COMPANY TOWN : IndeNet Moves Toward Digital Delivery System : Technology: The electronic transmission of television shows and commercials will result in lower distribution costs.
A local distributor of television programs and commercials will buy a San Diego-area company in a move toward replacing delivery services with digital signals beamed via satellite.
Los Angeles-based IndeNet Inc. said Thursday that it will buy a 67% interest in privately-held Channelmatic of Alpine in a deal valued at about $9 million in cash, stock and notes. The combined company will have annual revenue of slightly less than $30 million, said Robert W. Lautz, IndeNet’s president and chief executive.
The Channelmatic acquisition is the second in what is expected to be a string of purchases aimed at creating a start-to-finish digital network for distributing television programs and commercials from their creators to the stations and cable systems that beam them into hundreds of millions of homes. Such a network could be 80% cheaper to operate than today’s labor-intensive system. At the same time, it could provide quicker service and better quality than analog programming copied and stored on expensive tape, analysts say.
“We would like to see an ad produced digitally, transmitted digitally, never once being duplicated and never once being a physical thing that someone had to touch or ship Fed Ex,” Lautz said. “It would be a seamless network--the ultimate in efficiency.”
IndeNet’s Mediatech subsidiary distributes syndicated programs such as Oprah Winfrey’s show and Siskel & Ebert to 1,100 broadcast TV stations and sends commercials for Coca-Cola and McDonald’s to those stations and to cable systems nationwide, usually via Federal Express, United Parcel Service and other couriers. Channelmatic supplies 40% of the nation’s cable operators with equipment to insert commercials into television shows and has developed a system for receiving digital programs directly from satellites.
Like every other telecommunications business, there is wide consensus that distribution of television programming will ultimately be done digitally. Progress has been stalled by the lack of a broadcast standard and the equipment to meet it. But those hurdles have been met in the last few months, and that paves the way for IndeNet to pursue its strategy, said Anthony Mazzarella, executive vice president of Drake Capital Securities in Santa Monica.
“Now that there’s a broadcast quality standard, you’ve got a real open door to go out and start installing” digital hardware, Mazzarella said. “The next thing you need is someone who’s going to take the first step to start [digital] distribution, and I think IndeNet is the ideal candidate for that.”
IndeNet plans to spend $1 million installing equipment to beam programs via satellite, plus an additional $10,000 for each digital receiver it puts in the recipient stations. Lautz said the company would put receivers in 100 stations--representing 30% of the market--by the first quarter of next year, and would add another 300 stations--covering another 45% of the market--to the network by next fall. The actual satellite time is expected to cost between $600,000 and $1 million a year.
Lew Eisaguirre, IndeNet’s chief financial officer, says the investment will pay for itself in terms of cost savings because the per-unit cost of delivering a program would drop from $10 to $2.
With an 18% market share, Mediatech is one of the largest players in the television distribution industry. IndeNet will be able to slash costs and boost profit regardless of whether its competitors are developing similar systems, Mazzarella said.
