Omneon Preps for $115M IPO

Omneon Video Networks has joined the growing list of storage specialists filing for IPOs, in a move that reflects the growing convergence of storage networking and the broadcast industry. (See Storage Grabs Video Limelight, Double-Take, Isilon Go Public and Double-Take Seeks IPO.)

The vendor, which makes disk-based digital storage systems and video servers, is looking to raise $115 million in its public offering, according to documents filed with the SEC. Proceeds from the IPO, it said, may be used for future acquisitions, and also for working capital, although the firm refused to expand on these details when contacted by Byte and Switch today.

J.P Morgan Securities is acting as Omneon's book-running manager. Deutsche Bank Securities Inc., Canaccord Adams, Needham & Co., and JMP Securities, along with J.P. Morgan, are underwriting the offering, which comes at a time when many broadcasters are rethinking their storage strategies. (See Turner Exec Explains Overhaul, HBO Turns to Sun, and Warner Bros..)

As broadcasting firms and telecom providers look to offer more services such as video on demand, there is a growing need for new forms of storage, according to Stephanie Balaouras, senior analyst at Forrester Research. "What makes this content different from traditional enterprise content is that there are traditionally extremely large files that need to be read multiple times and streamed to potentially hundreds or thousands of users simultaneously."

These sentiments are echoed by Tom Coughlin, president of analyst firm Coughlin Associates. "I think that there is enormous growth potential in this market," he says, adding that the popularity of personal content sites such as MySpace will boost demand for specialist storage systems.Omneon appears to be steadily expanding its business, at least according to the SEC filing. The vendor, which was founded in 1998, had revenues of $60.3 million for the first nine months of 2006, compared to $54.1 million and $31.4 million for the full financial years of 2005 and 2004, respectively. The vendor's net income has also been growing steadily, reaching $6.3 million in the first nine months of last year, compared to $4.1 million and $27,000 in 2005 and 2004.

The vendor's flagship storage offering is its MediaGrid system, which is essentially a collection of storage servers connected via gigabit Ethernet. (See Omneon Picks Hitachi GST.)

The vendor uses its own distributed file system software to split large files into 8-Mbyte "slices," which are then stored and replicated in multiple locations across the servers. The idea is that these slices offer a high level of resilience for in-demand content. Omneon counts more than 350 customers, including the BBC, BSkyB, and Turner Entertainment, according to its SEC filing.

Turner's Broadcast System division deployed a MediaGrid at its London site just over a year ago. Clyde Smith, the firm's senior vice president of broadcast engineering, told Byte and Switch that the system has already improved content delivery. "If you have got the file divided up into slices you can improve the speed of processing of the files," he explains.

A two hour movie, according to Smith, can now be sent out to the firm's broadcast servers in as little as 12 minutes by processing all the different "slices" at the same time.Omneon, though, is not the only firm with its eye on this market. Avid Technology, which also touts media servers and storage systems to the broadcast industry, has made moves in this space. (See AVID Intros Open Storage, Avid Sells QLogic SANbox , and CBS News Ices Tape.) Unlike Avid, Omneon does not offer broadcast-specific applications, such as editing tools, and appears to be more focused on delivering fixed content like video clips.

"I think that they are working in different parts of the market," says Coughlin. "Omneon plays well in fixed content delivery, whereas Avid's speciality is more in content creation and the post-production side of things."

Despite the apparent convergence of storage and broadcasting, Coughlin warns that Omneon will have its work cut with its IPO. "The biggest challenge is getting some headroom and getting people to pay attention to what they are doing," he explains.

The analyst adds that it is no surprise that, despite a recent flurry of activity, storage IPOs are still tricky. (See Double-Take, Isilon Go Public, Riverbed Flows Toward Breakeven, Mellanox Ready for IPO , and CommVault Swims in Public Pool.) "Storage is an area that goes in and out of fashion - at times it is seen as a commodity," he says.

— James Rogers, Senior Editor, Byte and Switch