Fast-growing video technology company Digitalsmiths has agreed to be acquired for $135 million in cash by TiVo, the company that pioneered digital video recording.
In announcing the deal to buy Durham-based Digitalsmiths Wednesday morning, publicly traded TiVo said the deal would accelerate its evolution into a company that provides software services over the cloud, creating a significant expansion in market opportunity for TiVo.
Digitalsmiths, which was founded in 1998, has a technology called Seamless Discovery that makes it easier for subscribers of video content to find what they want to watch on a wide variety of screens including TVs, mobile phones, PCs and tablets. Seamless Discovery makes video recommendations to viewers based on their past viewing habits, similar to the suggestions that Netflix makes, and lets viewers know where that content can be found.
Its a very important deal for TiVo, said Naveen Chopra, TiVos chief financial officer. Strategically, we have been very impressed with what Digitalsmiths has been able to accomplish and it really shows what kind of innovation exists in the Research Triangle.
Privately held Digitalsmiths wasnt seeking a buyer but fielded multiple offers thanks to its booming revenue, which jumped about 80 percent last year, co-founders Ben Weinberger, the CEO, and Matt Berry, chief operating officer and chief technology officer, said in an interview.
They said they chose TiVos offer because the companys product strategy and vision for the future aligned well with theirs, and their corporate culture also was a good match.
TiVo has always had a lot of cutting-edge ideas and a lot of best-of-breed products for video, Weinberger said. Overall, the belief is that taking what they have done and what Digitalsmiths is doing is a natural evolution for where the industry is going and where TiVo is going.
A majority of Digitalsmiths 49 full-time and a dozen part-time employees are based in Durham. The company also has an office in Denver.
Both these offices will stay intact, Weinberger said. TiVo intends to fully invest in our team in both locations. We will continue to grow and expand in Durham.
TiVo hailed Digitalsmiths technology as the pay-TV industrys most broadly adopted cloud-based content discovery and recommendation service.
Seven of the top 10 U.S. pay-TV companies that serve 64 million homes use Digitalsmiths technology, according to TiVo. Overall, the technology is licensed to companies that reach more than 100 million homes worldwide.
However, those pay-TV companies thus far have deployed Digitalsmiths technology to about 10 percent of their subscriber base. That deployment is expected to rise to more than 50 percent over the next few years.
Since its inception Digitalsmiths has raised about $30 million in venture capital. Triangle venture capital firm Aurora Funds is among its investors.
San Jose, Calif.-based TiVo plans to maintain the Digitalsmiths brand and its product lineup after the acquisition is completed.
Digitalsmiths has actually done an admirable job of establishing their own reputation, Chopra said. Its not a consumer brand, obviously, but among some of the largest cable and satellite operators in the world they are quite well-known.
Weinberger and Berry will remain with the business after the deal is completed.
We dont speak in the press about our specific organization and how things are managed, Chopra said. But I am happy to say that Ben and Matt will continue to be very important leaders of Digitalsmiths.
TiVo has more than 3.9 million subscribers, nearly one-third more than a year earlier, and also licenses its technology to others. Its revenue for the fiscal third quarter that ended Oct. 31 rose 43 percent to $117.3 million. Net income totaled $12.5 million, down from $59 million a year earlier when the results were skewed by $78.4 million it received in a patent settlement.
TiVo shares closed Wednesday at $12.33, up 44 cents. The stock hit a 52-week high of $14.25 in October.