When you say High Tech Campus Eindhoven, few people immediately make a connection with the multi-billion-dollar movie studios or global TV networks like Netflix. Yet, in just seven years, High Tech Campus resident Civolution has become the undisputed world leader in being able to identify, manage and monetize valuable content from both traditional and emerging media companies. Civolution’s CEO Alex Terpstra spoke with StartupDelta's Jonathan Marks just before the 2015 International Broadcasting Convention kicks off in Amsterdam. It turns out that Civolution has key technologies that many people have been waiting for. So why is Alex in the process of splitting the company in three? The answer may well be a useful strategy for startups on the point of scaling up.
Understanding the market is the key to global scale-up success
“Civolution began as a spin-off from Phillips in 2008. We steadily built an impressive portfolio of leading-edge technologies connected with content identification. But by mid-2014, we saw that different groups of customers in the international broadcast industry were each developing very different technology needs. We decided the time was right to split the company along three logical businesses that have emerged over the last few years. In that way, each segment can find its own path for the future and grow with its customers. From both a venture and investor’s perspective, it’s always wise to plan potential exit scenarios. In our case, it’s resulted in two exists from the three businesses within a year.”
Different markets demand different approaches
“Even though the underlying principles are similar, the actual execution of our technology into products is different for all three companies. The watermark system has different specifications when its used for the purposes of anti-piracy than when it is used to measure the size of a TV audience interacting with their second-screens. So, although we had what appeared to be two distinct branches to our business, electronic watermarking and fingerprinting, we decided against splitting the company in this way. As it turned out, a split along business lines made much more sense, because those represent different types of customer’s applications with very specific needs.”
A split can often make sense
“During the summer of 2014, we were approached by several companies interested in acquiring our audio watermarking technology. We had developed a product we called SyncNow. It bridges the gap between the advertiser and the TV audience by creating a return path. For instance, in the Netherlands, audience size and behaviour is a measured thanks to the Civolution watermark that is encoded into television broadcasts.”
“The broadcasters are able to use the same watermark to launch and drive interactive applications on the TV viewer’s tablet or mobile phone. For instance, this allows audiences to play along with gameshows and quizzes. This kind of data is extremely useful to better understand audiences and produce robust metrics for clients on audience size and second screen interaction. And, for the broadcaster, recruiting the right contestants for the show has never been easier!”
“By October 2014, we had reached agreement to transfer our audio watermarking unit to WPP’s Kantar Media, a world leader in audience measurement.”
“Once the deal was announced, we needed to make that portion of the company independent from the rest of the company, disentangling lots of internal processes and workflows. We also used that opportunity to separate the remaining sections of Civolution into two stand-alone business units, Teletrax TV services and NexGuard Forensic Watermarking.”
“Now we’ve announced that Teletrax will merge with the US company 4C Insights. This acquisition is different from the one with Kantar. That’s because the existing Teletrax team and I will remain closely involved in the operations with the new Teletrax-4C company being formed.”
What is Teletrax doing?
“This is the part of Civolution that is involved with real-time monitoring of television channels for the purpose of TV analytics and TV-synced advertising on digital, mobile and social platforms. We understand what content and which advertisements are broadcast on which channel at what time. That was actually a perfect match for the strategy of 4C. They are a data science company focused on social advertising but making inroads into data-driven TV advertising.”
“Teletrax has approximately 245 monitoring installations spread across the world with the ability to automatically monitor TV content from over 2200 channels from 75 countries. To my knowledge, it’s now the world's largest TV monitoring network, and was clearly a very important part of the deal. Around 50 of the 70 people employed by Civolution’s part of the Teletrax business unit are based at High Tech Campus Eindhoven. This is where we will continue to do our R&D. We also have offices in London, New York and Los Angeles where we have local sales and operations teams. For my part, I will be the managing director of the Europe Middle East and Africa region of the new merged companies.”
“Teletrax has traditionally been strong in these markets, and this existing business will be added to 4C’s strong portfolio in the America’s. Together I think we’ve created something that is unique in the industry, able to move way ahead of the competition.”
And what about NexGuard? What challenge are they solving?
“NexGuard is a team of 35 people, the majority of the team being based in Rennes (France), the rest in The Netherlands. This company dominates the forensic watermarking space. They’ve developed a profitable business with the major media companies in the world, including the major motion picture studios in Hollywood.”
“Organizations like the Academy Awards have always sent DVD copies of new and unreleased movies for screening at festivals and for judging purposes. It’s a huge network and prone to leaks. The problem was that there was no way to identify each copy. But the damage to the film industry was mounting up. Some time ago, we developed a very robust watermarking technology which modifies the picture in such a way that we can hide a unique code that “rubber stamps” that particular performance.”
“We’ve built a system which is now the standard used by all the major Hollywood studios. Hollywood studios have done extensive side-by-side comparisons of the original master and the watermarked versions sent out to digital cinemas. No-one has been able to spot the difference; which is exactly the way it should be. The watermark has to be invisible to the eye.”
“That’s a tremendous credit to our engineering teams in Rennes, especially as the quality of the picture in a digital cinema is 4K and higher these days. Our software resides on the playout server or in the projector, so every film performance is date-stamped with a unique watermark. When illegal material appears on the Internet we can advise clients, the content owners, exactly when and where the copy was made.”
“There are cases where pirates have simply videotaped a new film as it is shown in a theatre and then uploaded to a social networking site or shared it through peer-to-peer services like Bit Torrent. Civolution quickly cornered the digital cinema market because their watermarking is very robust, even when the pirates make a crude analogue copy by videotaping in a cinema.”
Depending on which source you believe, the cost of piracy to the movie industry is estimated to be between $1-6 billion annually in the United States alone. According to a recent report from the Motion Picture Association, when including losses from both theft over the Internet and from DVDs, the industry’s global losses may exceed US$18.2 billion annually. Of those, the MPA said some 80% occurred overseas. Video piracy has become extremely well organized.
Trend: New market for live streams and anti-piracy technology
Over the last few years, NexGuard has also found a strong market in the TV industry, especially with the growth of premium content channels. There’s a clear shift happening in the kind of piracy though.
“In the old days, content piracy happened by attacking the encryption system protecting the content from a pay TV operator. They hacked subscription cards to watch for free and share that same content amongst friends or sold it to “customers”.”
"But with the rapid rise of live-streaming sites and fast broadband, attacking the encryption system is no longer lucrative. The pirates simply take out one legitimate subscription, but then live stream the programme from their set top box to several video sharing websites. They’ve switched from hacking to illegal distribution.”
“I think it’s important to stress some nuances here. There’s a hype at the moment around new personal streaming apps like Meerkat and Periscope. Facebook is also launching a live-video service. But I believe that, for the moment, they only represent a tiny fraction of the video distribution market.”
“The cable and satellite industry is more concerned about pirates with sophisticated static installations streaming content like major sports events to a mass audience. They have not paid for anything because they don’t own those rights. They are emulating a cable company and their goal is purely profit.”
“NexGuard watermarking allows the copyright owner to identify exactly which account is the source of the illegal stream and take appropriate action. And the pirates have no advanced warning they’re being tracked. Since we operate in the cloud, it’s easy for the content owners to scale up their detection of illegal streams during major sporting events.”
“We have funded the scaling of our business through the Dutch venture capital firm with Prime Ventures. They supported us from the beginning and they understand the importance and potential of our suite of technologies. Picking your VC firm is an important key to being able to scale when the market is right.”
What’s the advantage of being where you are?
“We still enjoy being based on the High Tech Campus Eindhoven, even though our markets are global not local. It’s an inspiring atmosphere, being surrounded by clusters of 135 high-tech companies. There are good wellness and sports facilities which encourage a healthier lifestyle and regular conferences on site that attract world-renowned speakers. It’s nice that they come to see us, rather than the other way round. Last, but not least, the campus is a unique talent pool of world-class expertise. Of course, there’s stiff competition for those with the best engineering and IT skills. But that happens everywhere where business is healthy and growing. If you concentrate on building the right growth strategy, then the best will want to work for you. And that’s definitely the case with Civolution today.”