Rentrak: a VOD company to keep an eye on

Filed in archive Announcements on August 17, 2005

I have been watching a company called Rentrak (nasdaq:RENT) for a while. It is based in Oregon and in the information processing business. But why I watch it is that during the last year, they have been developing traction with a new product called OnDemand Essentials and this product is a video on demand play.

Comcast has been in a year-long trial with Rentrak and last week decided to sign up for a multi-year contract. So, what's the story here?

OnDemand Essentials integrates VOD usage data for the cable companies from their three VOD server vendors (Seachange, C-COR, and Concurrent); refreshing usage reports hourly. Examples being viewing volumes and trends. These reports can be viewed from the company's web-based ASP service. I think that a third-party information provider is necessary in the equation because no one VOD server manufacturer will ever gain 100% of the market, nor will any of their competitors allow them access to their data. So, a company like Rentrak is needed.

OnDemand Essentials contributes no lasting revenue to Rentrak yet. The company is on a path to receiving $80M to $85M in gross revenue this year from their established businesses, particularly their PPT division and secondarily their Information Services Segment (ISS) division. Profits from those divisions go into subsidizing their "other" product lines which includes OnDemand Essentials. Eventually, when the product becomes a business, it will be moved into the ISS division.

Right now Rentrak's OnDemand Essentials is trying to establish themselves with the cable MSO's. Having Comcast gets them off to a good start. Also good is that Comcast's Spotlight advertising division is going to use Rentrak for their needs throughout the country. Rentrak has announced trial deployments of the service with Charter and Cablevision that should result in commercial deployments. The service is also used by some other small cable MSO's and Mag Rack, a content provider owned by Cablevision.

Rentrak does not really receive revenues from the cable companies, however. In the near future, the 300 some-odd content producers in North America and hundreds more in Europe would become subscribers to the reports. The final phase of customer acquisition would be the branded advertisers who will migrate to VOD advertising and need information for their campaigns.

After checking around with my contacts, I have heard generally good things. The OnDemand Essentials reports need more data elements in order to be really useful to advertisers. This will require work from the VOD server manufacturers, Rentrak itself, and more involvement from Comcast.

If the company is successful with their business model, they could become the information standard in VOD measurement. I would expect that they will expand to cover Internet TV, too. I don't think you will see revenue from the OnDemand Essentials product until later in 2006.

Because Nielsen is so far behind in their VOD measurement products, Rentrak has a good shot here. Also, I like that Rentrak is aggregating all VOD data and not depending upon sampling. I do not

A side note: The gross revenue of the company is in the mid $80M range while the valuation of the entire company is only $100M. It is thinly traded at only about 25,000 shares per day, and that is up!