ActiveVideo Networks Acquires Avinity Systems: A Growing Consolidation Trend?

In what may become a growing trend, interactive TV applications/middleware provider ActiveVideo Networks acquired Avinity Systems in a deal announced this week. It is not immediately clear if the real reasons for this deal were to create a global footprint for the combined company (as positioned in the announcement), or if Active Video Networks snapped up an Avinity in financial distress. At the end of the day, it doesn't really matter. All interactive TV platforms will be challenged to achieve sufficient scale to be successful, if not viable.

The market opportunity for interactive TV is certainly growing, but the technical challenges and obsolescence risks are vast. Vendors like ActiveVideo not only must try to penetrate a market with set-top boxes of varying technical capabilities and vendor design, but they must keep abreast of new standards and coalitions that have the potential to threaten their business model. The stakes are very high, as Pay TV operators like the cable MSOs are trying to find ways to stave off or benefit from the growing Over the Top video trend. New ventures aimed at interactive advertising and applications, like the cable company backed Canoe Ventures, have the potential to drive the market in new directions and dictate standards that may or may not benefit ActiveVideo. In addition, most of the growing number of Over the Top boxes, such as Roku, Vudu, and ZeeVee, certainly are not waiting around for standards to emerge or to imbed any particular vendor’s middleware platform.

That being said, ActiveVideo seems to be doing the right things for now. In my chats with the company (see Podcast #1 and Podcast #2), they made clear to me that they can work with standards like Tru2Way quite nicely, but they don’t have to. Their strategy is to provide a thin-client architecture that leverages cloud computing for heavy-duty processing, allowing them to deliver web-like personalization and interactivity through both legacy and next generation digital set-top boxes and broadband-connected devices. In this way, they can keep the requirements for the premise-based STB (or TV or other broadband-connected device) quite light, ensuring interoperability with the greatest number of endpoints and service providers. This architecture also has the added benefit of allowing customers to use standard Web authoring and delivery technologies for creating Web-based media, clickable advertisements, and interactive video.

According to the companies, the combined reach for their interactive services platforms will exceed five million homes worldwide by the end of 2009. This number includes deployments at Oceanic Time Warner Cable, Grande Communications, Tele2 , Reggefiber, and PCCW.