Euro 2012 is underway (the European national soccer championships for the uninitiated) and fans can enjoy detailed analyses, statistics, action replays from every imaginable angle as well as virtual ads. Many of these systems were developed and produced by Orad Hi-Tec Systems Ltd. (XETRA: OHT), which has been alive and kicking for almost 20 years.
Orad's systems can be broken down into four areas: virtual studios (only the presenter and his table really exist); graphics designed for news broadcasts; virtual ads; and sports graphics such as presenting times on the screen during sprint events).
These systems proved profitable in 2011 when Orad, traded in Frankfurt, reported $35.3 million revenue, up 21% from 2010, and net profit of $3.4 million.
Orad founder and CEO Avi Sharir told "Globes", "Our average annual growth rate has been 20% and all of it organic. Our graphics activities cannot carry on growing forever, and we can't bit deeper into the market share that we have (15%). Therefore, we have chosen to enter a major market that is at least five times larger than the graphics market the video server market."
Orad's decision, like other strategic decisions, was taken after the company understood that it had done all it could in its current market. Sharir said, "That's right. We don't want to be just a graphics company."
Video servers, as Sharir explains, are a simple, effective and cheap alternative for all the video cassettes stored in TV station warehouses, and located when needed for this or that broadcast from the archives. He said, "The era of cassettes is behind us and now all content can be stored over time on video servers."
This huge sector has an annual market of almost $2 billion and Orad has also penetrated it, mainly over the past year, especially regarding sport its area of expertise. Sharir said, "Our product has already been on the market for about two years and our large customers include US sports network ESPN and Turkish network TRT."
According to Sharir, Orad's video server solution was last year responsible for 10% of the company's revenue. "I would want this solution to make a larger contribution to revenue, almost the size of our graphics market solutions. This is our main engine of growth."
Sharir is not just making do with the video server solution and admits that Orad's recent acquisition was aimed at enlarging the company's range of solutions and bringing it into the world of content. Orad acquired 63.4% of IBIS for $2.1 million in April including an option to buy in the balance in the next four and a half years.
IBIS specializes in media asset management (MAM) mainly for sports and news broadcasters and customers include BBC and ESPN.
Sharir said, "IBIS is just right for us because we are strong on sports broadcasting and MAM is something that we don't have." An example of MAM is the immediate broadcasting of historic goals that a player has scored.
Orad's entry into the video server and MAM markets is not the only transformation that the company is undergoing. He said, "So far we have sold only technology while recently we have started providing services alongside sales of the technology itself."
He added, "When we looked for a company to buy, we found that some of them made a dollar on providing service for every dollar content sold. We understood that we too could do that and generate for ourselves an additional source of revenue."
Service, in the case of Orad, could mean designing virtual studios after the customer has built it, and according to changes he might want.
3D won't catch on
It is difficult to talk to Sharir without trying to try and understand what in his opinion will be "the next big thing" in TV. "They once thought that 3D TV would be the next big thing but not so much now. Firstly, most people don't like to sit for many hours in front of a 3D screen. Secondly, there is no standardization of 3D glasses. Each TV has a different type of glasses and so as a household product it won't catch on. Maybe it works in the cinema but it's certainly not suitable for home viewing."
Sharir doesn't even see HD transmissions (high resolution) as something that will create a global TV revolution, mainly against the backdrop of its slow introduction worldwide. Actually the connection between social networks like Facebook and Twitter and TV, he sees as natural, which will gain momentum in the near future.
He said, "Let's say you're sitting at home and watching some live sporting event, somebody is pole vaulting, and you want to respond about it via your Facebook page or contact his other fans. Via a tablet you can do this and even screen for yourself the leap in action replay if you missed part of it."
Sharir claims that this is not inter-active TV, a failed experiment, but something else. "The connection between social networks and TV is inevitable."
Orad is also raising revenue by entering emerging markets, especially Brazil which will host the World Cup in 2014 and the Olympics in 2016. Another emerging market attracting Orad is South Africa.
The radio market
Orad is also entering the radio market by developing a range of solutions for radio stations. Over the past year this has gained momentum and become an engine for growth. Orad enables radio stations to place unmanned TV cameras in their studios and make the radio broadcast visual. The service includes presenting data graphics on a computer screen (such as sports statistics) and ads.
Orad's solution is completely automatic and based on voice recognition technology. The unmanned cameras can change angle and turn light on and off automatically.
Sharir said, "The presenter feels no difference and the presence of the camera usually does not change the approach of the presenter."
The cost of such as camera is between $1,000 and 2,000 and such a solution is already deployed by Radio France International, which was one of the first to buy it.
"France is the world's most intelligent country. It's the first market that goes for innovations, at least in the world of TV. Almost every new product that we launch is first installed in France."
At the other end of the spectrum, Sharir said that the Israeli TV market lags behind the rest of the world even though we constantly follow the news. "Israel is light years behind the rest of the world."
Sharir bought shares worth $1.8 million
Orad's management is frustrated and not because its growth engine is running out of steam. It is frustrated because of its share price and its commercial platform in Frankfurt. Orad's IPO was in 1999 on what was then called the Neuer Market the German equivalent of London's AIM. Shortly after its IPO the tech bubble burst and share prices fell.
Consequently the Neuer Market closed down and all shares in Germany moved to the main Frankfurt market where because of their relatively small size they have got lost among companies worth hundreds of millions of dollars.
Orad with a share price of €3 is still far from the share price of €57 at its IPO. On a good day trading turnover is for several thousand shares and it is only covered by one investment house. Orad's management is trying to improve the situation and one proposed plan is to dual list on the Tel Aviv Stock Exchange (although this is only currently allowed for companies listed in London and New York).
Sharir said, "We have two options. To continue treading water on the German stock exchange, which is no option so far as I'm concerned. It leaves us stuck and not only because it makes it hard for us to use the share as a purchase currency. The multiple on which the company is traded makes us unattractive even in the eyes of companies that considered buying us in the past. It has become a real obstacle."
The second option is, "To move to another stock exchange. The board of directors has decided to examine the option of the Tel Aviv Stock Exchange."
Sharir says that a Nasdaq offering, even on the small cap list is not relevant because he, "doesn't want to be swallowed up again by a market for huge companies."
Sharir talks glowingly about the company's rosy future. Last week, Orad announced that Sharir had bought 545,000 shares (4.9%) for €2.55 per share for €1.4 million. Following the purchase, he has become the company's largest shareholder with a 24.8% stake. The company's second largest shareholder is the Viola Private Equity (18.6%).
According to Sharir, Viola is not pushing to have the share moved to another stock market even though the aim of the private equity fund is to make its investment liquid at some stage or other. "As a shareholder, Viola is clearly not satisfied with the share price."
Sharir purchased his shares from the Rothschild Private Equity Fund, which after the sale still remains with a 7.4% holding.
Published by Globes [online], Israel business news - www.globes-online.com - on June 20, 2012
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