The Wall Street Journal reported on September 3, 2015, that Amazon (AMZN) is acquiring Elemental Technologies for an all-cash deal of about $500 million. The acquisition is expected to close in the last quarter of 2015.
Elemental Technologies provides software solutions for video delivery to multi-screen devices. The company has 700+ media customers. These include OTT (over-the-top) applications for various media companies such as ESPN ScoreCenter (DIS) and HBO GO (TWX). Elemental also provides video content delivery services for 4K Ultra HD television sets.
Elemental will integrate its services with AWS (Amazon Web Services). Amazon Web Services is Amazon’s technological platform that provides cloud computing infrastructure.
According to the Adobe Digital Index (ADBE) Q2 2015 Digital Video Report, the share of connected TV devices used for TV Everywhere has increased from 10% in 2Q14 to 21% in 2Q15. That’s a rise of approximately two times from 2Q14, as you can see in the above graph. The share of iOS, Browser, and Android platforms for TV Everywhere has fallen slightly from the second quarter of 2014.
The rise of different platforms or connected TV devices for viewing television indicates that viewers are moving to multi-screen devices for viewing television instead of the conventional television set. In light of this, the acquisition of Elemental Technology could bode well for Amazon.
Significance of the acquisition
It’s important to note that Netflix (NFLX) is an important customer for the Amazon Web Services (or AWS) cloud infrastructure platform. A majority of Netflix’s video streaming services run on Amazon’s cloud computing platform. At the same time, Amazon’s Prime Instant Video service competes with Netflix.
The Elemental Technologies acquisition could give Amazon significant bargaining power over Netflix.
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