RRsat sees video distribution market shifting to outsourcing

By Ari Rabinovitch

ELLA VALLEY, Israel (Reuters) - New technologies in digital media services and an industry shift towards outsourcing will bring strong growth opportunities in the coming years, said Avi Cohen, chief executive of Israel's RRsat Global Communications Network.

Video distribution is a $9.4 billion market, Cohen said, and broadcasters and studios are increasingly handing the work over to external service providers, like RRsat. Currently about 30 percent is outsourced, but he sees that number growing.

"Every junction - a change in technology, a need for investment - is a great reason for them to decide to move it out and stop doing things themselves," he said. "We are getting requests from all of the big companies, allowing us to broaden our services, and this is a global trend."

RRsat, which distributes 630 channels worldwide and handles all distribution of the National Football League outside the United States, reported record revenue of $32.9 million for the first quarter, up 12.3 percent from 2013. Net income excluding one-time items was $2.2 million, up from $1.9 million.

According to Cohen, the company's main competitors in the global market - UK-based Arqiva, Orange subsidiary Globecast and U.S.-based Encompass - are all larger, but have been less conservative in growing and are highly leveraged.

"Financially, we are the most stable in the field," he told Reuters in an interview at the RRsat compound in central Israel.

He forecast revenue of $129-$134 million for 2014, up from $121.8 million last year, and said 85 percent of revenue is recurring.

"The number of channels is growing and they are moving to high definition. They are starting to talk about ultra-high definition ... These are developing trends and present us with growth opportunities," said Cohen.

North America and Europe remain the largest markets, producing the most content and offering potential for what he called higher tier outsourcing.

"We can access just small slices of it and it will add significant growth," he said.

RRsat's largest shareholders are Rapac Communication and Infrastructure with a 34.3 percent stake and private equity group Viola Group, which holds 28.6 percent.

(Editing by Tova Cohen)