Tandberg takes over SkyStream

Tandberg Television said it has agreed to acquire head end vendor SkyStream for $80 million cash and stock.

The deal, expected to close in April, gives Tandberg both a stronger foothold in the U.S. market as well as a natural product extension from its video compression oriented roots into the IPTV world, said Reggie Bradford, President, Tandberg Television Americas.

“If you look at the market and two of the big market drivers being IP and HD, we felt SkyStream gave us a great opportunity to bolster our presence particularly in IP,” he said. “From a market facing perspective it gave us more scope of supply. They also have the telco chassis and a product that from a price-performance standpoint that gives us a new market.”

Just as important to Tandberg’s future is SkyStream’s progress in the IP video market SkyStream claims more than 300 customers worldwide including some of the more aggressive IPTV providers such as Belgacom, Telecom Italia and NTT . The company also has made in-roads with independent telcos in the U.S., a market Bradford said Tandberg will definitely stay in.

“We certainly think tier 2 and tier 3 is a very viable market,” he said.

Though privately held, SkyStream president and CEO Jim Olsen said last year that the company had turned cash flow positive in the second quarter, two quarters ahead of schedule . For the whole year, the company posted revenues of $30.7 million, with gross margins of 65%

Tandberg will keep most of the 100 people employed by SkyStream and maintain the acquired group’s Silicon Valley headquarters for use as a U.S. beachhead. Going forward, the two combined company will look at ways to integrate SkyStream’s zBand push media technology with Tandberg’s pull software it picked up with last year’s acquisition of GoldPocket Interactive.

“We see the opportunity where more of our customers like satellite providers with a large [digital video recorder] base are going to want these technologies that allow them to push content to end users,” Bradford said,

The deal also is another step toward a consolidated IPTV vendor world. Though total subscriber counts worldwide are still relatively small—about 2 million at the end of last year--several analysts have said that the number of vendors currently pitching IPTV products simply can’t be sustained. The Diffusion Group, for instance, recently produced a report speculation that Motorola’s acquisition of Kreatel and Cisco’s purchase of Scientific Atlanta would lead to rapid consolidation of the set-top box market .