Wednesday, February 23, 2011

Fliqz Investors Hit By a VBrick -- How Much Did VBrick Really Pay?

Not surprisingly, the tidal wave of industry consolidation in the online video platform (OVP) market continues as VBrick Systems has acquired long-time OVP Fliqz. As I recently wrote, the pure-play (i.e., non-diversified) OVP space has narrowed to essentially three relevant players over the past year -- Brightcove, Ooyala, and Kaltura. And, faced with this reality, Fliqz didn't stand a chance to thrive alone and had largely fallen silent amid the din of those extremely well-financed players. I simply saw no announcements by Fliqz over the past 12 months, which is not a great indicator of business success (the company's last press release before the acquisition announcement was in mid-March 2010). For this reason, the VBrick acquisition is likely the best possible result for Fliqz in the current extremely challenging pure-play OVP environment where it was difficult for Fliqz to differentiate itself. VBrick, meanwhile, will diversify its business to swim downstream and dive into the SMB (small-to-medium business) market.

But, how much did VBrick pay for Fliqz? Terms of the deal were not disclosed, but respected industry expert Dan Rayburn of Streaming Media puts the number at "well less than $20 million" based on annual revenues reported to be $5 million. TechCrunch reported on the deal, but didn't even hazard a guess. And, another one of the most respected online video experts, Jim O'Neill of FierceOnlineVideo, didn't report on the deal's price tag, but wrote that VBrick CEO Doug Howard indicated that Fliqz's revenues will be "less than $5 million" this year.

What do I think? Based on reading the tea leaves and knowing a bit about the industry and Fliqz's silenced role within it over the past year, my gut tells me that Fliqz's annual revenues this year would have been significantly less than $5 million (not just the "less than $5 million" indicated by VBrick's CEO). And, my gut further tells me that, for these reasons -- and because the VC market is not kind amid these pure-play OVP market realities (meaning that market factors favored the buyer here, not the seller) -- VBrick likely acquired Fliqz for less than $10 million (not just the "well less than $20 million" number used by Rayburn). And, if that is the case, Fliqz' investors likely took a loss, since they are reported to have pumped in over $12 million over time. But, faced with the choice of either selling now or pumping more money into a pure-play OVP business that likely was not profitable -- which should not be surprising when even the big boy pure-play OVPs still likely are not long-term profitable -- the investors' choice was smart, very smart.