Motorola Acquires Modulus Video

Motorola has acquired Modulus Video, an existing partner for the last two years. Modulus Video develops MPEG-4 Advanced Video Coding (AVC) compression systems for IP TV, cable, satellite and broadcast. The terms of the acquisition were not revealed by Motorola, but the transaction is expected to conclude in the third quarter of 2007 when the company will be integrated into the Motorola Home and Networks Mobility business, with operations in Sunnyvale, California (U.S.) to be maintained. Motorola started providing high-definition and standard-definition MPEG-4 Advanced Video Codec encoder and decoder products to cable, satellite and telecom providers globally in association with Modulus Video, a U.S.-based video technology company, in April 2005. Modulus claims to provide the MPEG-4 encoders that deliver the most efficient use of bandwidth, delivering high-quality standard and high-definition television services over broadcast, narrowcast and video-on-demand channels. Bob Wilson, chairman and chief executive officer (CEO) of Modulus Video, stated that "Modulus Video will bring to Motorola a software-centric platform that ensures flexibility, reduced cost and fast development time".

Motorola has made a number of acquisitions that indicate it aims to build significant capabilities in the video-networking market. As noted by Dan Maloney, president of Motorola's Home and Networks Mobility business, "Motorola is committed to offering an integrated, end-to-end video portfolio designed to meet the current and next-generation requirements of operators.” To this end, Motorola has made a large number of acquisitions over the last year that will facilitate this:

• Swedish set-top box provider Kreatel (see Global: 18 January 2006: Motorola Acquires IP TV Set-Top Vendor).
• Broadbus Technologies, a 'television-on-demand' technology developer, announced in July 2006. Broadbus' platforms support carrier-class distribution of content to multiple devices using compact solid-state server architecture that enhances performance, reliability and scalability improvements for video ingest, streaming and storage.
• Netopia, a provider of customer premises equipment, including remote PC access hardware and software, wired and wireless gateways, routers and modems that can support the triple-play of voice, video, and data. This will support development of home media hubs, voice gateways and IP set-top boxes. The software and remote centralised device management capabilities of Netopia will also allow Motorola to develop service management capabilities for IP-based gateways, modems and VoIP equipment. (see World: 15 November 2006: Motorola Acquisition Spree Continues with Netopia for US$208 mil.).
• Vertasent, which developed an integrated resource management product for cable TV networks that reduces bandwidth usage by limiting what is transmitted through a distribution network to that being watched. The company was attractive due to its platform digital architecture, scalability and flexibility of end device (see World: 26 September 2006: Motorola Continues Acquisitions with VoD Company Vertasent).
• Tut Systems, a U.S.-based IP TV video-processing and distribution solutions provider. The solutions from Tut support end-to-end digital video encoding, processing and distribution of MPEG-2, MPEG-4 AVC (advanced video coding), local advert insertion, forward error correction, and real-time conditioning of video and audio (see World: 22 December 2006: Motorola Acquires IP TV Co. Tut Systems for US$39 mil.).
• Terayon Communication Systems, providing video-processing solutions that optimise bandwidth and enable content to be delivered based on the regional and local interest of viewers, including targeted mobile advertising, such as digital ad insertion, motion and graphical overlays, and channel branding (see World: 24 April 2007: Motorola Acquires Video Software Company for US$140 mil.).

Outlook and Implications

• Building Video-Networking Capabilities:It becomes apparent that Motorola is investing heavily in fairly small video-technology related companies to gain access to what it considers to be best-in-class solutions. Several of these companies appear to have overlapping areas of expertise and product portfolios, and there must be some degree of superfluity within these acquisitions that is balanced by the perceived value of the companies' other assets. This is a smart move in light of the expanding pay-TV market as telcos enter the market and existing TV companies build up their capabilities in areas such as video on demand (VoD) and web TV (see United States: 10 May 2007: Cable Companies Move on VoD; 16 February 2007: Qwest Loses Colorado Statewide Franchising, Sees VoD Future; 8 February 2007: No STB Waiver from FCC Could Cause Problems for Verizon; and 26 April 2007: Comcast Develops Web TV Platform).

• Preparing for Convergence: Several other acquisitions and investments made over the same period show a broader strategy to develop effective solutions for the converged market. For example, Symbol Technologies is focused on the enterprise market, but it has expertise in Automatic Identification and Data Capture (AIDC), Radio Frequency ID (RFID), WLAN and a mobility management platform. These strengths will help to support Motorola's goal of enabling seamless mobility, as well as the broader aim to build in 'contextual awareness' into devices and applications (see World: 20 September 2006: Motorola to Buy Symbol Technologies for US$3.9 bil.). Furthering the move towards 'seamless mobility' are two investments that will support the distribution of content around the home: DART, which supports content distribution between mobile phones; and Ruckus Wireless. Ruckus produces the Mediaflex system, which supports digital video and multimedia distribution throughout the home. These concur with the development of Motorola's set-top box capabilities exemplified by the Kreatel acquisition, and will allow them to develop 'Home Hubs' that will be at the centre of the convergence solution. Like many companies, Motorola has shown a habit of investing first and acquiring later if these companies build attractive portfolios (see World: 31 January 2007: Motorola Invests in DART for Content Distribution and 10 October 2006: Motorola and Deutsche Telekom Fund Wi-Fi Router Firm Ruckus Wireless Inc,).

• Moving Away from Reliance on Handsets; The handset market is extremely fickle, with fashionable handsets from highly competitive companies able to drastically alter the market in a short space of time - as Motorola originally did with the slimline RAZR handset. Motorola has had a number of difficulties stemming from strategic errors aimed at gaining mass market share, which faltered as sales dropped and margins were set too low (see World: 5 January 2007: Motorola Misses Q4 Mobile Device Targets; 19 April 2007: Motorola Slides into Q1 Loss; and  2 March 2007: Motorola's Strategy: Improve Low-Cost Handset Margins and Profits). Reports in Chicago Business today (18 May 2007) indicate that further job cuts, likely to be equal to the 3,500 announced earlier this year, will be announced by the end of this month as costs are cut further. Building up the capabilities of its networking and set-top box market will have a number of effects, reducing Motorola's reliance on the performance of the handset division, but also building synergies between the fixed components of the converged solution and the mobile handset division (see World: 5 April 2007: Motorola Ships 1 mil. IP Set-Top Boxes and 10 May 2007: Motorola's Next Move: Movie Mobiles).