Inside Brightcove: After Eight Years Of Losses, Diversification Necessary

Brightcove doesn’t expect to make a profit until the end of 2012, but is moving in to a huge new office and planning to buy new companies. Its success, however, seems to depend on the diversification it announced back in May and on cutting growing costs.

In its S-1 IPO filing, Brightcove acknowledges: “We have incurred significant losses in each fiscal year since our inception in 2004 – our operating losses will continue or even increase until … at least the end of 2012.

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The reason for the losses has been rising expenses – in particular, ballooning marketing spend as Brightcove has pushed to win Asia and Europe contracts especially. “Our ability to continue to maintain our overall gross profit will depend on our ability to continue controlling our costs of delivery,” the S-1 acknowledges. “Sales and marketing … will continue to be our most significant operating expense.”

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The firm has $24.6 million cash and equivalents Рenough to last 12 months Рand has been growing fast. Video streams Brightcove serves has jumped by 72 percent over the last year to 700 million per month, and half-year revenue is up 40 percent to $28.3 million. In July, Brightcove videos reached 165 million unique viewers through over 85,000 websites.

Problem is, “We are currently dependent on revenue from a single product, Video Cloud,” the firm says. In May, Brightcove announced an ambitious expansion from just video with a new App Cloud suite that will allow publishers to write apps one time for multiple operating systems and web platforms. It was a clear attempt at diversification ahead of an IPO or sale…

“We do not have any experience with customer adoption of our App Cloud product because it has not been released yet,” the S-1 acknowledges. The tool is currently in beta test but will launch as freemium with an annual subscription.

Brightcove has a U.S. patent: “In April 2011, we were issued a U.S. patent covering aspects of publishing and distributing digital media online.”

“We estimate our total addressable market for online video platforms to be approximately $2.3 billion in 2011, growing to approximately $5.8 billion in 2015.”

“We will likely encounter significant, growing competition in our business from many sources, including portals and digital media retailers, search engines, social networking and consumer-sharing services companies, broadband media distribution platforms, technology suppliers, direct broadcast satellite television service companies and digital and traditional cable systems. Many of our present and likely future competitors have substantially greater financial, marketing, technological and other resources than we do. Some of these companies may even choose to offer services competitive with ours at no cost as a strategy to attract or retain customers of their other services.”

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Brightcove’s investors are listed as Accel, AllianceBernstein, Allen & Co., Brookside Capital, General Catalyst Partners, Hearst, IAC (NSDQ: IACI), Maverick, Transcosmos and New York Times.

But the S-1 says AOL (NYSE: AOL) and NYTCo (NYSE: NYT) are no longer holders. The company has raised $103 million to date, according to Crunchbase (unconfirmed).

“We have signed a new lease for over 80,000 square feet of office space in Boston, Massachusetts,” the company says. “We expect to move into these new headquarters on April¬†1, 2012.” Also: “We plan to pursue acquisitions.” The company currently has 288 staff.

Although president David Mendels enjoyed a $225,00 salary equal to CEO Jeremy Allaire’s, Mendels was by far the company’s highest-paid executive, thanks to receiving stock and option awards worth $4 million.

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