At the end of the Streaming Video West conference, there were multiple reports that consolidation in the industry was not just around the corner, but even imminent. Well, I let that sit a while because, well, I've heard it before. And I don't really think it's going to happen that way.
For real consolidation to occur, one needs both buyers and sellers. Right now what we have is a whole bunch of sellers. But what do most of these sellers have? Other than perhaps the top 5 they have little in the way of revenues - combine them and you still have little. Consolidation therefore does not really help scale the business. Hence, the only real hopes for a buyout come from outside the sector, e.g. network operators.
But how many network operators could be interested? At most a half dozen more. Facing dozens of sellers, it is clearly a buyers market. For the rest, the prices are going to have to come down a lot. How much? Back in 2000 there were several dozen internet backbones with funding and plans to conquer the world. Anyone care to remember how many got bought before their equity holders were wiped out in BK court or otherwise? It was bloody, and many of those companies even had unique physical assets that still have value today and had begun to scale revenues. Other than replaceable and rapidly depreciating server farms and a distribution architecture that will either be copied or superseded within a few years, what do all those consolidation-hopeful CDNs really have?
Day Rayburn has been warning for some time that there are too many, that too much money has been pouring into the sector chasing too few dollars. He's right. What we will see now is a beauty contest, one or two really talented contestants will go on to fame, a few lucky runners-up will get to go home with the judges, and the rest will just get to go home. Not right away though, it's going to be a slow trainwreck - still alot of money out there. Of course there will also be some which never aimed for the moon and will not enter the contest nor be disappointed.
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