvaag has one. Herkules parner and chairman, Gert Munthe, has been named chairman of Nevion.
Rationale for the transaction:
Sony’s announcement was carefully-worded. The company said that by working with Nevion it “will aim to deliver” enhanced media production solutions, and also mentioned more efficient technical resource sharing across networks.
For its part, Nevion was a bit more verbose, saying “This partnership with Sony will allow customers to benefit from more advanced, fully integrated and standards-based media production solutions that combine outstanding media network technology with world-leading equipment such as cameras and switchers.”
However, when you strip-away the PR superlatives, we note two significant observations.
It appears the Nevion investment was done by Sony HQ in Japan rather that one of its regional operations. The announcement was issued by Sony Imaging Products & Solutions (SIPS) and quotes the Senior General Manager of the Media Solutions Business Division of SIPS, Mikio Kita. Sony Corporation created SIPS in 2016, as a wholly-owned subsidiary that includes all “functions related to the consumer camera business, solutions business with a focus on broadcast- and professional-use products, and medical business.”
This is unusual for Sony. A review of its other acquisitions in the broadcast sector reveals they were done regional business units, not Sony HQ in Japan. For example, Sony Europe acquired UK-based Hawk-Eye Innovations in 2011 and Brussels-based Memnon in 2015. Sony Professional Solutions Americas invested in the WGBH playout facility in 2015 and acquired automation specialist Crispen in 2017.
Why would Sony HQ, which in 2018 paid $2.3 billion for a majority share in EMI Music, buy a minority stake in a Norweigian broadcast technology supplier?
Our two-word answer: Remote Production.
Our three-word answer: Software-Defined Networking.
Buried within each company’s otherwise vanilla press releases announcing the transaction, Sony said the deal will enable the company to “[take] the scope of remote production to the next level;” and Nevion said “these solutions will make it easier for customers to move to IP in their facilities and in remote production.”
Whether you call it “remote production,” “REMI,” “at-home production,” “home-run production,” or “centralized production,” there’s no doubt that broadcasters are increasingly centralizing live production workflows.
Sony has been involved in high-profile remote productions since at least 2017, when multiple Sony products were selected by NEP Australia for the Andrews Hub. Since then, NEP has used Sony gear for remote production and live broadcast of A-League Australian soccer matches in Perth (~2,400 miles away), and the IAAF World Relays, held in Yokohama, Japan (almost 5,000 miles away). Separately, Sony and CenturyLink successfully tested an all-IP ST 2110-based transatlantic remote production that linked a Sony XVS-8000 control surface in London to an XVS mainframe in New York and switched between live cameras in New York and London.
It seems self-evident that the number of remote productions will only increase from here, but centralizing production hardware is just the beginning. Many broadcasters plan to take remote production principles much farther, believing they can deploy completely decentralized production workflows where equipment and personnel in multiple locations work together on a live event.
Once deployed at scale, remote production flips traditional business models on their head. Rather than the current status-quo where equipment and personnel produce two or three events a week, the same resources can produce two or three events a day.
For companies that make live production equipment, including switchers, graphics systems, and replay servers, this is not a good thing (we think “existential threat” may be a more appropriate term).
The massive increase in resource utilization achieved through remote production may lead to a corresponding decline in the total addressable market (TAM) for affected products. We’re unable to predict when or if this may happen, and we can’t put a precise number on the impact; but a reasonable guesstimate is a one-third decline in unit-volume (at some point in the future).
For Sony, whose share of almost any live production project mainly involves cameras, production switchers, and displays this is a mixed-blessing.
The good news for Sony is there will always be a need to have cameras (and microphones) on-site for every type of event, large or small, and Sony is a leader in the camera segment.
However, Sony is does not enjoy a similar leadership position in many of the other product categories used in live production (for example, EVS is the clear leader in live production replay servers, Calrec and Lawo dominate the audio console business, and we suspect competition in production switchers probably intensified quite a bit after Grass Valley acquired S-A-M in 2018) – and the revenues that Sony does manage to generate through these products are likely to get smaller if remote production becomes the norm for tier-1 events.
Buying a stake in Nevion doesn’t fix any of these issues for Sony, but it does offer Sony the opportunity to start changing its overall go-to-market strategy in the live production sector.
While Sony’s participation in live events typically ends when content leaves a truck or control room, that’s where Nevion starts. The company’s Virtuoso platform is a software-defined media processing node that provides a wide-variety of tools to enable broadcasters to transport signals between remote locations and a central facility securely and with low latency.
Nevion has been involved in several leading-edge IP-based deployments, including studio production, contribution, and remote production; and its customers include BT, ESPN, RTL (Germany), TPC (Switzerland), TV2 Norway, and VRT (Belgium).
These capabilities will fit nicely into Sony Sports Innovations, a UK-based subsidiary created in 2016 that includes Hawk-Eye and Pulselive and focuses on the production, officiating, delivery, and monetization of sports content.
From the REMI perspective, the acquisition of a minority share in Nevion indicates that Sony’s vision of the future includes IP-based remote productions of live tier-1 events, and that the company is proactively getting out in-front of the “IP freight train” to protect, and (we assume they hope) expand their live production business.
Software Defined Networking:
Like many media technology vendors, Nevion’s focus for the past several years has been on transitioning its product lines from hardware to software, and its revenue model from one-off CapEx sales to recurring revenues from software deployments and ongoing professional services and support.
The challenge facing technology suppliers in this situation is managing the delicate balance of declining revenues from high-margin hardware products, while building up a recurring revenue stream from new software products and associated services.
Nevion is no different. Its business transformation required embarking on a “bet-the-company” strategy that its VideoIPath SDN orchestration system represented its future, and its “traditional products” (e.g. routing switcher, MPEG transport stream analyzers, and the signal processing appliances) were the past.
This has likely been a painful journey for Nevion.
There’s a high probability that for several years, revenues generated by Nevion’s traditional products fell faster than the revenue growth coming from new products such as Virtuoso and VideoIPath.
Speaking at the 2018 Devoncroft Executive Summit | Amsterdam, Nevion CEO Geir Bryn-Jenson described to delegates the difficulties of the company’s business model transition.
Figures published by Finansavisen illustrate the realities of the business model transformation: in 2016, Nevion posted a net loss of NOK 34.2 million ($4 million) on revenue of NOK 322 million ($37.9 million). The company bounced back in 2017, generating a net profit NOK 10 million ($1.2 million) on sales of NOK 372 million ($43.7 million), while spending NOK 50 million ($5.9 million) on R&D. 2018 results were not available.
Given these swings in revenue and profitability, we thought it significant that Nevion CEO Geir Bryn-Jensen told Finansavisen he expects the company to achieve record revenues in 2019, adding that during the first six months of the year, the company booked orders of more than NOK 200 million ($23.5 million) – with software licenses and services accounting for 40 percent of the total.
This is a very good result for a company that derived almost 100% of its sales from hardware until it started developing software solutions for the first time about five years ago.
Core to Nevion’s success is VideoIpath, a comprehensive orchestration and SDN control system that provides connection management, service assurance and network inventory capabilities for service providers and broadcasters. Indeed, we believe VideoIpath is the probably the main reason Sony took a 45% stake in Nevion.
Gravity is on the side of IP-based systems for production and delivery of content. Over time, hardware-based products such as cameras, switchers, microphones, and displays will become edge devices, connected dynamically to processing units in remote locations by an increasingly intelligent IP network. Sony knows this, and clearly decided it needed to do something proactive to be successful in this type of environment.
It’s possible that the Nevion deal was a build-or-buy decision for Sony. Or perhaps, Sony realized that the IP transition is happening right now, and it needs new skillsets if it wants to grow its market share.
One of Sony’s strength has always been it masterfully-designed hardware products. From museum-quality VTR transport systems, to super-slow-motion broadcast system cameras, to the high-quality image sensors in its cameras (as well as in those from many other suppliers), Sony is one of the kings of hardware design and manufacturing.
Software, not so much.
With a stake in Nevion, Sony now has in its arsenal a proven software-defined platform to orchestrate high-performance media-centric IP networks at a very granular level, a new IP and telco-centric customer base beyond broadcasters and OB trucks, and a team that understands at a deep level what’s needed to make the IP transition happen.
From that perspective, the combination of Nevion’s Virtuoso and VideoIpath and Sony’s cameras, switchers, and its Sports Innovation business unit, starts to feel like a joined-up strategy. It seems to us that the company has staked a claim for leadership in the coming era of IP-enabled, remotely produced live production. It’s going to be interesting to see how customers and competitors react.
Nevion Press Release: Nevion and Sony establish a strategic partnership to provide enhanced IP broadcast production solutions
Sony Press Release: Sony Imaging Products & Solutions Inc. Establishes Strategic Partnership with Nevion AS for IP-based Media Production Solutions
Press Release: NEP Australia chooses Sony cameras, switchers and monitors for new IP remote production
Press Release: Sony Imaging Products & Solutions Inc. to be Established Reinforcing Imaging Business
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