As Internet TV Soars, Verimatrix Software Keeps the “Pay” in Pay-TV

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Ericsson, Cisco, Huawei, GTE, and roughly two dozen other makers of video encoding hardware, set-top boxes, and related equipment.

Since then, Verimatrix has raised additional capital from Crescendo Ventures, Goldman Sachs, Cipio Partners, JK&B Capital, and SunAmerica Ventures, but the company is not expected to need any additional money.

Verimatrix has been operating at break-even, and Munro says the company is expected to be profitable in 2012. He also has Verimatrix on an aggressive growth track, saying, “We need to get as big as we can to get as much of the market as we can.” Munro says the company has 105 employees and needs to fill another seven or eight open positions—and that it will likely need to add more staffers later this year.

Last spring, Verimatrix acquired Comvenient, a 22-employee company in Germany that it had been working with, but Munro says he doesn’t anticipate making any more acquisitions. Nevertheless, much of the company’s customer base is outside the United States—Verimatrix generates 80 percent of its revenue outside the U.S.—where Munro says the transition from analog television to digital set-top boxes remains the biggest business driver.

The company faces legions of competitors overseas, but Microsoft is the biggest competitor in the United States. “Our go-to-market approach has been open and interoperable, and Microsoft has been just the opposite—developing closed and proprietary standards for set-top boxes,” Munro says.

“Something like 40 percent of the market—subscribing households in the IPTV space—use our technology,” Munro says, “while Microsoft is in the low 20 percent and very fragmented. Still, no one at Microsoft is lying awake at night wondering what Verimatrix is going to do.”

In the end, a bigger challenge for Verimatrix may be anticipating the innovations in digital piracy and in developing countermeasures to thwart them. But as long as studios and others produce valuable content, the industry will need ways to prevent people from watching it without paying for it.

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Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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