Stable profitability in core business under continued cautious market conditions in Q4 2017
The full year 2017, was challenging for Net Insight, and for the industry as a whole. The ongoing industry transformation is mainly driven by changing viewing patterns and customer requirements. At the same time, there were no major international sports events in 2017, which contributed to more hesitant market conditions. The International Trade Association for Broadcast & Media Technology (IABM) confirmed this view in a report published at the end of the year.
Sales for the full year 2017 totaled SEK 427 (504) million, with an operating margin of -2 (10) percent. Operating earnings for the full year were SEK -9 (49) million. Sye (Net Insight’s live OTT service) made a negative contribution on operating earnings of SEK -42 (-15) million.
Our assessment is that although the market has stabilized, the transformation process is set to continue for some time. The underlying business was solid in the quarter, and we signed an agreement with a major global media services provider in remote production. The commercialization of Sye is now fully underway. In the quarter, we concluded an agreement with Mediatech in Hong Kong relating to a synchronized streaming solution for live sports in Asia. We have also developed a cloud solution, which means that we can offer Sye as a complete service for small to medium-sized customers.
During the quarter, TATA began its global roll-out of Sye, which means that the company can now initiate focused marketing and sales of its global VDN (Video Delivery Network) streaming service with ultra-low delay. Ericsson also began integrating Sye with its UDN (Unified Delivery Networks), an important milestone in the quarter. In both cases, the business model is based on revenues being generated as customers start using the service.
In the Q3 Interim Report, we concluded that ”given the current sluggish market, the assessment is that it is still possible, but more challenging than previously anticipated, to achieve the prospects communicated in the second quarter of 2017”. This turned out to be correct, with fourth quarter sales at SEK 117 (133) million, representing a decrease of -12 percent (-8 percent currency adjusted) compared to the corresponding quarter in the record year 2016.
Operating margin in the fourth quarter was 1 (10) percent, corresponding to operating earnings of SEK 1 (13) million.
Cash flow was SEK -20 (7) million, influenced by the continued development and commercialization of Sye.
The acquisition of ScheduALL has improved our control of the complete value chain and strengthened our product portfolio. Our CPN (Customer Provisioned Networks) offering, which automates booking of network capacity for high quality video transmission in real-time, has attracted a number of new customers.
It’s only natural for transformations to take time, especially when encompassing all parts of the value chain. The technology of the future is already here and is driving progress. However, in 2017 it became clear that the market needs more time to adapt content and business models to changing consumer behavior.
During the year, we consolidated our organization and made changes to management. The purpose was to ensure we have the right competences in place for taking Net Insight into the future. Even if it takes time for these changes to feed through, we are confident about our business strategy and that the investments we are making create the right conditions for future growth.