Blinkx Acquires Burst, Shakes Up Online Video

Online video is obviously exploding, and with portals like Hulu, it's becoming easier and easier to consume content without every turning on the television. This trend is causing a ton of ripple effects throughout the industry, and that goes for marketing agencies, too. One of the major issues with online video is money. It's easy to sell ads on television, but is it the same online? Blinkx is a company that specializes in online video search, will be delivering 35 million hours of content to Burst, an online ad company with 130 million unique users.

The two have entered an agreement where Blinkx will acquire Burst for $30m, and the newly formed company will create "contextually relevant video channels for Burst's network of publishers, thereby aggregating an online video audience for advertisers across long tail internet sites, which will rival the scale of television networks." The specifics of the deal are pasted below, but the implications are far more interesting. Is this a model that will push online content into the realm of being taken seriously by both content makers and advertisers? Here's hoping!

Transaction Highlights

-- Burst's network of publishing partners reaches over 61 per cent. of the US online population. It ranks as the 36(th) largest US media property and the 30(th) largest UK media property on the internet (source: comScore Media Metrix December 2010). Working together with web publishers and advertisers, Burst enables brands to reach loyal, highly segmented audiences in a quality-assured environment

-- Following the Acquisition, blinkx intends to drive significant expansion of its audience through embedding relevant videos and video channels into Burst's network of publisher sites. In addition to improving the user experience for consumers, this is expected to allow for the sale of video advertising, which typically attracts a significantly higher CPM, increasing the revenue earned by sites that carry the combined solution

-- Targeted changes taken to focus Burst's business mean the Acquisition is expected to have a go-forward revenue run rate of US$33 to 34 million. blinkx expects the Acquisition to be earnings accretive for the year ending 31 March 2012

-- blinkx believes that Burst customers will benefit from working with the internet's leading video search engine with greater financial resources, technology leadership and additional customer-facing strengths in sales and support. The display banner advertising that is currently sold on Burst's networks attracted an average CPM of US$1.49 over the year ended 31 December 2010; blinkx's standard, untargeted video pre-rolls were priced at a CPM of US$20 in 2010, reflecting the demand for its highly engaging contextual video advertising products. blinkx believes that the combined group will be able to realise some of the differential between these two rates and share the resulting value with its publishers through combining the scale of Burst's network with blinkx's video products. Given this should also deliver an improved, richer experience for end users, blinkx believes the combination will represent a win-win-win proposition for users, publishers and advertisers

-- The majority of Burst's senior management team will continue with the combined group, with Jarvis Coffin, Co-Founder and CEO of Burst and David Stein, Co-Founder and CTO of Burst remaining in temporary roles to assist transition

-- blinkx's cash balance on 31 March 2011 was approximately US$52.8 million. Cash consideration payable under the terms of the Acquisition is not expected to exceed US$4.5 million

-- Pursuant to the Merger Agreement Burst stockholders will receive US$0.4093 (25.08 pence) in cash or New Blinkx Shares, per Burst Share held by them (the "Per Share Amount")

Commenting on the Acquisition, Suranga Chandratillake, Chief Executive of blinkx, said:

"In just a few years, we have seen online video advertising become the fastest growing segment of online advertising. Up until now, the primary barrier to further television advertising budgets moving online has been online video's inability to match the sheer scale of audience that television can deliver. We are extremely excited about the Acquisition as it will allow us to overcome that challenge: by fusing blinkx's unique patented technology and large video index with Burst's massive reach, we will have the potential to create personalised, online television that is watched by hundreds of millions of users."

Commenting on the Acquisition, Jarvis Coffin, Chief Executive of Burst, said:

"Since 1995, Burst has supported the interests of vertical web sites online and the loyal users that depend on them for the information they need and want. By combining with blinkx and its enormous video index, we will be able to substantially enhance our users' experience with high quality, relevant video, and also improve monetisation for our publishers through high value video advertising.

Burst stockholders are receiving a substantial premium for their Burst Shares and those who receive their consideration in New Blinkx Shares will hold stock in a bigger, more liquid company with an opportunity to participate in the high growth online video market where blinkx is one of the market leaders."