NAB Show Floor Reflects Changing Industry

Seven years ago I agreed with TVNewsCheck Editor Harry Jessell that the number of exhibitors at the National Association of Broadcasters convention — then about 1,400 — couldn’t get much higher, and we both foresaw significant shrinkage through consolidation. Lo and behold, this year’s NAB Show set a new record at 1,697 with 240 first-timers. Call me stubborn, but I don’t think we were so much wrong as premature.

Along with a growing number of companies serving the TV industry, there has been a change in technology leadership. It was only a few years ago that such Japanese companies as Sony, Panasonic, JVC and Hitachi dominated the market for innovative TV technology. American companies were fading. Computer companies were generally viewed as irrelevant and the few that tried to break in were generally unsuccessful.

At this year’s NAB, the change in leadership was evident. While Japanese market share continued to shrink, both computer companies and smaller U.S. entries commanded growing positions.  Adobe is a good example, with almost no broadcast market share five years ago and now attracting an amazing following among young media professionals. Amazon, not long ago a discount book seller, is another, and increasingly viewed as a future leader in TV technology.

This is a direct byproduct of the shift from hardware to software as the dominant factor. There was still plenty of hardware for sale in Las Vegas, but most of the buzz was about the cloud, collaboration, workflow, streaming, social media, software tools and solutions.

At the same time, there have been an amazing number of ownership changes in the TV tech space. Strategic buyers, particularly those companies that historically relied primarily on the TV station and network market, are trying to consolidate with competitors, recognizing that far too many are competing in a small market.

Router, switcher and transmitter companies are perhaps the best examples. Declining volumes, lower prices and shrinking margins have led to several mergers this year and more consolidation is in the wind.

Private equity firms that bought TV equipment manufacturers a few years back, thinking that low valuations would lead to quick profits from the digital conversion, have generally been disappointed.  A number of these firms are looking for opportunities to sell, although many are holding on, unwilling to take a loss and waiting for valuations to improve — at least to what they paid — in a rebounding market. Others are doubling down, buying additional firms to achieve scale. In the month prior to NAB we saw several business mergers and acquisitions. The theme of nearly all these transactions was to eliminate competitive products and build out “end-to-end” solutions. It is too early to tell if these transactions will be successful.

Many of the firms that entered the unfamiliar broadcast technology space hired new CEO’s without traditional industry credentials. IT backgrounds proved particularly attractive and  a successful Internet IPO experience made for a hot property.  Whether many have succeeded in breaking into the TV side or understanding the difference between the computer business and broadcasting is not yet clear.

While unit prices are continuing to decline, cutting into profit margins, company valuations have improved. This is largely because of growth in the number of units sold — TV stations and broadcast networks are doing better financially and are buying more equipment. But the real growth in the market comes from non-traditional video producers.

As cost barriers have dropped with the advent of inexpensive but high quality production technology, everyone has become a producer. Educational institutions, government agencies and movie producers are all now purchasers of what was traditionally thought of as “broadcast equipment.” At the same time, the growing number of distribution channels is increasing the appetite for content — at what cost to profit margins only history will tell.

So what can we expect to happen between now and the time we gather in Las Vegas next April for NAB 2015?

• A lot of small companies are looking for capital, but most will be sellers in the not too distant future.

• We see signs that buyers and sellers are becoming more realistic about price.

• Systems integration companies are becoming hot properties. While technology has become more complex, the number of engineers has shrunk and few work at broadcast companies anymore.

• Companies that have integrated hardware with innovative software solutions are in high demand. Companies that are strictly hardware suppliers will need to partner with solution providers if they are to survive.

• We expect 2014 to be the year of consolidation in television technology — and fewer vendors on the floor at next year’s NAB.

Edward Grebow is managing director of the investment banking firm Morgan Joseph TriArtisan LLC, specializing in TV technology investments, mergers and acquisitions. He is a former executive vice president of CBS, president of Sony Broadcast & Production Co. and CEO of Chyron.