August 6, 2018

SeaChange hopes to rebound with Netflix

The SeaChange International Booth at the Cable Show 2012 event in Boston. The company is shifting its focus away from cable toward video streaming.
Ed Terino, SeaChange CEO

In the fast-changing world of streaming video, Acton software company SeaChange International was for a while not predicting correctly where the market was leading.

From a high of more than $170 million in revenue in 2009 and 2010, income cratered to $80 million in the 2018 budget year. Making matters worse, costs never fell accordingly, leading to a $71-million loss in 2017. Costs were reigned in substantially last year, falling by more than one-third in the 2018 budget year.

Now, even as revenue remains largely flat, SeaChange climbed out of the red last fiscal year and is bullish on taking advantage of a rapidly growing streaming video industry, as viewers increasingly watch Netflix, Hulu, Roku, AppleTV and the like.

Netflix alone reported more than 130 million subscribers last month and more than $8.8 billion in revenue in the most recent year.

"What's really driving SeaChange is we've been successful at innovating products that meet these changing demands," said Ed Terino, the SeaChange CEO who took over in 2016.

A fall in recent years

The past few years have been bumpy for SeaChange, which was founded in 1993.

From 2010 to 2018, revenue dropped by more than half as the company remained focused on cable operators and set-top TV boxes, areas losing market share. To service the streaming market, the company is now focused on providing a software platform to manage content, advertisements and user experiences.

"As it evolved," Terino said of SeaChange, "the company didn't change as quickly as it needed to to service that market."

Along the way, SeaChange has reduced its workforce from more than 700 to less than 300. Two of its units, broadcast servers and storage, and media services, were sold in 2012 for a combined $32 million, paring its workforce by more than 300.

A software office in the Philippines once housing 170 workers was shuttered, as were smaller storage and software offices in New Hampshire and Pennsylvania. Ten locations where software development was taking place globally when Terino took over as CEO were reduced to just three: Acton; Warsaw, Poland; and Eindhoven, The Netherlands.

Sea Change headquarters in Acton. The company sold its office space before leasing it back during cost-cutting.

The 124,000-square-foot Acton headquarters, which now has about 120 employees, has been put on the market to be sold.

After years of mounting losses, SeaChange returned to profitability in its 2018 budget year, which ended Jan. 31 – more due to such sharp cuts in costs than a rise in revenue, which remains far below its peak, and thanks in part to a $17.1 million one-time income tax benefit resulting from this year's changes in federal tax law..

SeaChange is finding more challenging pricing today and more competition in the field – from the likes of Boston-based Brightcove, Comcast, Swedish multinational Ericsson and the Chinese media giant Huawei.

Turning to areas of growth

But there's encouraging signs for SeaChange. Streaming services like Netflix continue adding customers, and more adults say they watch television through streaming online.

For adults 18 to 29 in a Pew survey last year, 61 percent said they watch primarily through streaming, versus just 31 percent who used a traditional cable or satellite subscription. For those 50 to 64, only 10 percent watched by streaming and 70 percent through a traditional subscription.

The website eMarketer said in a report last year it expects the number of those who get rid of their cable subscriptions – the so-called cord-cutters – to rise from nearly 17 million in 2016 to 40 million in 2021.

By then, roughly as many people are projected to have never paid for cable at all. And the number of those still paying for cable will have dropped by 10 percent from today.

"From a market dynamic point of view, video consumption is growing globally at tremendous rates," said Terino.

These are the areas where SeaChange is pinning its hopes on a turnaround. SeaChange sees growth both in more established markets like the United States and Western Europe and more developing areas, like Asia and the Middle East.

Ruben Mancha, an assistant professor of information systems at Babson College, sees growth potential for SeaChange particularly in the way the company delivers video so ads can be better tailored to the viewer.

"They should see themselves as a data company that can also help customers stream video," Mancha said, comparing the thought to the way Netflix may see itself as a data company that happens to provide streaming television and movies.

Even as a far smaller company compared to some of its largest competitors, Mancha said, SeaChange can still be a major enough player.

"They don't need to scale up with the services they offer, so I can see the potential," he said. "The size of the company is not relevant anymore."

SeaChange is basing its strategy around cloud-based video delivery, mobile video and a personalized video consumption experience, Terino said.

In 2016, SeaChange bought DDS, a Polish video company developing screen software, and made it SeaChange's largest engineering hub. Terino called that $8-million purchase a tipping point for the company, as he found Warsaw to be a hotbed for video engineering.

SeaChange has introduced new products this year, including a content management system, a multi-screen advertising program and and a client software app for multi-screen video presentation.

At the same time, SeaChange continues earning revenue through selling software licensing, keeping an eye focused on what was a large share of its income in the past.

"So how do we continue to serve the old but go after the new?" Terino said.

CORRECTION: An earlier version of this story incorrectly said SeaChange's Acton headquarters had been sold.

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