Brightcove -- Used Over Half Its Cash to Buy Zencoder

The big news in the online video world in the past week was OVP grand-daddy Brightcove's $30 million acquisition of 10-person cloud transcoding start-up Zencoder for $30 million (which is tracking revenues of about $2 million for this year).  When the deal was announced, it was not clear whether this was an all cash, all equity, or combo of both transaction.

Well, it is now.  This was an ALL CASH deal, as clarified in Brightcove's Q2 earnings call earlier this week (here is the full transcript of that call -- it is a fascinating read; I urge you to read it).  Since Brightcove has about $58 million cash on its books as of the end of Q2, that means that Brightcove is using over half of its cash reserves to buy Zencoder.  That's a pretty incredible number, when you think about it.  That shows a tremendous amount of confidence that Zencoder can move the needle in a big way for Brightcove.

Certainly, investors cheered the news in a big way when the deal was announced late last week -- Brightcove's stock rocketed from below $14 to about $16.50 (but has since settled back to about where it was pre-announcement).  But, having spoken with several industry insiders, I know that several are surprised by the terms of the transaction -- especially the fact that Brightcove used over 50% of its cash reserves to make it happen.

If nothing else, this deal underscores: (1) the increasing critical nature of video transcoding (Brightcove flagged this as its primary motivation to do this deal); (2) the continuing accelerated movement to cloud-based video workflows (this too was underscored); and (3) that even an online video expert like Brightcove looked outside of itself to bolster its video transcoding expertise, because transcoding is hard, hard, hard ....