SeaChange International lost $5.2 million in the third quarter of its fiscal 2011, compared with a modest $657,000 gain in the similar quarter a year ago.
The company remains well in the black for the year, but it is apparently still experiencing financial vicissitudes associated with a subtle shift in strategy from a VOD to multi-screen vendor, with a concomitant shift in its product mix, from an emphasis on the physical servers it built its business on to increasing reliance on software.
"SeaChange is in a great position given our customer base and 60-plus percent recurring revenue," said Bill Styslinger, SeaChange CEO and chairman. "As we continue to build our software-centric portfolio, we are focused on creating shareholder value. In the software sector, we continue to see year-over-year growth, and our media services saw another period of rapid growth. On the servers and storage side of the business, we have reduced costs and are focused on driving the hardware business to profitability."
Overall, revenue was down year-over-year. Revenue in the servers and storage segment was $6.2 million, almost precisely half of what it was last year in Q3 2010. The decline in revenue was mainly due to lower VOD server shipments to customers in North America and Latin America combined with the impact of an isolated warranty-related return of product from a customer, resulting in the reduction of previously recorded revenue, the company said.
SeaChange said it has been talking with its customers, who are reasonably concerned about how the SeaChange's hardware business is shrinking. SeaChange reported that it has assured these customers that it will continue to support the line with a new generation of products, guaranteeing an upgrade path, despite cuts in R&D dedicated to the unit.
This is the tricky line for SeaChange to walk, with investors hammering the company for continuing to support the shrinking business. The company assured investors that even while promising continuing support to its customers, it is shooting for breakeven for servers and storage by this time next year.
Total revenue from the company's software segment was $34.8 million, $900,000 lower than last year's third quarter. The company attributed the decrease to lower VOD software licensing revenue from North American customers, a decrease partially offset by higher advertising software revenue and the inclusion of revenue from two recent acquisitions, VividLogic and eventIS.
The media services operating segment revenue for the third quarter of fiscal 2011 of $8.1 million was $2.9 million, or 56 percent, higher than comparable revenue from last year's third quarter. The significant increase in media services revenue between the third quarter of this year compared with last year was the result of newer contract revenues from customers in France and Dubai, as well as increased content processing fees from a customer in Greece, the company reported.
SeaChange said in Q3 it gained four new subscription customers; gained three new customers that were competitive replacements in the U.S. (one VOD, two advertising); and is working on an iPad trial with a U.S. operator.
The company noted it had announced two major three-screen deployments: StarHub and Virgin Media. StarHub, the company explained, has mostly mobile subscribers, and Virgin Media has mostly television subscribers, but both are offering television programming to all three screens – mobile, PC and TV – using SeaChange's software and managed services.
"Although there is much multi-screen interest throughout the world, there are few customers that are actually providing video services to all three screens under one brand, so this is a major achievement for the industry, as well as for SeaChange," the company said.