Dollars And Sense: Streaming Media for the Mainstream
By Marc Crossman and Aileen Chen
Streaming as a way of obtaining data from the Web is becoming increasingly popular. A growing portion of one’s time online is spent streaming–stimulated by the availability of high-speed broadband Internet connections, the increasing amount of streaming content offered online and the advancement of streaming technology. In turn, the growing demand for streaming content drives the availability of streaming content and technology. By 2002, the average online user will likely spend about seven minutes a day streaming on the Internet. This translates to a market opportunity for streaming of approximately $860 million in 2002, which we project will balloon to nearly $6 billion by 2005.
Many content delivery companies are opportunistically seizing a piece of this growing market by offering new streaming methods and technologies. Ibeam Broadcasting Corp., which went public on May 18, 2000, is such a recent entrant. Like other players in this space, Ibeam addresses the inherent limitations for streaming via the Internet infrastructure, which was originally designed to deliver only static data.
A turnkey content provider, Ibeam focuses on the cost-effective delivery of high-quality streaming content to large audiences of simultaneous users. Its unique network of satellites and terrestrial lines achieves the smooth, uninterrupted delivery of content by bypassing the congested Internet and the bottlenecks that can degrade content, according to the company. Ibeam streams content directly to its servers located at the Internet’s edge in ISP facilities. This brings content to the point closest to the end user, from which the content passes through only a short distance of landlines to reach the end user. According to Ibeam, content streamed by their products therefore lacks the “jitters” that frequently compromise an end user’s viewing and listening experience.
However, the content delivery space is crowded with many players from the multicasting and satellite services markets. For instance, Akamai recently announced its plan to couple servers with Loral Cyberstar’s satellite dishes to stream media to edge locations. Similarly, Panamsat is deploying Net 36, a high-speed, bandwidth-intensive network that will also bypass the congested Internet to deliver rich content to last-mile providers.
In order for Ibeam to secure a position in this highly competitive space, the company will need to achieve a few things. First, Ibeam must successfully deploy servers and satellite receivers to the edge and redirect content away from the landline network and toward the satellite network. This is critical to Ibeam because the key to its business model is to achieve operating efficiency by maximizing the use of the satellite network and minimizing the use of the landline network.
Second, Ibeam must continue to sign on more content providers as customers. Having started commercial operations in October 1999, Ibeam already had 120 signed and 65 active customers by March 31, 2000. The list includes prominent and active streaming content providers such as MSNBC, Microsoft, Launch Media and Netradio. The company expects to sign up 175 customers by year-end 2000.
Third, Ibeam must offer new features and services to attract and retain customers. Its ability to capture, encode and distribute streaming media for its clients gives Ibeam the opportunity to work with content providers on business further along the value chain. However, Ibeam faces stiff competition as content distributors also begin to provide end-to- end streaming media solutions. By offering value-added features, such as real-time reporting tools and end-user-targeted advertising (which the company plans to introduce later this year), Ibeam can further differentiate itself from its competitors and position itself as a one-stop shopping solution for all of a content provider’s streaming media needs.
Since its debut, Ibeam’s share price has risen from $10 to a high of nearly $30 and settled back down to around $19 at the time we went to print. Based on a discounted cash flow (DCF) analysis, the stock should reach $34 per share by year-end and $38 per share in 12 months. (We evaluate the stock on a DCF analysis because Ibeam is unlikely to turn EBITDA positive until mid-2003 and free cash flow positive until year-end 2003.) The company should generate $14 million in revenue this year and its operating costs and capital expenditures, net of revenues, should amount to $152 million. Given its current war chest of about $160 million, Ibeam must raise more capital to fund operations and growth by mid-2001. Therefore, its need for access to additional capital could be an overhang for the stock in a tight equity issuance market.
Delivering streaming video and audio to the edge of the Internet will represent a new marketplace for satellite companies to expand and add incremental revenues. Ibeam’s market capitalization of $2.4 billion suggests that companies like Loral and Panamsat are not being given credit for their own initiatives in this new space. The potential market for streaming, which Ibeam only recently tapped into, is enormous. It is not unlikely for streaming to become a popular, if not the dominant, form of presenting information on the Internet in the near future.
Marc Crossman and Aileen Chen are satellite analysts at J.P. Morgan in New York City. These views are those of the authors and do not necessarily reflect the views of the Via Satellite editors or J.P. Morgan.