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Brightcove (NASDAQ:BCOV)

May 14, 2013 1:00 pm ET

Executives

David R. Mendels - Chief Executive Officer, President, Chief Operating Officer and Director

Jeremy D. Allaire - Founder and Executive Chairman

Jeff Whatcott - Chief Marketing Officer

Albert Lai

Christopher Menard - Chief Financial Officer and Executive Vice President

Analysts

Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division

David R. Mendels

Good afternoon. Hello, everyone. Welcome. Thank you for joining us at Brightcove PLAY 2013. This our third Brightcove PLAY, but it's our first official Investor and Analyst Day. So thank you very much. This is very much meant to be your session. And so we have a bunch of prepared talks. And hopefully, we'll be able to give you a good picture of where we are as a company and where we're going. But it's your session, so please do ask questions, make it interactive. That's what we're here for. We'll have a formal Q&A at the end. That's why we have the nice high director chairs up here. But you can also feel free to raise your hand. We have multiple presenters. And please, jump in and ask questions because our goal is to help you get the information you need.

We have a Safe Harbor statement. I'm not going to read that. So again, I'm David Mendels. I'm the President and CEO of the company, and thank you very much for coming.

Our agenda today, I'm going to start with a bit of a welcome, and a few of the basic overview facts of the company, and I'll apologize to those of you that are deep in the company. I know some of you are and some of you have been here for 2 days and some of you might have met recently with myself or Jeremy or Chris. But we also have some newcomers here, people who are new to the story, and so we're going to walk through some of the basics as well. Jeremy's going to do an industry update. And for those of you who got to attend Day 1, I think it might only be a few of you, it's a little bit of a recap of some of what we covered in the Day 1 keynote, when we tried to talk about what the fundamental trends are in the industry in terms of coming up to where we are now, but also going forward. And so Jeremy is going to join us for that. Then Jeff, who is our Chief Marketing Officer, is going to talk about who do we sell to. This is just a really fundamental piece to understand about our company is, what is our key focus in terms of target markets? What do they look like? Who are those customers? I will talk a little bit about, how do we sell to them? What does our go-to-market model look like? We've had a lot of questions about that from the investors and analyst community in the past. So happy to try and address that. We have 2 guests with us today, who are going to join us, introduced by our VP of Account Management, Dale Fallon from Rogers and Mike Finnerty from The Weather Channel. And so I'm excited to have them join us, and you'll get a chance to hear directly from some of our customers about how they use our product, and what they're doing, and what their strategy is.

Albert Lai, is in the back of the room, he's our CTO for the broadcast and media vertical. He is going to walk you through the product. So some of you might know our story, but never have actually seen the product, and so he's going to give you some demos, both a basic sort of end-to-end demo of what the product -- core products are. But then also show us some of the new things, some of the things maybe that we saw in the keynote this morning.

Chris will do the numbers as always, and then we'll have Q&A. But again, feel free to ask Q&A at any point.

Company overview. I warned you I was going to start with the basics. We were founded by Jeremy Allaire, who's our Executive Chairman today, in 2004 here in Boston, Massachusetts. Our 2 main brands and product lines are Video Cloud and Zencoder. There are add-on products and complementary products, but those are the fundamental pillars of what we're selling today and where most of the revenue comes from. We have 6,321 customers in 65 countries. So we're very pleased with our global reach. It's been part of the original vision of the company that this is a global business. That people are trying to reach an audience, whether it's media companies or brands in every country in the world. We feel like we're on a good track on building that global audience. We'll talk a little bit more about the numbers. But we're excited about the breadth of our customers and the reach from a global perspective.

We really operate at tremendous scale. The stats are really quite remarkable. And we're not often -- people may not be as aware of this because we're not a B2C company, we're a B2B2C company. But because of that, the scale metrics are pretty phenomenal. So we are doing about 853 million streams per month. That's on 101,000 unique sites. 236 million unique viewers in March of 2013. So that's a tremendous scale that rivals some of the top B2C consumer sites in the world like twitter.com and things like that. We're in those kinds of ballparks. So from a technical perspective, the investments we've made to be able to operate at that scale create a lot of barrier to entry for new people to come in. And then lastly in 2012, we had $88 million in revenue. It was a strong year of growth, and we'll talk more about the numbers and where we're headed and our guidance when Chris joins us. We've had some nice milestones. Obviously, starting in the last year, last February with our initial public offering. Since then, we've been able to deliver 4 consecutive quarters of delivering against our guidance. We were able to raise our guidance on our first quarter call just, when was that, 2 weeks ago. So we feel good about that. We think we've been able to come out of the gate with consistent predictable performance, been able to deliver on the things we said in the IPO roadshow, and that we've said every quarter since. We said in the IPO roadshow that in the fourth quarter of last year, we would hit breakeven cash flow, and we did achieve that. And then we also, last summer, successfully acquired and integrated Zencoder. It's becoming an increasingly strategic part of how we serve our customers and what our customers buy from us. We'll show you what Zencoder is in a little bit. It will be part of Albert's demonstration. And we've had just some tremendous brands, some tremendous names join us, our customers. Some of them are here at the show. This is our global customer conference. We have hundreds of our best customers from around the world here. But brands in the last year that we've announced include Viacom, Rovio Entertainment -- you might not know that name, but you probably do know the name Angry Birds, one of the most successful new brands in entertainment, consumer entertainment in the last few years -- The Wall Street Journal, Network Ten -- they're a major broadcaster down in Australia, a major player in sports down in that region as well -- Johnson & Johnson, Exact Target, Starwood Hotels & Resorts, Toyota, Yves St. Laurent, Discovery International. So you see here a little bit of what Jeff's going to talk about in terms of the diversity of our base and the focus of major media accounts and major digital marketers and brands.

Our mission from the very beginning is still very, very relevant, to publish and distribute the world's professional digital media. And we have established leadership. We we really the first to create this whole category. This whole idea that you can build a set of cloud-based systems to enable any company to successfully manage and process and distribute and deliver great digital media experiences, great video experiences. We were the first to create that. We created the whole category, and we have been recognized by a number of third parties as a leader the category. Frost & Sullivan late last year did their view of market share and recognized us as the clear leader in online video platforms. Forrester makes a point of saying that we have the best enterprise track record and partner and support ecosystem. That's part of being first in creating that ecosystem around us, and so that's something we're quite pleased with.

The leadership of the company as well is a team that is extremely seasoned, with a lot of success in building high-growth companies and public companies. Jeremy Allaire, who will speak shortly, is our Founder. I wasn't CEO until recently. We've been partners for many years. Also helped found Allaire, his first company, became CTO of Macromedia and then founded this company and has helped grow it tremendously from 0 to today. Chris Menard, will speak as well, our Chief Financial Officer, previously at Phase Forward as the CFO. Paul Goetz, he's our SVP of Sales in Americas and EMEA, with a long history at Savvis, and before that at EMC for close to 2 decades. Andy Feinberg, our Chief Legal Officer, came from Lycos, really pretty tremendous experience as well. He has also helped build all of our international business. Started our joint venture in Japan and our Asia-Pacific business. And Jeff Whatcott you'll hear from. Jeff and Jeremy and I all have a long history of working together. That's part of what's made us, I think, a really good team, working together companies like Adobe, Macromedia and Allaire. So looking forward to introducing them.

So with that, let me pass it now to Jeremy to give sort of the broad view of the industry and what we're trying to do.

Jeremy D. Allaire

Good afternoon, or yes, afternoon. If you were here yesterday, you'll get echoes of some of it. Although, David delivered a bunch of this yesterday, so I'm going to try and one-up him and do better today. So starting with the basics, online video growth. This is just the measure of how much is online video viewing growing year-over-year. Continues to outpace the overall growth traffic on the Internet. Online video growing 30% year-over-year. This is key. The growth in video streams is a fundamental driver that ties to the growth in Brightcove's business. Secondly, and a key corollary, especially as we look at our market in online media and digital media, is that online video advertising, which is really the lifeblood of how premium media companies operate, grew 21% year-over-year also outpacing the overall digital advertising market. So very healthy growth. That also, again, a core driver for our customers. And in turn, a core driver of what we do. And as you'll hear about, really fundamental also to the technology stacks that we execute on behalf of our customers.

But the big story here and the big kind of secular shift that's taken place over the last couple of years is this consumer attention shift. The decline of the PC industry, seeing upwards of 30% year-over-year declines and the concomitant growth in mobile traffic and mobile apps as a source of how people get to their content. So today, mobile devices account for about 23% of web traffic, but growing dramatically faster than the rest of the Internet industry. So as I noted, online video growing 30% year-over-year overall. But on mobile, online video grew as high as 360%. That's on tablets. Tremendous growth in online video viewing on tablets and on smartphones. As tablets begin to erode and destroy the PC market share, we're going to see this tide move even quicker, we think, or similar kinds of movement in the coming years. Very core driver for what's driving investments from our customers, and in turn, our product investments. This shift though is not without its challenges. I think we've all read and understand broadly that the shift of user from being engaged on a PC with a mouse and a large screen to being engaged in a touch device that may even be in their hand or their pocket, does present monetization challenges. We hear this very broadly with major social network platforms like Facebook, but this very much plays into the challenges that premium media companies and brands that are trying to execute their brand on these platforms are struggling with. So what do I mean specifically? Basically, as you shift to the mobile architecture, there's a whole shift in the underlying platforms and ecosystems that have supported advertising on the Internet. Up until very recently, almost all of the advertising you saw online, the display ads, the video ads, the -- all the kind of rich media was all executed on the Flash platform. But HTML5 introduced a world that didn't include Flash, and so the entire universe of advertising, and in particular, in brand advertising, had to make an architectural and technological shift. And all of the companies from ad server companies to ad networks to other ad technology providers to video platforms like Brightcove essentially need to retool for the mobile Internet and for this shift. And so as we know, HTML5 is rising as a platform and it's killing Flash. But the good news here is that the industry is really caught up, and we've been a big part of it, specifically in the video space. So HTML5 advertising is what we like to say, open for business. Specifically, what that means is that in a mobile environment, on a touch device, like a smartphone or a tablet, publishers who have rich content, like video, can now deliver the full range of ad products that they had been accustomed to being able to deliver on a PC. So integrated video, in video, overlay ads, video ads that occur during, while someone watches a video, synchronized rich media ads that are synchronized in a screen to what's showing in the video. So all of these things that were possible in the past were not possible easily in the mobile space. We've invested pretty deeply and worked very closely with partners like Google, who released a major new update to their DoubleClick ad platform. And through that work that we've done with them, we've been able to really up level the ability of publishers to actually deliver a full suite of ad products as part of their video experiences. And so we're trying to help address that shift. One of the other really critical things to understand though is the shift from PC to touch devices is also a shift away from the browser. And so the data is in and the data suggest that native apps are winning, and they're winning pretty decisively. If you look at total attention that's spent in these mobile devices, approximately 80% of the time that people spend on these devices is in native apps. And only about 20%, collectively, is actually using the browser in these devices. So native apps are the preferred model for consumers. It delivers a better user experience for customers and a higher performance experience. And so that's a key shift. And that creating additional complexity as well.

Live, which if you were able to attend our keynote today, is really taking off. You can see here live content. A lot of people watch live content on TV. Over half of consumers regularly watch live news, live sports, but it's growing quickly on PCs and on smartphones and on tablets. And so as we move from a world where live had been constrained to the linear channels that were on your cable system, to a world where live is available on effectively an infinite number of web properties and applications, the use cases for live are proliferating. If you've had a chance to talk to customers who are here, you're hearing about live broadcast from faith-based organizations, live broadcast from major brands doing product launches, event marketing, et cetera. So the use cases on live are going well beyond how we used to think about live television into a much, much broader palette, and we're seeing that as a key shift that's driving a lot of customer activity and demand for us as well.

I want to change gears and talk a little bit about the future as well, and this is sort of the challenges of the past couple of years have been this big shift into mobile and tablets and the mobile shift and that's not done. As you saw, only 23% of web traffic is coming from those devices, so there's still a lot of work to do there. And that will grow to be the majority and a substantial majority over time. But we're now starting to see another key shift take place, and that's what we like to think of as connected TV or connected living room devices. This is one that we're really deeply excited about. When I founded the company, a fundamental concept was that open distribution of video would emerge and video content from essentially an unlimited number of sources would be able to be distributed directly to consumers to their televisions in their living room without traditional methods like cable distribution and satellite distribution. And that, that shift would take place. It takes -- this transition is taking a very long time, but we feel like we are right on the cusp. We're in that right before iPhone moment in connected TV. And so this, we believe, is going to be key. So let's -- I want to break this down and talk a little bit about. This is very much -- when you think about the next 2 years, the next 3 years, what this is going to do for online video publishing. It's a core, core concept. So broadly, you got 3 big buckets of companies that are trying to provide device platforms, consumer device platforms in the living room. You've got the TV set manufacturers, led by companies like Samsung and LG. You have game console manufacturers, Microsoft, Nintendo and Sony. And then you have what we like to think of as TV companion device makers, so these are over-the-top based devices, set-top devices that work with any existing TV. So Smart TV specifically. Smart TV platforms are on the rise. 27% of new TVs shipped. So when you go to Best Buy or you buy a TV from Amazon or equivalent, about 27% of them last year were Smart TVs. They had operating systems, app stores, and the ability to install and use apps. And that's a significant number. The forecast from the manufacturers suggest that this percentage of new unit shipped is going to continue to increase over -- year-over-year going forward and to a point where at some point, in the coming years, nearly 100% of TV units that sell will be Smart TVs as well. So we're in still early stages of growing. More importantly though, Smart TVs are now -- 69% of people who have Smart TVs have actually connected them to the Internet. A lot of people buy a TV and they think, oh, I need a great TV and they bought it because of its size or screen or quality, et cetera, but don't even know that there's a Smart TV in it and they don't even think to connect it to the Internet. Well, that's growing. This number was a lot smaller a couple of years ago. It's really jumped up in the last couple of years, where people -- this is a core part of the marketing when you walk into Best Buy, Smart TV is right there, front and center as a key value proposition. Just like in the past, HD was a value proposition or DVR was a value proposition. So that's a big number and really critical to the opportunity.

This one I like to talk about. This is a really key set of data that an industry source has released, which is that, of Smart TV owners, smart TV owners are watching almost as much Internet streamed TV and movies as they are watching network aired movies. So 25% of Smart TV owners are watching TV shows over the Internet daily. And that's an incredible number. And this is a real shift. And that can be through services like Hulu, Amazon Video On Demand, Netflix. It can also be standalone apps from channels and providers that are accessed directly on these devices. And so there's a real shift in actual viewer time into over-the-top Internet-based delivery through these Smart TV channels.

The next key piece here, and maybe actually before I move on to it. This is an arena where we've done a decent amount of work basically providing the back-end APIs that make it possible for people to bring their content and the user experience and the advertising to those devices. So we've got many, many customers around the world who've created apps using software toolkits from the manufacturers themselves, Samsung, LG, Sony, et cetera, and have created apps and made those available, and those are powered off of Video Cloud in the back end. We showed and talk about some of those yesterday. But that's an early market. It's an early stage development proposition for people. But we expect to become a much more mainstream proposition in the next couple of years.

The second big bucket here is the game console market share. And obviously, these are companies who, let's call it, 10 years ago, really made a move into providing a new device or a more advanced device in the living room for entertainment through interactive gaming. Each of these companies, over the past, let's call it, 5 years, has started to try and add more services that can be used over the internet in concert with that gaming device. Most notably is Microsoft. Microsoft has really jumped ahead of the market in really thinking about positioning and executing on the vision of the game console as a media consumption device and an entertainment platform. There's a next generation Xbox event that's scheduled for next week. I expect that this theme and this meme is going to become a bigger theme for Microsoft going forward. And that's going to be attractive. What's notable here, and this is Microsoft data, is that if you compare the average number of attention hours per month on broadcast television, the average is about 150 attention hours per month per consumer or household. Xbox households are spending about 84 hours a month in the Xbox environment, but more than half of the time they're spending on the Xbox is consuming video. Video is actually now the #1 use case of the Xbox, more so than playing games. So this is a really key indicator that this is a platform that is really becoming an over-the-top video, media distribution environment. The key things to note here, in addition to this, is that today, the Xbox is a -- it's a walled garden. It's a velvet rope. It's by invitation only. As of last week, there were only 48 media apps that you could install on your Xbox. Compare that, of course, to the app stores that we know for things like phones and tablets, and you obviously see there's a very, very dramatic difference. Our expectation is that Microsoft is going to open up that walled garden, provide a more friendly set of developer tools and developer environment and really let people build apps that then get submitted to an app store and get approved. We don't know that, but that's our expectation. We are doing more here as well. A number of our customers, Starz, which is a cable channel, launched a vertical network as an Xbox app with us. We showed yesterday a diversified media company, Maxim, which is historically a print company, launched an Xbox app, again, targeting that male 18 to 34 demographic. We have other broadcasters that we're working with to bring Xbox apps online as well. This, we think, in addition to iOS and Android is going to become a real strategic platform for Internet TV and online video distribution. And the numbers are already really significant when you think about it as just an environment with 48 apps already acquiring that much of the user's attention. This is going to be a very interesting platform going forward, we think.

The third kind of key category that we like to kind of talk to is what we think of as TV companion devices. You can really think about a TV companion device as a small computer with an operating system that can -- you can interact with through a remote or in some cases, you can interact with through a touch device, like a smartphone or a tablet that powers content on your TV set screen. So you already own a TV set, and you want Internet television, and you want Internet apps on your TV. You spend $49 or $99, and you then connect that out to the Internet. Roku is an independent company that sells in this space. Apple and Apple TV has been growing fairly quickly given that it's still not yet a mainstream product for Apple. They've been reporting a couple of million units a quarter for the past several quarters. And so it's likely an install base well north of 10 million today. The notable thing in this market is, in particular, with Apple, Apple TV has a deep connection to iOS and has a deep connection to your smartphone and your tablet. And so they're bringing that ecosystem together. And what that allows for is, any piece of video content that you encounter on a device like this, you can instantly beam to your television in HD. And it will then -- your television through the Apple TV device will broadcast or bring down that HD content to your screen. And so this is a really unique advantage that they have in bringing together that ecosystem and bringing more and more of that content to that Apple TV device. We have many, many customers who are taking advantage of this, both in browser-based video, but more importantly, in native apps they're building premium native apps for premium content, long-form content, who then are allowing their customers to beam that directly to their TV. If you haven't played around with that, it would be worthwhile doing. It's a pretty exciting development. They're not alone. Apple is certainly not alone. Google is "Just getting started" in this space. They had a failed attempt to get into the companion device space by creating a modified version of Android that people could license -- Logitech and Sony both licensed it. Those products were not successful with consumers. They have a new product called the orb, which attempts to connect essentially to your TV and connect to the Google Play Store to get songs and movies. It's a bit more like the Apple TV product. Again, not yet a lot of traction, but we think, and I'll talk about this in a moment, we think that the anchors of the kind of foundations for the future of the connected living room are iOS and Android. We think that those platforms will find their way into these TV connected platforms and will be the predominant way that people build apps and get content onto these TVs. And so Google, while they don't have their own hardware product yet that has consumer scale adoption, we think may pursue a strategy very similar to Android on smartphones and tablets but for Smart TV. And that seems fairly likely at this point.

Last week, we heard rumors that Amazon was getting in the game. Amazon has clearly forked Android and developed a much deeper, direct hardware development manufacturing capacity, a hardware design and manufacturing capacity, and so the rumor is that there'll be a Kindle TV or Kindle TV companion device to compete in this market, leveraged off of Amazon's existing digital media retail experiences, likely also built on Android to build apps for that device. And so I think we'll see multiple Android-based TV platforms that emerge in the coming months even or next year.

As we look at this market as a whole, when we think about the connected TV, and we think about the connected living room, it's our view that Apple TV presents the most interesting technology stack. And we look at that from a few different angles. So the first is just the basic fact that with a simple update to the Apple TV OS, which is already based on iOS, Apple TV is iOS, that happened over a year ago, with a simple update, they will allow any developer who builds apps for phones and tablets to compile and install their app directly into the Apple TV device. And so overnight, they're going to have the ability to bring hundreds of thousands of apps and app developers directly into the TV, directly into the living room, with that platform, and that's unparalleled compared to any other player. You think about Microsoft. It has 48 apps and wants to get people building for it. Apple will come to the table with 700,000 apps and a very robust ecosystem, and so that's the first. I think the second is that once they do that, effectively, what they're doing is, they're turning that Apple TV device into a direct competitor to the Xbox, the Wii and the PlayStation. So we believe that the next hardware refresh of the Apple TV companion device will be a direct assault in the game console industry. The #1 game platform in the world right now in terms of usage and revenue growth is iOS. And so as a gaming platform, you saw earlier the slide of where people spend their time, the largest category of time spent in these tablet environments and mobile environments is in games. So they have an enormous gaming ecosystem that they can bring into this and be very, very competitive very quickly. And so it -- not only is it a TV companion device that replaces that function of the game console in the living room. A lot of people ask about this in the context of, how will they deal with cable TV? How will they deal with those kinds of use cases? I think what we will see is that cable TV will just be an app. And so we see this already today in 2 forms. So broadcasters like HBO GO being the most notable, who is only available through a cable subscription, allows you to install an app, the HBO GO app on your tablet and consume all that content as long as you've logged in. We talked about that this morning with TV everywhere and this authentication model that we support in our product, and we've got broadcasters doing that with us today. The other way it will be an app is that the actual programming guide and the user experience for accessing what's available on live television and accessing those streams, that will very likely also be an app. And this is happening as well already. So last week, I installed an Xbox with my son in the den, and I opened up the Xbox, because I said, I want to see what apps are there. And Comcast and Verizon FiOS showed up as apps. I installed the Verizon FiOS app, and it immediately authenticated me, and there was a completely new user experience for accessing that programming. Forget about the set-top box that they provide you and the really crappy user experience that they provide you. It's a gorgeous, motion based, very rich experience, and that's just an app on Xbox. So I would expect when this happens, when Apple refreshes this, we'll see the cable operators essentially offer an over-the-top product on these platforms.

And then finally, we talk -- we started by talking about the TV set manufacturers themselves. I think it's very likely that in addition to a new TV companion device, Apple will ship a monitor product that embeds the same software and hardware capability and directly enter that market. And so perhaps they're the only company that brings all those together. Samsung is the other company to watch very closely there. But the important thing here and kind of stepping back a little bit is, there is this major shift happening to the use of the Internet and the use of content from the Internet moving to mobile and tablet devices, and that's on this ramp that we all know is very fast, and that's a fundamental driver behind our business. We think trailing not far behind is this connected TV arena. And when you think about our business, we're 100% about video. We're all about getting that video content to the screens that matter in people's lives. And that origin vision of over-the-top distribution of an infinite number of video programming channels, whether they're from a brand, a retailer, a tech company, or a major media company, reaching into these living room devices and into these devices that are all around us in our professional and educational life as well. So this transformation with smart television and connected TVs, we think, can be an inflection point in the long-term opportunity for the company as well.

So that's kind of where we are today and what we see sort of emerging in the near future. But more broadly, the way we think about the world is a kind of world with many screens. And it's been easy to think about -- people talked about 3 screen, that meant PC, mobile and TV. What we're really moving toward is a world of sort of n screen, and the number of platforms that are emerging that present screens with content that you can interact with in some way are proliferating. And these are all Internet connected devices. So this is a great recent example. This is the Tesla Model S. This is the dashboard. This is an exceptional car and hopefully a harbinger of things to come across automotive products worldwide. But what's amazing is that they've built a gorgeous, very beautiful high resolution touch tablet experience into the dash. And it's very large. It's about this high and about this wide. It's much larger than a tablet, but it's there. And it has all of the applications you'd expect. You can access the web. It's HTML5. It can play video. It can do a lot of things. And it's all touch-based interaction. There's no reason why they can't have that connect with your Android phone or your iOS phone and have you beam content to and from those devices to that device, and it's a really beautiful experience. And I expect based on the investments we're seeing in automotive from companies like Google and certainly these startups like Tesla, I think we'll see emerge this screen as a new screen, for example.

Obviously, the sort of "now in the wild," Google Glass augmented vision, with a surface that can render content and video immediately within your peripheral vision and can respond to navigation and voice and so on, this is industry-standard platforms. This is Android. The Android players we provide, the HTML5 players we provide. We'll be able to render content to these augmented vision environments.

I'm excited about this next one. This is something called the Oculus Rift. This is a product that's going to launch later this year. You can think about this as essentially a personal IMAX that you wear that provides up to -- a HD 3D, full 180-degree experience. It's designed as a gamer's platform. It's designed to augment games that people play, console games, PC games and the like, but it's an open platform and anyone can build for it. And you can start to imagine the 15-year-old in the back of your car, instead of wanting to be on their iPad, wanting to be wearing their Rift. And so I think these kinds of products become really interesting new surfaces to distribute this video content to.

And of course, there's rumors about smart watches. And again, another wearable computing device that can render content and display content and then interact with touch devices as another screen. I think, stepping back here, the meta picture here is that the future of screens is really exciting. We're right on the cusp of Internet TV and video reaching the living room in mass on a global basis on all of these connected TV platforms. That's going to be exciting. That's sort of how we think about video historically. But I think at the same time, we're seeing this pace of innovation that's creating more and more screens that are Internet connected and that content can be consumed and used on. And that's what we're all about here, is staying out in front of that, building platforms that can build content and applications for these screens. And so we think it's a very, very exciting future in online video publishing.

I'm happy to answer questions as well, if people want, on the market sort of stuff. Yes?

Unknown Attendee

Jeremy, can you talk a little bit about the decision to discontinue the App Cloud environment within the context of the over-the-top devices that [indiscernible]. How do we contain on the over-the-top environment? How do you sort of work within the context of that [indiscernible] right now.

Jeremy D. Allaire

Sure. So sort of a few questions there. I think the first, on App Cloud, the industry voted -- not specifically about App Cloud, but the industry voted that native apps were the way to go and not these hybrid or HTML5-based applications. And so our focus target markets, major brands, premium media companies; and you see this with other major brands, Linkedin, Facebook abandoning HTML5 in favor of pure native, we saw that, that was taking place. We wanted to align with the market. And so rather than trying to do hybrid HTML5 video with native apps, we went all native. That's led to the development and limited commercial availability of our native players and our native player SDKs. And so those in particular allow us to give customers all of the stack they need for a monetizable, secure, premium video experience, installables in app on a touch device or a tablet. Those also include -- I think in the keynote this morning, the head product management on that, on iOS, for example, automatic hooks into Apple TV and AirPlay-based playback experiences and dealing with some of the complexity associated with that when you're doing things like dynamic ad insertion and ad-supported content on those devices. And so that's something that we're supporting directly today with our iOS-native players, is the ability to use that really easily with Apple TV. And in terms of where that goes, in terms of revenue model, I mean, it's very relatively straightforward, which is that we offer these customers a suite of commercial services. Core to that is a license that's based on the volume of video views that they're getting. And so if they're getting video views in a native app on a tablet, we're going to generate revenue from that just like we generate revenue from the views they have on their website. And likewise, if they're generating views in a smart TV, we're collecting that data and we're able to build those customers on the basis of the views that they get on the smart TV platforms as well. And so for us, this is just about expanding usage and driving that expanded usage. And that then helps drive upsell and growth opportunities within the customers we have as well.

Unknown Attendee

And you're saying, with the next refreshes of hardware, [indiscernible] you expect that all native iPad and iPhone apps will be [indiscernible] and made available for Apple TV? So if you're the Weather Channel, for instance, instantly, you could be pushing video through your [indiscernible]?

Jeremy D. Allaire

Yes, video and interactivity. I think -- just like when you design an app for the iPhone, the version that you want to have for the iPad is going to be different. It's a different UX. It's a larger surface, and so you have a different set of requirements there. But they still call it a universal app. As a developer, I can build a universal app that's a single binary that goes in the App Store. And if I have an iPhone, it downloads in it, shows me an experience that's specific to the iPhone. It's a different experience for the iPad. We expect universal apps to be updated for Apple TV. And so it would install that app on Apple TV and then you'd have the user experience of that app on the Apple TV as well. And so developers will have to do work, but the point is its very incremental to what they're already doing.

Unknown Attendee

Just in terms of monetization on mobile and how that has lagged compared to traffic, where -- what do you think the key impediments have been? And where do you think the industry is at in terms of addressing those?

Jeremy D. Allaire

Yes. Specifically, in terms of monetization on mobile with video, I think social networks is a different set of problems. I think -- but they're both related to the fact that you have a different set of screen real estate. You know web page on a PC, you've got a lot of places that you can put ads. Not all ads are created equal on a PC, some are below the fold. It's been shown through research that the eye has been trained to avoid looking at ads on websites and so on. And so in theory, these immersive environments actually create a better environment because it's in your face I think what we've seen, though, the impediments have been organizational. Meaning, in some cases, because the mobile traffic has been 10% or 20% of traffic, they've felt like, "Oh, we don't need to do as much there yet. It's not big enough yet." And so they've been a little bit slow to move. That's now changing rapidly because the percentage has grown so fast. And then the second has been technical and operational, which is that with video specifically, replicating the full stack of what was possible in PC and flash-based rich media advertising and the integration into the video experience was very difficult to replicate in the HTML5 and native app world. And so we've had to do work ourselves to really bring that forward. And then we have an ecosystem of partners in the ad platform space, the ad server space and so forth. We've got to work very closely with them to align roadmaps and get product out that makes it a lot easier to do, exactly what you were historically able to do on the PC side but in the tablet and phone side of things. And so that's certainly helping. And so we're seeing more and more people switch that on and start to try and capture the revenue. Yes?

Unknown Attendee

I know you kind of said the native app versus in-browser divided over or all of it over. To what extent do you care about that at Brightcove? And if it does swing back, has that impact?

Jeremy D. Allaire

Sure. We care about it insofar as we want to build platforms that go wherever consumers are adopting media in mass. And so the reality is while native apps will capture more attention, mobile web is still a very large share of traffic that happens online and a growing one. And so the reality is, for us, both matter a lot in terms of its impact on us. That means we have to do more work, but the benefit is that our customers don't. So our whole mission here to abstract the complexity, reduce the number of platforms customers have to think about by providing a cross-platform model that works consistently. And so to the degree that, that fragmentation continues, that benefits us because we're abstracting that and helping customers get to those platforms more easily.

We can keep going. We'll have time for more questions as well, but we'll move on to Jeff. Thanks.

Jeff Whatcott

Thanks, Jeremy. So once I run through how our customers are actually addressing the challenges and the trends that Jeremy has addressed -- or introduced to us by going through some specific customer examples. First of all, just to show you that we have a very diverse set of customers all around the world across many different vertical markets and of various different sizes. We're very fortunate to have a number of blue-chip customers. And I'll just say that some of these customers are using us very deeply and very broad ways across multiple divisions, and others are just doing their very first video project with us. There kind of a customer maturity model that David moved through with us, and so we have a lot of opportunity even within the customers that we've already sold to, to go in and do their third, fourth, fifth, sixth project and go deeper. And as our usage increases and as their content base increases we have an opportunity to grow within those organizations. So -- but broadly speaking, we break our customers into 3 large groups. Really, digital media companies, who are building a business around content specifically, monetizing it either though advertising or paid models through subscriptions or pay-per-view and so forth. And then digital marketers, who are using video as part of a marketing strategy to promote their products, services or even their causes. In the case of Facebook, organizations and so forth. And then we also target the web developers that work in those organizations and we kind of put them at the bottom there because they're kind of a bottoms up backdoor entry point for us into these organizations. So we can go in the front door and talk to the businesspeople about the business value that we can bring to them, or we can speak at a technical level to the developers. And we have marketing campaigns and approaches at each of these different markets as they're defined here.

So we're going to focus in today mostly on digital media and digital marketing, but I'd be remiss if I didn't mention the developer piece of it today because that is increasingly a way that we're approaching the market, is through developers directly with technologies, piece parts that they can put together as they build custom solutions. And it's a great way to penetrate some of the organization that might be harder to penetrate through the front door, so to speak. So we'll focus in for a moment on digital media specifically. Now first, we've got video.

[Presentation]

Jeff Whatcott

Okay. So a couple of things I wanted to just call out in that video before we move on, is that Kate mentioned that video is the most valuable asset that they have as a news organization. And its kind of amazing to think about that. It's the most valuable form of content that they have, but why is that? Because the CPMs that they can get and the -- for advertising that they get on video is higher, and video content dramatically increases the value of every page that they put it on. So they really can't get enough video content. And so the other thing that I'd like to call out is that they have hundreds of Brightcove Video Cloud accounts that are all linked together through some capabilities that we have. And so if a local affiliate has breaking news, they can share it with all the other organizations. That ability to share media across different divisional boundaries and so forth, that creates stickiness for our solution that then keeps people using the platform and getting more value out of it, creates network effects effectively. And we can do that not only for one customer like Gannett across their different affiliates, but also across customers as well. So I think that's an interesting example in the media.

And then in the television industry, of course, there is a ton of video content that needs to come online. Showtime has been a longtime video cloud customer, and they have several different properties that they use for distribution. The first property is their normal sho.com. It's the top-level site that you might come to as they sho.com. And at that level, they're trying to recruit new customers, new subscribers. So they have a lot of promotional content, lot of clips, a few teaser, full episodes, but not the full content base because you have to be a subscriber through cable to get that. But that's a full site that they've got. And then they have what's called Showtime Anytime, which is their property that allows you to watch the full episode that you have access to as a subscriber. But in order to access that content, you need to be authenticated. So this is the Showtime Anytime site, and you can see they've got beautiful representations of the different shows. If you click Play on this Nurse Jackie episode, as an example, it'll come up the first time and ask you to authenticate yourself as a cable subscriber in the location where you're coming from. And then once you've done that, then you can get access or you can order Showtime to get access to it. So this is a way that they're gaining access to the content but making it much easier for people to consume it, and that's powered by our systems in the back. They, of course, have the same content base available on mobile devices like tablets, but you also have to authenticate there as well. And they also have taken the content or a base of this content to the television through a Roku app that they've wrote before, and then Jeremy spoke about the power of that platform.

So NBCUniversal is another one of our customers in the television industry. A number of their properties are using the platform. They had a division that was responsible for NBC's competition in the Emmy Awards competition, and so they created this app for iPad that they gave out to Emmy Award judges to allow them to access the full episodes of all the content from that particular season as part of the judging process. This replaces sending them the DVD's and all the associated licensing issues that go with that. Another property, an NBCUniversal property, Telemundo, has the mun2 channel. This is a -- it's just a screenshot from their site. This is a site that has a lot of content focused on Spanish-speaking as well as English content focusing on the Spanish-speaking world, and they've got full implementation of that with advertising on the mun2 site.

And then Universal Sports, which is our sports channel, has a wide variety of sports that are covered both on-demand, and then they also have a live view area where you can watch what's on television at the time. You can preview that for 1.5 minutes without paying or having a subscription of some sort, but after 1.5 minutes, you have to authenticate through your cable or satellite provider and then you can get access to the content that you have rights to.

So this model of authenticated access to the full value of the content is something that we're seeing across a number of different television companies, particularly in the United States where there's real strength in the operator side, and the brands are negotiating -- or the programmers are negotiating their ability to go direct. And this TV Everywhere authentication method is becoming a good negotiated settlement for that

Now TV New Zealand is a different type of television company. They are a broadcaster, I believe, broadcaster down in New Zealand, and they have their own professionally produced content for the domestic audience, and then they license content from abroad as well. And they make that available through their TVNZ Ondemand site through -- for desktops. And they had a version of this site that they had built in-house before they used Brightcove. They implemented Brightcove and were able to grow the stream 70% by improving the quality of the user experience there. And they've done some very sophisticated things with advertising, Jeremy talked about pre-roll, mid-roll, overlay, that's the way that they get paid, is by selling a full ad load like they would have on a television if they were going with a broadcast network against this type of environment. And they've been able to be very successful with their monetization strategy. They took the same experience and content base to Samsung televisions, and that content had to be secured with what's called Widevine DRM technology, and we assisted them with that. And then they can display that in a Samsung television app. So it's an example of a customer actually building app -- an app for the Samsung television environment and delivering it like what Jeremy spoke about. And then they also have an iOS -- and soon Android -- apps for smartphones and tablets that, again, is secured, DRM-protected content, all with the advertising. This is making use of our native SDK that Jeremy was asked about earlier to build these apps. And here's a...

[Presentation]

Jeff Whatcott

So a couple of things I just want to call out on that video was that they started down the path of video distribution with their own in-house resources. And then as the world got more complex, they quickly ran out of steam and realized, "we're not going to be able to keep up here." They made a decision to outsource it to us. And then through that, they were able to dramatically increase the quality, grow their audience and still monetize really well. So this is a story that we hear a lot around the world, of organizations that are struggling to keep up with all of the complexity. And as Jeremy talked about, that's where we come in, is to help deal with that complexity.

So another example of a kind of special type of media company, is Rovio. As we mentioned -- David mentioned before, they're the company behind the Angry Birds franchise of games. I hope nobody is playing Angry Birds right now. But its a wildly popular set of games. And they're a new type of media company that is really built up around their game franchise, so now half of their revenue comes from merchandising and other things, and now their getting into content in addition to the gaming. And so I'll just show you an example of the app experience that they've built within the game for viewing content. Let's take a look of that. So this is their app on an iPhone, going to mute the audio because it's kind of a crazy song.

[Presentation]

Jeff Whatcott

But they have this Toons section -- so you either play the game or you can go to Toons, which is actually watching content. And they have just huge numbers of original developed animated short content that they've created. We'll go to Full Metal Chuck, one of my favorites, and you can actually watch this content. They're on the phone. You can also project this on an Apple TV in true Full HD, watch the content. Sometimes they have little promotional pre-rolls that promote new games or new content, so there's cross promotion going on within it. And they have a pretty deep library of this content that's getting a pretty interesting audience. So -- and when you watch it on an Apple TV through -- on a big screen, it's just gorgeous content. And this is something direct to consumers, and it happens to be wildly successful. They also got some special other promotions there. And of course, you can play the game if you must. But they're putting it like in that top left position, putting their content forward even ahead of the game, which I think is fantastic.

And it actually has been really successful. I was very happy last week when I got this text message -- or there's no text, but a push notification through the app that said that Angry Bird Toons, which is the shared [ph] content, has now over 150 million views since inception. That's a big audience that they were able to gather through gaming as a platform and, now, becoming a content channel as well. This is kind of a transformative type of scenario for this organization. I am seeing more of these types of companies emerge that are true digital-native, companies that are growing up in this new era. It's giving a lot of options for them that they might not have had.

So let's move on from digital media and talk about digital marketing a little bit. So a very different use case. Not selling content or advertising content, but using it as part of a broader base. And that includes many companies and consumer brands, high tech and so forth. So let's take a look. This is JOYUS, which is an e-commerce company that has completely built their organization around video merchandising. So this is a woman, and she's talking about...

[Presentation]

Jeff Whatcott

This turban/headgear, and they just have these little merchandising videos that they run. And they have all kinds of different content. But they merchandise it right on the site, and they don't have thousands of SKUs. They're not like an amazon.com. They pick very specific, high-margin products that they think fit with the lifestyle that they're going to target, which is women, and then they merchandise them with video and very, very successful with them. JOYUS has found that it converts 5x the rate of visitors who -- when they watch video versus people who just come and browse the site looking around for products. There's significant lift in conversion through the application of their video merchandising, and they buy 4 -- or 5x as much -- convert 5x as many people, and they buy 5x as much. That's a pretty significant ROI from having video to be central to what they're doing. And it's just -- I think they are one of the companies on the leading-edge. Now many other online retailers are -- at various stages are getting this level of maturity and execution, but it shows what can be done at the extreme edge of video merchandising.

[Presentation]

Jeff Whatcott

Here's another example from Marks & Spencer in the U.K. This is a video they put together to merchandise a number of different children's clothing line since the [indiscernible] of video play [indiscernible]. So they got these little [indiscernible] if you're interested in one of these little girl dresses, you can click and it'll stop the video. So you're going to actually shop that item if you're not interested in continuing on with the video and actually going to buy something [indiscernible] so this is accomplished and have put into [indiscernible] players to allow you to build customer extension to bring the merchandise [indiscernible] sale right into the environment. And they have this for many categories, for wine, furniture, office and in all the different departments. They merchandise those categories with this type of video content. And this was done in partnership with a company called [indiscernible] that's here at the show. I encourage you to talk to them as well.

So beyond the commerce sector, we've got high-tech manufacturers and consumer brands, like Intel, that has a really deep video portal with all kinds of content. They are all SEO-optimized. You can learn about their technologies. You can learn about special events. This is Will.i.am of the -- of Black Eyed Peas. We're doing event in Tokyo. They also have thought leadership events that they're doing to talk about the future of music industry. And here, they've -- they're -- they've got a video of that. These are very deep portal [indiscernible] this type of content. And by putting it through our platform on their site, they're going to be able to maintain control over the branding and get full attribution to their brand for viewership of the content.

In the fashion world -- and bring back on the turn of live [ph], that Jeremy spoke about and David spoke about as well. Hugo Boss has done some really interesting work, but they're just one of many fashion brands that have done this type of high-profile fashion show events using our platform for live broadcast. So they actually did one-upped [ph] everybody by not only doing it in normal 2D, but they also did it in 3D. And they've had these 3D glasses that you could pick up a pair -- a little kit -- a promotional kit at a store. So a store tie-in. You go pick up your glasses, and you could watch it anywhere online and see the 2D or 3D fashion show. They also had tie-in in their Facebook presence to promote the show and broadcast it there in Facebook, so they could gather an audience in a social platform without having to drive them off to a separate site. And then, they also had a UGC element to the campaign, where you could submit your own picture and they would convert them into 3D, which is kind of interesting.

So this was an integrated, multi-channel campaign that they ran around this line and around this fashion show in Beijing and on a worldwide basis really is where -- they promoted it everywhere. And at the center of it was our platform, helping making it possible -- making it possible to deliver the live event, making it possible to have it be available on-demand, making it possible to deliver that live and on-demand content in the context of Facebook, all of that was through our platform.

Home Depot. Another great consumer brand in retail, has a lot of how-to content, obviously, given the product that they sell, that would be no surprise. But they have all kinds of content to help you understand how you can benefit from the product that they sell and give you ideas on what you might want to buy is the really smart thing to be doing.

And then, we also have CK One, CK -- one of the Calvin Klein brands that partnered with one of our agency partners in New York to do an integrated campaign across outdoor, their website and then as well as mobile to draw all these elements together where you could scan at a bar code and then see the content and then go online and watch it. It's pretty edgy content but it's something that was quickly driven to the platform and video is very essential to it to see the stories. And there's a lot of room to run with brands who are doing all this consumer marketing. Pretty much every branding, land -- or campaign landing page nowadays is infused with video content, and we can help drive that.

So lastly, I just want to talk about Puma, so we're going to...

[Presentation]

Jeff Whatcott

So here's a customer that I think really gets a lot of the interesting points that we've been talking about here. They have a campaign with the Olympics where, 10 years ago, they might have done that event at the Olympics, but it seems just a little bit of local event with a couple of hundred people there. But through the power of live video streaming, they were able to bring that worldwide through the social platforms as well, and they -- and he talked a lot about how they're able to actually get value from video in more and more of their brands. Now Puma is a big organization with a lot of different sub brands and different teams working together. They can each have their own video cloud account, their own analytics, their [indiscernible] libraries and collaborate very well. So this is an example of an organization we can diffuse through and sell them a lot of different pieces.

So that's a quick overview of our customers. I think that's it. And then, we'll go forward to David.

David R. Mendels

Thanks, Jeff. Hello, again. We are a little behind schedule, so I'm going to speak quickly, which is what I do anyway. But if I go too quickly, I'm happy to answer any questions about our go-to-market. But I want to make sure we have enough time for our customers and for the technical demos.

So we'll go a little bit quickly here. So if you think about the Brightcove go-to-market overview, this is how we reach those kinds of customers Jeff was just talking about. You just got to keep in mind a couple different ways that we think about the world. First of all, as Jeff pointed out, 2 major themes: Digital media and digital marketing. We also have our premium business and our volume business, and the big difference there is annual committed contracts versus people on a month-to-month or a pay-to-go basis. And that's something we'll -- that Chris can walk you through a little bit more in the numbers. And then, we have -- new business as well as renewals and upsells, and both are incredibly important for how we grow as a company.

So let me walk you through the model. We'll start with the volume sales team, which is a young, high-energy, really, super group of people that helped with those transactional volume deals that could be as low as $99 a month. They're not on committed contracts. It can scale up to some additional hundreds of dollars a month. These -- this is largely a self-service purchase where people come online, they try the product and put it in credit card, but we have a group of young people who help those customers make decisions, sort of, a guided self-service.

As you move up into our core business -- and remember, volume is about 10% of our business, premium, the orange part of my triangle, is about 90% of our business. And volume, really -- you can really think of one of the most important factors is it's a tether [ph] for the premium business. Last year, we had about 160 customers upgrade from the volume into the premium part of our business. So the premium part of our business is annual committed contracts, starts at about $10,000 a year. We have to 2 tiers here. We have an inside group. That's folks who sit on the phones in their offices around the world in Boston, in London, in Singapore and work with customers and work on business that's in that annual committed contract value of $10,000 to $100,000 a year. And we have 2 sides of the pyramid. We've got our inside sales reps, who go after new business; and we've got our account managers that are responsible for renewals and upsells. And again, both are very important, and upsell is a big part of how we grow as a company. And then we have the top of the pyramid. This is a classic enterprise sales force for enterprise software company. These guys are sometimes referred to as the elephant hunters. They go after deals that are annual committed contract value of $100,000-plus, it could be up to $1 million-plus. And again, we have that same division, the field sales reps, that are geographically based; and the senior account managers that are focused on, "How do I make this customer successful? How do I understand their business needs? And hopefully, how do I grow that customer over time."

Now one of the things we've done in the last year -- and this is one of the relatively new things that we've added is we broke out a vertical team to focus on the high end of media. And so it sits at the top of the pyramid. It's a global group we started last year with just a couple of people in the U.S. We've now made that a global team, and we always try to do and had some great success and hire people out of the industry who have really deep domain knowledge. We have someone who joined us recently from Fox International. We have somebody who joined us from Channel 4 in the U.K. And so on and so forth. And so, we have that same division of major account reps and account managers, but we do have a vertical team that has some critical mass to really understand those business models, the use cases into all the networks and relationships to be successful with the major media accounts.

At the top of the pyramid, these guys work with our Brightcove consulting team. This is not a huge part of our organization. I'm talking about 5% of our revenues. There's about 20 to 30 people worldwide, and the goal of this team is to help catalyze our license sales. We're not trying to build a staff augmentation team or make a consulting 50% of our business. We see it as a smaller organization that can help catalyze our customer success with customizations, integrations, best practices consulting. And so, that's an important part of our go-to-market, just for the top of the pyramid.

And lastly, another new group that we added this year is a new group we're just calling customer success. These are not quota-carrying individuals, but they are a key part of how we go to market, which is -- as we've seen so many of our customers start with us for a given project or a given brand or a given agenda and they want to grow over time, but people change. They don't know how to fully utilize a product. So we've created a new group that's just focused on, "How do we on-board customers to get them successful fast?" And then, over time, going on-site and doing health checks to try and make sure those customers are successful, that they're taking maximum advantage of the product and that they can grow over time. So that's a high-level schematic view of what the go-to-market looks like. It's a global organization. Chris will talk about in the numbers, we're about 35% outside of U.S. That is growing faster. We can expect it to continue to grow. The kinds of customers Jeff talked about, you could tell already, are very, very global. Our key offices and sales locations are here on the screen. And the color-coded areas are where we have customers which is pretty amazing, the breadth and depth of our reach.

So I did go very fast. I will open up for questions at the end. But I'm going to have David Wooding [ph], our Vice President of Account Management. So he's the guy on the top of the pyramid on the right there. Come on up and introduce a few of our customers, so you can get some direct input from them.

Unknown Executive

Great. Thanks, David. We're very fortunate to have 2 customers join us today, who we thought would be very well representative of our customer base. First off, you'll hear from Dale Fallon, who joins us from Rogers. If you folks aren't familiar with the Rogers name, they are the largest broadcast communications company in Canada. Think of them almost as if they are the Comcast of Canada. So Dale is going to start, and he brings an interesting perspective on how they've implemented Brightcove within their organization. He'll be followed by Mike Finnerty, who has been a long-time Brightcove customer and joins us from The Weather Channel. So without any further ado, Dale? Come up.

Dale Fallon

I'm just going to put my notes here on top of -- I'm not sure if I have any visuals, not sure if it's completely necessary. So, yes, my title, my role at Rogers, for those of you who don't know, the description was pretty good. We operate a big wireless network in Canada -- the biggest wireless network in Canada, cable, Internet -- wireline Internet to home and a media company. So the total revenues of Rogers are in the order of $12 billion, a good portion of that is from the wireless side of things. I'd love to say that the media side is contributing a large percentage of that [indiscernible] project for myself and colleagues and superiors and over the next couple of years.

So Rogers Media, I think, is about 15% of that business, just to give you a sense of the scale. We operate, altogether, about something like 85 media brands in Canada. So most of them will not be known to you folks. They are local radio stations, local television stations, a lot of consumer magazines, and some, oh, yes, some sports assets as well. So sports is actually the single largest area -- single largest part of our business. About 1/2 of Rogers Media's revenues are derived from sports broadcasting. So in particular, we have a family of sports specialty channels called Sportsnet, not to be confused with Sportsnet on this side of the border. Our Sportsnets are a combination of regional channels and several national channels with different focuses, different sports and that kind of thing. And all of these, of course, have digital manifestations. We additionally own the Toronto Blue Jays baseball team, the stadium that they play in and we own 37.5% of the -- a company called Maple Leafs Sports and Entertainment, which owns and operates Toronto Maple Leafs hockey team, sadly not -- but sadly, not a part of the NHL playoffs anymore for those of you that are interested, the Raptors basketball team and a couple of other assets.

So sports is very big for us on the media side. Conventional television, we've got a property called CDTV, which I'll go into a little bit more detail on shortly. That's a big part of our Brightcove sort of relationship. CD is a conventional broadcaster that picks up a lot of studio shows from the United States, as well as some Canadian-produced shows. And online and on mobile platforms, we provide a catch-up service, ads-free and ads-supported that -- that's probably our single most popular video asset and recognized as a big opportunity for growth for us over the next couple of years.

The third major area of our operations in Rogers Media would be called magazines or publishings of -- a combination of consumer magazines and trade publications. For us, the video side of those is nascent. It's something that we think [indiscernible] news magazines, women's magazines, sports magazines, parenting magazines, these sorts of things. They're all great brands. They haven't been exploited digitally very well to-date. But video content represents a big potential growth area, still small numbers at this point in time. So I'll classify that as our third most important areas as far as video is concerned. For us -- and the CDTV example is probably the best one, growing our video audience equals -- yes, here's a good example. So this should be a typical home screen of the CDTV portal. Some shows you'll recognize -- or most of the shows you'll recognize that we picked up the Canadian rights for broadcast and in most cases are able to get some kind of digital rights typically recent episodes so it's not a full [indiscernible] catalog of all these shows, but recent episodes and you see the Expiring Soon button there.

This video portal, if you will, from our perspective, we monetize it very efficiently. Although I did get an email this morning that there was a discussion back at the office of adding a third pre-roll before videos run. We currently run 2 pre-rolls. And so, there was a long email thread that was distracting me this morning. This is a time of year when new episodes tend to dry up. So we're sort of fighting the summertime audience blocks. And apparently, there is some [indiscernible] advertisers that we're going to try and fulfill with extra pre-rolls. So [indiscernible] back at the office, I'd have something meaningful to say to my colleagues [indiscernible] just nod or at least do the email equivalent of nodding and accepting it.

So this -- I mentioned [indiscernible] Rogers. I've only been with the company for about 5 months. I worked for a smaller sports media company called The Score, which is actually purchased by Rogers this past year. So I actually don't know a ton of a history between Rogers and Brightcove. I believe their relationship has been something like 5 or 6 years. This would be kind of -- this could be considered the core element of it. This is a complex video site with ad integration, and all the analytics you can imagine and DRM protection on the studio shows, and that's a big deal and a big complicating factor for us. So it's been -- we've had a very good run with this. We're looking to upgrade and improve this product. And an email came down to Brightcove from Toronto just in the last day or 2 from some of my colleagues, and we're looking to do essentially a user interface refresh of this experience online, and it's something that we will, I think -- at the end of the day, we'll build it using Brightcove components and some Brightcove insight, possibly some professional services that's yet to be decided. We will likely take the lead on the user interface design itself, but we -- we're the kind of the customer that would put in a phone call and sort of ask to have some meetings and some sessions to help strategize. I believe this experience has been around as it is more or less for something like 3 years. So from our perspective, it's a little bit long in the tooth, doesn't take advantage of all the latest and greatest sort of conventions in presenting long-form video content, but it's good and it's really -- it's good. It could be great. And it's a really important part of our business.

So in general, we need a partner. We look for partner that's going to not only deliver the bread and butter sort of components that we need to run our business and deliver our content, monetize it, but we're looking for someone that's a step or 2 steps ahead. As many of you know, Canada will tend to be a little bit slower to adopt new technologies and new business practices than the U.S. So that's bad on the one hand. On the other hand, if we're taking advantage of expertise and insight that's being derived from this side of the border, that's a great place for us to be. So we can beat our Canadian competitors if we're working closely with someone that's really working with the best of U.S. and the international media companies. And so [indiscernible] Brightcove does well in Canada, and quite a number of our small- and mid-sized competitors are Brightcove customers as well. So we won't -- [indiscernible] going to squash them with the help of Brightcove, but there's one big guy that's kind of a peer of ours in terms of their lines of business. They're not Brightcove customers. So for Brightcove's sake, I guess, I hope that they get signed on. But for our sake, I'd like to retain a little bit of competitive advantage there. Don't make too much of that. I hadn't really thought through that comment the whole time.

So just a couple of other things. For us, device proliferation is a huge, huge headache and -- I mean, it's wonderful. There's been a lot of talk in the sessions yesterday and today about this. It creates opportunities for more audiences, watching more content. We love all of that. But as a guy that's kind of in [indiscernible] of developers, integrators, testers, ad sales people, analytics people, the device proliferation story is a nasty one for us and is particularly so with the combination of -- really the DRM element, the content protection element creates some complexity that -- it's just kind of nasty. So we need to be working with people that really know their way around this space. So I find the combination of a complex ad-driven business with DRM and sophisticated analytics requirements. It's just a -- it's a rather complex matrix, and I kind of come at the world from a product management perspective, and I appreciate the help in managing the set of products that we offer, the platform that we use and the roadmap looking ahead. So that's kind of what brings -- that's essentially why I'm here in Boston for the sessions to better understand what's on the roadmap for Brightcove and ensure that it aligns with where we're headed over the next year or 2.

Just a couple of final things that is of -- top-of-mind challenges facing us for, let's say, 2013 and '14. I think there was a little bit about it a few moments ago. The concept of TV Everywhere and authenticating -- or protecting content and authenticating it using cable subscriptions, very, very top-of-mind for us. So you can imagine, with our broadcast assets, which any broadcaster might -- or which along the lines of what any broadcasters might have is a great interest to us to make that -- make those available online and on mobile platforms, but of course tied back to the cable subscription. And then, given the nature of our business of Rogers -- big Rogers business across these different areas, I think we'll end up having some complex needs, and we'll need to treat Rogers cable as a special case. And I understand that Brightcove is working with a couple of different providers of identity or authentication services. So that will be good for us to be able to make a choice, and it happens to be Akamai or Dolby in this particular space. We haven't had to make a big decision there, but expect there'll be a time to come and we'll be weighing the pros and cons, and it's nice to know that Brightcove is agnostic in that regard.

In general, Smart TV is connected TVs. We've done a little bit in that space, we did in Rogers as a whole. We have one example -- the best example really is an Xbox 360 app that launched last year. I think we'll see a lot more of this. And again, we're big enough to be able to put some dollars behind this and some energy to develop and market and promote, at that same time, we're not going to want to build anything from scratch, so we'll be looking for some guidance and some leadership and we'll have an expectation that the fundamental platform that Brightcove offers is going to support us as we move towards Samsung TVs, LG TVs. We have a meeting with Roku in Toronto 2 weeks from now so that will be an interesting conversation and I pick up at a few things here in the last 24 hours that'll make that conversation even more interesting.

And finally, what I might call multichannel live experiences. So sports is a good example of this. We've got our high-end sports, our premium content. So as you might imagine, owning the Blue Jays baseball team and the family of sports channels, we air all the games, 162 games. Some day, they might even do some post-season action in there, but for now, its the 162. And we've got some hockey and got some football and some basketball, and then you're down through the line as we get into longer-tail sports. We've been experimenting with doing live streams of Davis Cup tennis, some swim competitions. Curling is big in Canada, you may have heard. And we've been playing with some different ways of doing this of I guess capturing the signal, encoding, transcoding and ultimately delivering it. We haven't yet to come up with a really nice player, sort of end-user experience including the ad integration, analytics network integration, but we're kind of moving towards that. So again, I'm not sure if it's the terminology, but our multichannel of expressive combines all those things, we're good at going out in sourcing the content, we can promote it, we can brand it, we can use the big reach that we have on our television channels to get the word out about the swim meet in Vancouver or the curling competition in Québec city. But that's a growth area for us, and I believe personally that it offers as the potential of high-margin video delivery.

So video is great. Some of the video that we provide like stuff on screen here, it's frankly it's very expensive content for us. We don't make a lot of money showing Modern Family episode. It's something we have to do and it supports our elevation -- the television side of the business. But because we're paying rights fees for that. So anyways, we're looking for high-margin video content and a lot of it would be live longer-form and as memory integration will be a key for that. So thank you for your time.

Unknown Executive

Okay, great. Thank you very much. Next up, we have Mike Finnerty who is VP of Web Products at The Weather Company. I'm going to skip through. All right. Cool.

Michael Finnerty

Okay. So I've been with The Weather Company for about 18 months now. I came from Comcast. And one of the biggest things that I was surprised at when I joined The Weather Company is that they hadn't really put their foot down on video. They're a 24-hour -- as you might know, The Weather Channel is really a 24-hour live and kind of original programming television network and has humungous scale, but we haven't actually taken advantage of that scale in the digital side with video. And so I think as was probably 6 months ago at the Boca event where I kind of looked to the team here at Brightcove and I said, we don't want to be a video player company. We don't want to be a video technology company. We want to be the West The Weather Company the partners with the best video player company so that we can actually take advantage of all of that learning and all of that scale and efficiency that you've already heard about and bring that to our customers in a meaningful way. So an important part of what we do is we're actually always -- we're forecasting the future. We're the only media company that really talks about the future every single day, and we have a unique position that way, while every other media company is really talking about the past. And so when we think about our tagline that we rally our product vision and strategy around it that we don't just forecast weather, we forecast life. And we need to make sure that we have an extensible platform that allows us to tell that weather story, not just with data but also with sight, sound and emotion. And so we're putting a lot of investment against that, against that crusade of really video everywhere across all of the platforms because of our scale. I shared this earlier at a presentation yesterday on a strategy track which you can't be really focused around the types of audiences that you have. And for us, it's the weather enthusiasts. Some of this is technology-savvy, have more disposable income. They actually have a conscious understanding of what the weather means to their life in the decisions that they make every single day, and we're powering those decisions that we are inspiring in a lot of ways. We're almost ahead of Google in a lot of ways because users are coming to us to plan. They're coming to us, you see it on our analytics, actually. Every Wednesday and Thursday, our weekend forecast pages start to really tick up because people are planning ahead, and want to be able to deliver them exciting video experiences associated with that. And so, what we have here is a video. It's going to show you where we're going.

[Presentation]

Michael Finnerty

So I really want to take advantage of all of that habit that we have with our users, whether it be in severe, in the hyper local sense, in UGC, in the adventure and activities that they want to do with their week or their months ahead. And it's all turning into a real success for us, so 3 by 100. We have 100 million users that watch our TV networks every single month. We have 100 million users on Web and we have of 100 million app downloads that turn to us every single month. So it's -- we're 3 by 100 and what that really all sums up is that we have this four screen leadership around. And video is really thing that connects the entire experience for us. So we are the #1 four screen leader according to Nielsen, beating out all of these other big brands that no one expect.

The interesting thing for me is one metric. We surveyed our users across our digital properties and 25% of them say that we are literally their very first digital experience every single day, and literally, their last experience every single day. So it's a very uncluttered experience for that user that we can actually present to them meaningful information, meaningful content and specialty video to kind of kick off the day and wrap up the day for them because usually that wrap up is planning for the next they ahead. And so we have the ability to kind of tell the weather story in a meaningful way with our video experience. And what that's turned into, again it's really big results over the last year as we've kind of marched down against this crusade. So since 2012 going to 2013, we're now a top 20 comScore video site experience, both in streams and unique visitors, actually number 16 there in April. We're doing hundreds of millions of streams every single month now, and we're taking it beyond just the PC desktop experience. It's actually -- we actually have more UVs on a monthly basis now than ESPN's digital properties, which is pretty amazing considering what they mean to users inside of that category. But we're not, like I said, we're not just stopping at desktop, where there's bigger and richer experiences. We're actually growing 200% year-on-year on our mobile apps and we're really just starting. It's really sort of couple of months that we've started to push the video across applications and we're bringing in just kind of best of. And soon enough, we'll be actually tailoring those video experiences to the user behavior of a mobile device. One fact that I was talking about earlier was that I think it was August of 2011 just as I was joining The Weather Channel where Brightcove and my team now were partnering on a HTML5 web-based experience to avail all the video that we were producing at the time onto the tablet browser experience. And so we built that hand-in-hand with Brightcove. We launched that. At the time only about 1.5% of our traffic was coming into tablet browsers. Just this past month, almost 15% of our audience is actually coming through tablet browsers and we're right there with them with that video experience.

Like I said on mobile, we actually taking that into rich immersive advertising opportunities as well, where we're bringing these branded canvasses to the back of the app where they're video-enabled. These branded canvasses for the launch of, say, Oz, that we did with Disney back in March on their launch account is a constant accounted for the Disney in March on their launch weekend, all of those canvases change based on the local conditions of So you see the kind of as a darker image versus honey has a lighter image, is all weather-triggered based on a location that you're at. And they confidently they told us that they're one of our top performers in campaigns associated with this because we're actually not only a rich beautiful immersive experience on the app but also bring video to the table.

Like you saw on the video, 14 million video starts for Hurricane Sandy, Superstorm Sandy. We did almost 3 million hours of live streaming during that event. The concurrency of the user base, we had about 200,000 concurrent users watching at any one moment during the peak of that storm. It's about what the network does on an average day. We extended that further into Winter Storm Nemo where we did almost a million streams over the course of 1.5 days here in the Boston, especially as the storm came in. And we think live is going to be a really critical part of our differentiation. We're actually one of the few -- we're actually the largest, most widely distributed television cable network that actually has the rights to stream live without authentication. We have a fiduciary responsibility to keep people safe. And so we have the ability to actually go live at any moment when there's breaking weather to keep people safe and we take advantage of the Brightcove platform. And here's just one fact that we thought was pretty powerful for us is that as we started to continue to invest in video and content, Hurricane Sandy we sold about 30 million unique visitors that came in just for the content and the video experiences associated with Hurricane Sandy. It dropped off, it was storm fatigued. Kind of at the end of the storm, we did actually 500 million page views in one day associated with the storm. We did 50 million video streams in one day associated with the storm. But then it ramped right back up because the storms are essentially marketing vehicles in some way to -- we've been able to expose all of this great content and the experiences were great through the storm, and so people have stayed on with us.

So kind of to wrap it up here. It's a portfolio of video that we're actually really offering. It's not only UGC and short-form clips and hyper local and live streaming. We're actually starting to invest heavily in original web video, and we want to make sure that, that is the most premium expense that we possibly can offer that's multiplatform. And so we're working with Brightcove to make sure that we can deliver the most high definition web-based experience, and then that experience is also going to avail us to push it up onto TV and to connect it to set-top boxes. So a quick teaser here of the new series that we are going to be launching.

[Presentation]

Michael Finnerty

There's 2 more.

[Presentation]

Michael Finnerty

So a big investment going into this. So we've attracted top talent to help build out our editorial strategy of being able to plan a user's day and letting them also explore their world in that natural experience. And we want to make sure that they have the best possible products and tools to be able to take that. So we're building a fully immersive, fully responsive HTML5 optimized experience, full HD across tablet, phone, web. We're going to be extending that into the TV experience as well, whether that be through connected devices that we're working on or also onto the network itself. And so it will be the full experience with all of the episodes associated with each series brought to it, fully sponsored. So we're really excited about that opportunity.

So really to wrap up, the takeaways that I kind of shared away with the teams yesterday on the strategy track, we focus on our differentiation, and we wanted to make sure that the partners that we work with actually understand that differentiation that we have, embrace that, invite us into the inner circle to see where they're innovating so that we can actually partner with them to bring those compelling experiences to bear, knowing our audience, making sure that we're leveraging that strong audience behavior of a daily routine for us. We need to make sure that it's always up, it's always delivering the best quality experience to that user because they're turning to us in times of need with live or everyday decisions that they want to make. We have a balanced portfolio. So we need to have the ability to move across live to short form UGC and high-definition quality. And then eventually, we're going to be taking advantage of some of the new innovations that we've seen even just this week with the TV Everywhere authentication experience which actually start to pull on the episodes that were -- the long-form content that we're producing for TV and bringing that onto our digital experiences. We're matching the product to the content. Like I said, we're putting a lot of investment into this content. We want to make sure that the product experiences is there, and Brightcove has been right with us. And we're partnering with the best-in-breed partners across all forms of digital media, and Brightcove has been helping us with that, actually, as well. So just last week, we were working hand-in-hand with the Brightcove teams to develop the capability to push video content out to the Twitter cards, a new app product that Twitter has recently pushed out. We partnered with them on and we're able to deliver video experiences for some of our biggest partners, most notably, Home Depot, where we were driving weather-triggered local recommendations for Project of the Week to their audiences via the Twitter card platform, and Brightcove was allowing us to stream that video right to those Home Depot fans. So I think that's everything I got. And I think your thoughts and questions?

Question-and-Answer Session

Unknown Analyst

I have one question. You put out the breaking numbers, were there any live streaming.

Michael Finnerty

Yes.

Unknown Analyst

Curious your thoughts on the incorporation of Zencoder here at Brightcove. Are you guys using that? Is that something you would look at using? And the announcement of the Livestream.

Michael Finnerty

We're not using it right now, but I have actually video ops team members here. And that's pretty much the only reason that they're here. They're working in the Brightcove working sessions to understand more about it. We've had a lot of conversations, we're enticed because there's -- because of all of the different variable bit rates and all the different platforms that we're working under. I'm having a unified solution in something that's really desirable for us. And so that we're doing the due diligence right now to make sure that's the right fit, but teams are pretty confident.

Unknown Attendee

So as a follow-up to that question. What solution were you using and why do you this one is potentially better than what you are were during Sandy.

Unknown Executive

So we have a variety of solutions. We're using some internal solutions like elemental hardware. We're also using another video encoding solution for some of our mobile experiences. And it just doesn't scale as efficiently, it's not a unified ad solution across our apps and web properties. And so we want to make it simpler operationally for our teams.

Unknown Executive

Thank you.

Michael Finnerty

Thank you.

Unknown Executive

Okay. Next up, we have Albert Lai to take us through our product demand.

Albert Lai

Well, I'll be providing you an overview of Brightcove's cloud content services. Let's start with Video Cloud. So Video Cloud provides our publishers with an end-to-end solution for managing, monetizing, measuring and publishing your digital content. Publishers can upload content into Video Cloud, can be as easy as uploading a single file through the web browser or as sophisticated as integrating with an automated workflow system like a digital app management system. Publishers can configure their analytics. They can manage their content programming rules, and they can stylize video players to create a unique and branded video experience for their end-users. Publishers can also determine how and when content is published, distributed and syndicated to websites, third parties and devices. Publishers also have access to our Video Cloud analytics, which gives them a real-time insight into video performance and video engagement. So let's walk through Video Cloud.

I'll go through a couple of steps that many of our publishers go through, and I will go ahead and update -- excuse me, upload a HD piece of video. And now, this piece of content from this laptop is now uploaded into Video Cloud. Video Cloud is going to take that high-definition mezzanine file, it's going to start transcoding it into various renditions of different bit rates and formats for playback on cross-platform iOS, Android desktop devices. So as this is uploading, let's take a look at one of the videos that I had uploaded earlier. So this is a 10-minute video that was uploaded HD content, and we'll view this within a video player that was originally created within Video Cloud.

[Presentation]

Albert Lai

So again, beautiful HD content adopted bit rate streaming on the desktop. Now, one of the great things is, let's take a look at that on our iPad. Same video in a few clicks it was uploaded into Brightcove, we transcoded it, and that publisher was then able to have it available for playback again both on your desktop, as well as an iPad.

Switch back. So what we walked you so far is the ingest of content and the playback of content. So let's actually just turn the tables and look at how publishers can measure the video playback. This is our Video Cloud analytics dashboards, which gives publishers insight into key criteria about their video performance. We can look at real-time analytics. We can look at video views, video impressions, as well as play rate, which gives us essentially conversion. Every time your video was loaded into a player, how many times was it actually viewed? With engagement on the right, we can actually measure how effective was that video play, how much of that video was actually consumed each time it played. So let's kind of dig a little bit further. We'll take a look at last month's video performance. And we'll see that we actually have a spike of viewing on April 24. So let's actually zoom in on that specific date. We're going to drill down, and we'll have hourly data for April 24th. And we'll take a look at this top-performing item, bright idea, sizing up Apple TV. And if I we dive down even further, we can determine to referral information what site was actually driving traffic for this video play. And we'll see that Mac Daily News was actually the source of the spike, even more so than social media outlets like Facebook and LinkedIn. And if we take a look at the actual page, this was the article, discussing Apple TV and here is the Brightcove video player that was driving traffic to us. Again, everything that was -- everything that you've seen so far in terms of analytics, all of this was built on open APIs. That means that our publishers can access all of this data, download it, import it into their own data warehousing and do additional processing. Or a publisher could create their own analytics dashboard.

Next is Zencoder. Zencoder is a cost-effective, scalable and fast web service for cloud transcoding. The simple, simple API. So publishers can make a request and throughout the day just on demand ask a Zencoder to transcode a single file, or you can ask a Zencoder to do a batch transcode of thousands of files. We have one customer that needed to transcode millions and millions of content in a 24-hour period and they were able to do that with Zencoder. With one API request, a publisher is able to have full control over the transcoding process. There's 150 different options for configuring the input, the output and the video quality. And we'll run one of these as an example. I just submitted a job into Zencoder that said, broadly specific mezzanine video file, high-quality file, start transcoding it into 9 different renditions for playback. So let's take a look at that within Zencoder. And so what we'll see is automatically, Zencoder has started downloading that file. It's going to take that, and again, start transcoding it into the 9 different bit rates and formats needed for playback on iOS Android devices. And then after it's done, it's going to take all of those files and transfer it to the location that I specified. Now all of this, all this transcoding has been done in a cloud, it's been done in parallel, but this one request is being processed at the same time as hundreds of thousands of others, without expecting speed, quality or efficiency. So that's the power of the cloud.

We recently introduced Live Cloud Transcoding as a service. Now what does that mean? It means that in an event like this where we would want to stream this event to users, we would typically need a very bulky and probably very expensive hardware encoder, $10,000, $20,000. We'd also need staff that were experts in how to manage and operate this type of event, and we'd also need enough bandwidth to take all this different renditions of different bit rates, different formats and make sure that it gets sent out to a CDN like Akamai or Limelight. With the Live Cloud Transcoding service, we've eliminated those limitations and those restrictions. So instead of an expensive hardware encoder, you could use a low-cost piece of hardware like a desktop computer and free software, like Flash media live encoder. Instead of having to transcode on premise, you just need to send one high-quality stream up into the cloud, and we'll handle all the transcoding, all the repackaging and send that to your CDN.

So as an example, Azubu TV, they actually built their own live gaming platform using the Live Cloud Transcoding service. Most recently, Azubu TV livestreamed the North American League of Legends Championship series. So if you're not a gamer, imagine if you could take a camera and put it in Danica Patrick's car at Talladega. Or imagine you could take a camera and mount it on Andrew Luck's helmet during a Colt's game. So let's take a look at Azubu TV.

[Presentation]

Albert Lai

Pretty exciting stuff. Today, we introduced Video Cloud Live module as part of the Video Cloud studio experience. The Live module is built on and uses the Live transcoding service that we saw, and it creates an entire end-to-end workflow for managing Live Events. You can create a Live Event. You can operate that Live Event. And you can take that content and then ingest it into your Video Cloud for on-demand viewing later on.

So let's walk through that process today. I will go ahead, and I'll create an event. Just give it a name. Give it a description. Since this is tied to your Video Cloud account, we have predefined video players. So if you created a stylized one, that will be available for your Live Events.

We've also provided recommendations for transcoding in terms of bit rates, formats. As the publisher, you can choose to reorder, change, modify these as you wish.

We'll go ahead and start streaming. And this is going to provide me some information that I'll plug into my encoder, which is going to be a software encoder on this laptop.

So now, I've started capturing content on this laptop. And what's happening is I'm sending up a high-quality 2-megabit stream into the cloud into the Live module, which is part of, again, using that Live Cloud transcoding service. We're going to be transcoding that in real time to various bit rates, various formats, and that's going to be pushed to a CDN such as Akamai, so that this is available to a worldwide audience.

So we're going to flip back into our Events. We'll see if it's ready for us. This usually takes about a minute or so. As all the processing is being done, it's being sent up into the cloud and it's being -- we have a handshake then with the CDN. We can see that all of this is being queued up. Those I think are 8 different renditions on the left-hand side. So this will just take a moment as we're getting this ready. And once this starts, we'll be able to play this video.

If we look at what's in our library, you'll notice that there are 2 other Live events going on. So this means that if you are running multiple Events, you can manage things in parallel at the same time. So these other ones, Kevin tests in his third term. These are probably being run actually right out on the second or third floor as we speak.

So again, you don't have to just be limited to one Event. This can be any number. And again, it doesn't affect the scale and the efficiency of the end-to-end process.

So we'll check back. Still processing. And that's -- we'll check on our streams [indiscernible]. So that's all right. We'll just keep moving forward instead of waiting for this.

And if we move ahead, let's talk about the next-generation video player. As you saw earlier, we've had tremendous success with our current Smart player. However, we're not yet satisfied that's enough.

So there are a couple of areas of focus for this next-generation video player. Number one, we want to improve the overall performance. We know that improving performance has a direct impact on video views as well as video engagement. We want to make sure that this is optimized for the mobile experience. And third, we want to make sure that the next-generation video player makes it very easy for all our publishers to extend it for their own benefit any time they want.

And so we've chosen Video.js as the foundation for that next generation video player. It was built from the ground up to focus on HTML5. And it's proven. It's available and live on over 65,000 websites, which is almost triple than 12 months ago. And lastly, it's open source, so there's an established community of developers that are constantly improving the capabilities. Just recently, that community created additional capabilities for this player for accessibility. So for screen reader users or keyboard-only users, that capability is now part of Video.js.

So let's take a look at the new player. We'll give you a sneak peak. So this is our next-generation video player. It's an early look at it. And we'll take a look at playback of an HD video within this player.

[Presentation]

Albert Lai

We see that the entire player is in CSS. It's very customizable, very flexible, great video playback quality. The other area of focus, as we mentioned before, was performance. And so we think about what it means to have a fast video player. A lot of that is load time. And so we're always measuring ourselves about how do we improve performance? And it's not just in the eyes of our customers; it's in the eyes of all users and all viewers. And so YouTube actually comes up as a very common comparison. And so we created this little head-to-head demonstration just to show you what it's like to load both our new next-generation player along with YouTube.

And so we'll see that as we go through this, our player is equal to or even faster than YouTube in this specific use case.

Unknown Attendee

Are there any use cases where it's not faster?

Unknown Executive

I mean, as you expand it, I think this is why we're actually measuring it day by day the performance of our player. Because as we start to add in capabilities that wouldn't necessarily be available in YouTube, that's where you could start to add potentially wait [ph] return loosely. So it could be advanced analytics that may be media-focused like comScore, Nielsen, ERM, TDE [ph] indication. A lot of those you probably won't find in YouTube or may never so. But again, that's part of our goal is to ensure that as a publisher increases the capabilities of that player, that it's not going to all of a sudden become something that's detrimental to the performance of that player, whether it's Flash or HTML5.

So as you know, video consumption on mobile devices has been exploding, and a lot of that is coming from mobile apps. So we have focused on improving our new native player SDKs, and ensuring that our publishers can create very rich premium video experiences within their iOS app and within their Android application. That really means 2 things. It means one, ensuring that our publishers can create a branded video experience inside their app. And then under the hood, we'll manage and handle all the issues around buffering and around rendition switching to ensure that the user has the best video experience -- video playback experience possible.

Second part of that is that we facilitate the integration with key third-party technologies, whether it's advertising with DoubleClick or FreeWheel, it's analytics with Omniture, comScore or Nielsen, TV Everywhere or cross-platform DRM for those customers that need to ensure that content playback on these devices is secure and protected.

So as an example, we mentioned earlier TV New Zealand, a national broadcaster of New Zealand. They operate multiple channels. They air their own contents as well as licensing content from the U.S. and the U.K. They have their own -- they've had a web portal for on-demand content for the last 6 years powered by Brightcove. So when they wanted to take that on-demand service and extend it into mobile, to smartphones, to tablets, they chose to utilize the native player SDKs in order to facilitate that expansion of capabilities. And that's it.

Christopher Menard

Good afternoon, everyone. I'm Chris Menard. I think I've met everyone in the room. Or if I haven't met you live, I've talked to you on the phone. So first, thank you for coming at the Analyst Day.

I know we're running behind on time. The good news is I have nothing new from what we announced in earnings 2 weeks ago, so I can go through the slides pretty quickly. I know we've been sitting here for a little over 2 hours. If everyone would get up and stretch, I'm not offended at this point. I just did that.

So let me start today with some of the financial highlights about Brightcove. First, strong revenue performance. You've seen over the last several quarters as we performed and in the guidance of this coming year, really strong revenue performance.

We're a Software-as-a-Service platform, so we should be taking revenue ratably on a daily basis. And what that's going to give and you'll see as we go through the slides, is we have high visibility and predictability in the revenue model, so it actually makes my job a lot easier. It's pretty easy to predict our revenue especially on a short-term basis.

David went to the go-to-market earlier, and we have a fantastic account management team. Remember that one side of the triangle? And they do a great job of keeping our revenue retention rate high, and we'll walk you through some of those steps. We have a global, diverse customer base. And then I'll finally wrap it up with the business model and show you how it's been built to scale over time.

So first, the business model. You can break the revenue or break it up in a bunch of different dimensions. But the way I usually think about this is subscription and support -- that's the recurring ratable license revenue -- and professional services.

So let's start with the little stat, professional services. In any given quarter, professional services makes up roughly 4% or 5% of total revenue. It's typical professional services as you seen in any enterprise software company: integration services, migrations, project management, customizations, those types of things.

It varies a lot quarter-to-quarter. In some quarters, we see $600,000 or $700,000 of professional services. In some quarters, we see $1.5 million give or take. So it's really dependent on the timing of projects we have and the associate revenue recognition with each of those. We think it's a very small piece of what we do, and we really use it to drive more premium license revenue.

So with that, let's talk about the premium license revenue. Biggest piece of our revenues. Again, it's recurring. It's ratable and makes up approximately 85%, 86% of total revenue. And this is comprised of the enterprise and professional customers or editions of Video Cloud, Zencoder customers on annual contracts and there's still just a little bit of App Cloud running through the P&L, but for the most part that's immaterial.

These are typically 1-year contracts, and the payment terms vary. Most of our customers are annual in advance at this point. I'm happy to say at this point 51% of our premium customers are annual in advance payment terms. So it's something we've been working really hard to get to, and we've just crossed over that 50% portion. But we still have some people on annuals -- or in also quarterly payment terms.

In terms of the volume business, this is the Video Cloud Express business. So again, $99 of the $4.99 monthly subscriptions. Credit card-based transactions for the most part, though about 15% of all Express are still on annual in advance contracts, which is great. We also have the Zencoder monthly and pay-as-you-go contracts within the volume business.

Now remember as David mentioned earlier, volume is a small piece of the business at 10%. It is a great farm system per se into the premium business. Last year, 106 V Express customers came into Video Cloud Premium through this portion. And what we see is that in volume, the average customer who upgrades out will do so in the first couple of quarters. So it's not a paid trial, but you can kind of think of it as a paid trial. And we go back at those customers with almost no competition. They're already existing accounts.

Just the last bit on the premium side. The average premium customer generates just over $50,000 per year in license revenue, to give you a feel for the size and scope per customer.

Revenue growth, as I said earlier, we've had pretty strong revenue growth. We did $88 million in revenue last year. The high end of our guidance right now is $106 million for this year, so about 20% year-over-year growth. And when you look at it by quarters, it's a great chart. It's up into the right. That's what we all want to see. Last quarter, we posted $24.7 million in revenue. It's 24% year-over-year growth. And you take a look at the services. It's a pretty small percentage of our total revenues.

So revenue drivers and what do we have? We have a couple different components. The first is just new customers, customer growth. You can see we ended the quarter with 6,321 customers. Now it's down just a little bit from 12/31/2012. So let's talk about that first. You can see the drop was in the volume customers. So during the first quarter, we discontinued the $5-per video campaign within the volume business.

So why did we do that? We saw 2 things. We saw that it was really expensive to go after those last handful of customers, and they're only paying us about $60 per year, right? And so we weren't getting the return on the investment to go after those customers. And then once we have them, they were churning out at a really, really high pace. So we were getting to the point that for every customer we brought in, we were losing one from a quarter or 2 back. And so we discontinued that program, and that's what caused the drop in the volume customers.

So one of the things I talked about in the conference call a couple weeks ago is coming into the quarter, there's still about 600 of those customers left, and we don't have enough history to know how they're going to churn out. But I think to the volume business, we could see little bit of that bleeding off over the next couple of quarter. So it's something we're going to be aware and we're going to communicate back out to you as it happens.

But more importantly, at the premium customers, we ended the quarter with 1,690. That's up 65 from the previous quarter. It's up 19% from the same period last year. And this is the bulk of our business. Between the services and the license for premium, this makes up 90% of what we do. And again, this is the annual contract value just for license of about $50,000 per year.

And what we measure internally as we look at license revenue per premium customer, and we watch it year-over-year, the average. And in any given quarter over the last year or so, it's up between 2% and 4% if you go back to the same period last year. So we've seen good growth in revenue for license -- for licenses in the premium customers. Some of that is customers get bigger. We do a good job of selling back in the base. And remember, it's a wide range for these premium license customers. The guys would kind of start in Express and they come out. Those could be $10,000-a-year customers. But we have some really big customers that are about $1 million per year. So a big wide swing.

One of the other revenue drivers and it's more a velocity measure, it's more directional, is the monthly video views or streams. So in Q1, we averaged 863 million video streams or views per month. That's up 24% compared to the same period last year. Again, it's a velocity measure, but it's not one that you want to only pay attention to. And there's a few reasons for that. The first is if you think about a typical contract, they're all about 12 months, and I'll give you some stats. I think right now, 17% of our contracts in premium rent are greater than 12 months, and 10% are just over 2 years. So we're doing a better job selling long-term deals, but for the most part with 1-year contracts.

Say, in that first year of contracts you go into entitlements and someone uses 75% of their video views in the first quarter. We still take that revenue ratably over the full 12 months. So it's not a direct correlation in any short-term period the video views and the revenue that we take. We're not taking revenue as they view per se.

The other thing with the video views, while it's not a perfect measure of revenues, is that not all streams are created equal. A dentist down the street is paying much more for video stream than Viacom is, and that's simply because of the scale, right? And so again, it's a velocity measure. It's one that we put up there so people get a feel for the scalability of our service and how often it's being used. But again, not a direct correlation of revenue in any single period or window of time.

We have a very diversified revenue portfolio. One of the benefits of going last is I think most of my metrics have already been said over the last 2 hours. 62% of our revenues come from North America, which means about 38% are outside of North America. About 70% of our revenues are actually in U.S. dollars. It's not a 1:1 tie-off to the revenues in North America. We're having great growth in all regions. If you look at Japan and APAC, and I tend to combine those, that combined region grew 57% in the first quarter compared to prior year. Europe grew 22%, and North America grew about 18%.

Also when you think about the diversification, we're in a lot of different industries. Media is our single largest segment. It makes up 37% of revenues. If I went back 4 or 5 years, it was 85% or 90% of revenues. And so we've done a really good job of diversifying into other areas -- consumer retail, technology, financial services, et cetera. And the other thing you can't see on this slide but in terms of diversification, our top 10 customers make up 10.5% of our revenues. And our top 20 customers as of the end of last quarter make up about 17%. So diversified by region, by category and then not really any one big customer we're relying on, which is great.

So one thing as I said in my earlier slide is it [ph] this visibility, which leads to predictability, and that comes in these 2 different categories. First, we ended the year with $53 million from backlog. I took that backlog and I spread it out until I exhausted it. It'd go all the way into 2016 and that's because we're doing a better job selling these long-term contracts. In 2013, we expect about $48 million of that backlog to be recognized during the calendar year. That's part one of the visibility.

But the second part of the visibility is the work that those account managers do. We do a really good job of selling back into the base, retaining and renewing. And you can see historically, we can retain revenue at about 93%. In fact in Q1, we were much higher than that. We came in at 97%. So when I forecast, I get to take the backlog that I'm expecting, I go back and look at all of the renewal and kind of assign a probability, but knowing that low 90s is a pretty safe call based on history. And that means coming into the calendar year when I look at both of those factors, I can see about 70% of the revenue that we guide in the first quarter. And going into a quarter -- for the full year -- and going into any given quarter, I can see just over 90%. So really good visibility, which leads to the predictability that we have.

Moving over to the balance sheet. We have a really strong balance sheet. We ended the last quarter with $28.6 million in cash, Deferred revenue was $22.2 million. This has gone up over 50% compared to the same period last year. It's up 15% since end of year. And again, this is kudos to our sales guys, who are going off and getting more and more of our customers on annual in advance contracts. If you went back a couple years ago, it was a very small percent of what we do. And now it's the majority of customers in the premium business cycle. That's one of the reasons why we generated cash in the fourth quarter of last year, and it's one of the reasons we're guiding to positive free cash flow for this year. This is the first turn on this path to profitability of the cash generation. And you can see we still have no debt.

I'll end off with our long-term target model. You can see we're targeting a non-GAAP operating income of 20%. And the first thing we're focused on is gross margins. So we think we can get the gross margins up into the high 70s, and there's a couple things we're focused on. First, within subscription and support, we run those margins anywhere between 72% and 74% in any given period. There's economies of scale to be had there. We're looking at different technologies with AWS. We're looking at ways to optimize our own data centers. We currently run 3 data centers for our own production operations. We talked a little bit about professional services. And while it's a very small percentage of what we do today, it takes away 600 basis points of gross margin in any given quarter. And no, it's never going to be as profitable as license is. It's just the nature of what it is. We do think we can get it to breakeven in the fourth quarter and then profitable next year, and that will alone will give us a couple of points of gross margin bump as we go into next year.

The other area we march [ph] towards 20% is the operating expenses. So if you take a look, I think we can get down to about 58%. But we're not going to cut in sales and marketing. It goes down a very small percentage from where we are today. So the areas where I think we have room to achieve and improve, first is research and development. This doesn't mean we're going to cut our spending in R&D. I think what you've learned this morning and over the last couple of hours is what we do is really hard and really complex. It's going to get bigger in absolute dollars as we go on. But as a percentage of revenue, we're going to bring it down over time, and we've already started to do that over the last few years. We think we can get that down to about 13% over time.

The second area is general and administrative, where we think over time, we can get down to 11%. Now we actually upticked a little bit in the past quarter. Remember, this is our first full year with public company calls, and it's also our first year of Sarbanes-Oxley compliance. And we didn't have to do a lot of work last year, so there's some incremental G&A costs going through the P&L this year as we go after that. And so I think over time we can easily get that down to about 11%, and that will give us that non-GAAP op income of about 20%.

So one of the things we've talked about a lot recently is the goal is to get to non-GAAP operating income in the fourth quarter of this year. And then as long as we continue to see strong revenue growth, we're not going to go from breakeven all the way up to this 20% overnight. We're going to grow that by about 200 to 400 basis points per year, so a nice slow and steady ramp-up over time, especially if we can see the revenue growth. We want to go after net new logos and continue to invest in sales and marketing to retain, keep that revenue retention rate high and also up-sell into the base and build new product.

The guidance, you can see and this isn't new from what we've done in the earnings call: for the quarter, it's $25.7 million to $26.2 million; in the full year, $104 million to $106 million. You can see the profitability numbers, both the EPS for Q2, between $0.06 and $0.07; and for the full year, between $0.15 and $0.22. On the last earnings call, we did raise the guidance for the full year for the revenue and the profitability.

Thank you. We'll take questions at this point.

Unknown Attendee

A question, please. What's the annual revenue net level between the [indiscernible] business as you get to that 20% non-GAAP operating margin?

Christopher Menard

Sure. The question was at what revenue level do we need to get to that 20%? I've actually stayed away from that for a long time. I'm going to stay away from that here, too. But if you consider that I think that we're going to be breakeven in the fourth quarter and then 200 to 400 basis points of improvement every year thereafter, we're looking in the neighborhood of 5 to 6 years at that pace to get to the 20%.

Unknown Attendee

Okay. The second question is on [indiscernible] for existing customers, can you just better explain how you hope to grow revenues with them as they move more -- as they publish and distribute more of their content online? I mean, we all understand how Coca-Cola makes money selling packaged goods and syrup. I'm still very unclear on how you grow revenue on a specific customer base year after year?

David R. Mendels

Sure. No problem. So the question is how do we grow revenue on a specific customer base year after year? There's only 3 ways. One is with the secular growth in consumption of online video and more consumers consuming more and more content online, they're going to use more of our services. They're going to stream more videos. That's one of the key meters we use. They're going to transcode more videos. It's one of the key meters we use to set pricing. So that drives growth. Second is new products. So for example today here at the show, we announced our new Live Cloud Transcoding product. Last year, we announced an add-on to give people the capability to add digital rights management to their thing -- to their service. And so as we add new products, they can spend more money with us, add new capabilities all in the use cases. And then the third is within any given customer, we're usually not exploiting every opportunity yet. So I'll give you one example we've talked about before in the earnings call. We first started to do business with NBC Universal sometime 1 year, 1.5 years ago. And the first customer that we signed I think was NBC Universal Sports. That was a great customers win. Maybe a quarter later, we got Access Hollywood. A quarter or 2 later, we got Telemundo. And so for larger organizations, there's often many, many opportunities within the organization, and we're still at the early stages of exploiting that. And so there's multiple ways we can go with our existing customers.

Christopher Menard

And just some data that show the analytics behind that. The average first-time license sale is somewhere between $20,000 to $25,000 on average. But the average license per revenue -- license revenue for a premium customer is over $50,000. Now we got a big skew in premium customers, and it tends sometimes at a million. because the average first sale is at 25. They grow over time. Mike?

Unknown Analyst

Again, from the outside, I'm hearing the number of streams and transcodes for, on average, are going up 3% or greater for companies across the web. And your revenue for these premium customers are going up 2% to 4% year-over-year. So I just see a disconnect, and I'm just trying to understand why the revenue you're earning doesn't seem to be moving up with the intensity with which your customers are publishing on the web?

David R. Mendels

Sure. You have to keep in mind, there's really a lot of diversity in the customer base. So the broad trends is very clearly up into the right. There's a lot more content being consumed online. But there is other examples that where people go to the other direction. So we'll sign up a new customer sometime that has big ambitions. And they say, "All right, we're going to sign up for a committed contract of 100 million streams." And we recognize that revenue over the course of the year. But the year ends and they only did 70 million streams. So that customer will come back and say, "We're going to renew, but now we're going to renew at a 70 million stream level." And so they might go up on the rate card on a unit-cost basis, but it might be a lower contract value. So we're balancing out the fact that some customers shrink. The other thing to keep in mind is that in this space, there's naturally a lot of startups. There's a lot of companies that are trying to create new media businesses, new content businesses, and some of them are incredibly successful and some of them are not. And so we mentioned on our earnings call, not this last one, the one before, a reasonably good-sized Asian customer that had a good first year with us. They were doing new media content. They were a startup. In their second year, they didn't get funding and they went out of business. And so you have to balance that out so that sort of helps balance out where the number is. But the overall trend for the customers is up into the right in terms of growth. And as they go up, though, the unit price does come down. There's a rate card where the higher the volume, the lower the unit price. So it doesn't go in a purely linear fashion.

Unknown Attendee

Yes. I was curious what impact, if any, overage has had in the first quarter and how you factor that into your forecasting over the course of the year.

Christopher Menard

Yes. So we grew a little bit. We grew a lot last year on the overage number. It spiked up a lot. In any given quarter last year, it was between $1.4 million and $1.6 million. It was at the low end of that range for Q1.

Unknown Attendee

And how do you factor it...

Christopher Menard

The follow-up question is how do we build it into the guidance as we look forward? I'd go back to the historical trends. So it's somewhere at the low end of that range.

Unknown Attendee

This morning in the keynote, you were speaking about marginality of your product and how that will help you get deeper penetration into -- or at least foot in the door at certain media clients and they can pick and choose a la carte. Can we expect maybe your number of premium customers to start going up but your average revenue per customer to start going down if that strategy does work out?

David R. Mendels

I think that, that's probably a premature conclusion. So I think we'll have to, as the strategy plays out, we'll see what that impact is. But I wouldn't necessarily conclude that at all. I think some of the new customers coming, even buying our a la carte services, the Zencoder services, the Zencoder license transcoding service, will be significant, large customers. And so until we have some quarters of traction with some people buying these new products, it's hard to estimate exactly what [indiscernible]

Christopher Menard

And a lot of those new products are incremental skews, so it's an attempt to get more revenue from the same customer so [indiscernible] growth. Tom?

Unknown Attendee

What's your commitment to the volume business of the Video Cloud Express? It's about 10% of your business. It seems like it's a hard place to sort of compete price-wise against, say Vimeo and YouTube. How much do you want to continue probably in terms of resources at that business versus premium?

David R. Mendels

Good question. So I think Chris mentioned we did pull back a little bit on that business in the last quarter or 2. We eliminated a promotion we had, where we're selling on a $5 per video basis. So that will slow the growth of that business. We're not trying to invest at the margins to capture every last customer. If you look very carefully at the customer acquisition costs, at a certain point we realized it's not efficient to go after that last customer and it's more efficient to put those dollars back into the premium business. So we did that. And certainly, we talked about in the last 2 earnings calls, we took at the margins not a huge amount of money but a decent amount of our marketing spend, and we moved it from that volume business back into the premium business. So we continue to see it as a healthy base of business into which we can grow customers. So there's 2 kinds of customers, roughly speaking, that buy in as the volume business. There's true small medium business that need a product that provides what we do, and $99 a month is a good fit for them, and that's all they'll ever were do. But there's also customers that come in, and they're actually a large customer that has the potential to be a premium customer. But they're starting with maybe a micro site or a campaign or a project, where they just want to do an evaluation for a longer period of time. And so we do get some customers that come in and then we're able to fairly quickly upgrade them from Express and into premium, and that's been a good source business. Last year, actually 160 new premium customers came from Express. So that's the primary focus of our volume business today is keep a good strong foundation there, continue to have a way that customers can come in and grow over time.

Christopher Menard

I think to give you some of the examples of those customers, last quarter we talked about the Guggenheim Museum, the San Francisco Opera. A couple quarters ago it was Ancestry.com. So big companies do belong in premium but started off in the volume side.

David R. Mendels

Frank?

Unknown Attendee

COuld you help us just understand the revenue opportunity for the Live product? At one end of the spectrum, you see 1,600 premium subs, couple of thousand bucks per customer there. That's only like a $3 million to $5 million opportunity. You see The Weather Channel with 3 million live streams, and your eyes start going crazy. So can you help calibrate us between those 2?

David R. Mendels

Sure. It's somewhere in the middle.

Unknown Attendee

Yes, I figured that.

David R. Mendels

No, I mean, we think there's a tremendous opportunity. We're not breaking out specific guidance by product line because it's premature. We have a lot to learn still ourselves. But we look the volume of what people are doing. We look at the number of people that are just starting to try and figure out how do we do these kinds of Live Events. There's a whole class of people who have been wanting to do this kind of thing, but the technology hasn't been there for them to do it either from a skill set perspective or an economics perspective. And so we're going to open up the market for a lot of people. So we think there's a significant opportunity. We do think it will scale. Again, our core business -- our premium business starts at $10,000 and gets up to over $1 million. So when you average that, when you average that, it's a little bit misleading because it's such a broad scale. I think it will be for Live as well, and it will take us a few quarters before we have any consistent averages. But we think there's a material opportunity there. We're investing heavily in it. It's one of the top things our customers are asking for. But it's also a way we're going to get new customers. We have customers who come for us for Live. And then the fact that they can do VOD so easily, might drive them into VOD as well. So it's going to work in both directions.

Christopher Menard

Remember, the packages as you saw this morning were for 20 hours of content. Some customers may do way more than 20, some may only do 20. So it's going to be all over the place.

Unknown Attendee

I think we're here first in the morning.

David R. Mendels

Okay. We have 1, 2, and 3 here.

Unknown Analyst

How committed are you to expanding margins to the 4% per annum on a consistent basis? Is there a possibility you might say there's a huge market opportunity in there to try to put the foot down and take margins right on?

Christopher Menard

I think we're very committed. The question was how committed are we in increasing the margins on this the pathway to profitability. Healthy debate internally, to be fair. But I think $100 million companies, we feel like we should able to make a small profit. We're not talking about huge profits in the next couple of years. We don't want to continue the loss because we don't have unlimited cash. We're sitting on $28 million in cash at the end of the year. But we're also investing responsibly. I think if we found something that we can invest and that was going to double the revenues next year but it made [ph] a couple of months or quarters of losses, we will probably go after that. But we'll come back and tell everyone who follows us what the strategy was, what the guidance would be for next year. We've been pretty transparent over the last 5 quarters of being public. I don't plan on changing that. But right now, we can see pretty strong growth ahead of us with plan we have in place.

Unknown Attendee

How should we appeal of the live streaming product to non-media customers?

David R. Mendels

Oh, I think -- so the question is -- I think they heard the question. You have mic there. It's huge. It's very applicable to a wide range of events. And so I'll give you some examples. I think we saw Hugo Boss doing a live streaming event from China in Jeff's presentation. That's the kind of thing where you've got to buy hardware, multiple boxes, venue for very professional events. So they're going to buy hardware encoders. They're going to have 2 of them for redundancy. They're $30,000 to $50,000 each. And then they're not going to use them for the rest of the year. And so that's a perfect fit for a cloud-based service like ours. We work with companies like AMC that do a wide range of corporate events. We work with Intel that does developer conferences. So there's a huge number of corporate events where people want to do live streaming. It's a great way to engage an audience. Promo [ph] was another example. You saw the video, where they were doing live streaming from their branded yard in London during the Olympics. So fantastic opportunity. So I think that the opportunity is potentially as large or larger with non-media companies as it is with media companies. And that's been true for the company as a whole. Over 60% of our revenues does come from non-media companies. I think live will -- could well narrow [ph] that. John?

Unknown Attendee

Can you just go through the revenue model, the business model, a little bit more for us? So an average customer is a $20,000 to $25,000 license?

David R. Mendels

That's the first-time premium sale.

Unknown Attendee

First-time premium sale.

David R. Mendels

At this point right now, we're averaging $50,000 of license revenue per premium customer per year.

Unknown Attendee

So what do they get for that in terms of -- is it defined by an absolute number of streams and not amount of storage so much?

Christopher Menard

Yes.

Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division

Transcoding?

David R. Mendels

So I'll start with just Video Cloud. That's our main product and where most of the revenue comes from. And they get -- the primary way the pricing works, and there's a few extra modules and stuff. But I'll focus on where the 90% of the impact is. There's a license fee that gives them access to the software. And there's a pro version and an enterprise version, so they get the more features, they get a multi-account system as they go to enterprise. So that's the baseline. And they buy capacity packs, essentially. So the capacity packs are primarily metered by streams, and by that, it's the number of views that their viewers watch, and that will drive it. So they might sign up for 10 million, they might sign up for 100 million, might sign up for 1 billion. And there's the rate card, where the cost per 1,000 streams goes down as you sign up for bigger and bigger packages. There's some other variables as well. You can by an add-on package for DRM. If you're doing very large amounts of content, there is some add-on packages for extra storage and extra transcoding as well. That's the primary way it works. And the biggest single variable would be how many streams are being watched? Does that answer the question?

Unknown Attendee

But it should grow as stream views grow -- as streams grow.

David R. Mendels

Yes, but it just won't grow on a neat -- one-for-one basis. Because as Chris pointed out, not all streams are created equal. If you're buying 1 billion streams a year, you're paying this amount. If you're buying 1,000 streams a year, you're paying this amount per stream. And so it could be a little bit hard to measure if you just look at streams.

Christopher Menard

And remember, it's the timing.

David R. Mendels

Just timing, too.

Unknown Attendee

Timing, there's a fixed amount?

Christopher Menard

Correct.

David R. Mendels

Yes.

Unknown Analyst

Just a 3-part question. If you look at long term, how many million-dollar customers per year are out there potentially? And today, not there are today, what of that -- if the number is 100, I don't know what it is, how many of those are actually Brightcove customers today? And for the ones that aren't, what are they doing? Where are they?

David R. Mendels

Good question. So when I look out, I think there is many, many million-dollar customers. We are very, very early. We have some. We don't have hundreds by any means. But I think if you think about what are they doing today, in some cases, our main competitor is what we call DIY. They build their own systems. Especially at the top of the pyramid, some of the biggest media companies in the world invested a lot of money and people and technology over the last 10 years to build their own systems. And what we've seen, especially over the last 24 months, and it's the reason we built a vertical media solutions team is more and more of them are saying, "Oh my god, what are we doing? We never intended to become a software company. We're a content company. And this is getting more complicated, not less complicated." So for those companies, more and more of them are saying, "Hey, wait a minute. I don't want to build this myself. Maybe we can partner with a company like Brightcove to take advantage of it." The second thing is more of a dynamic question, which is there's a whole lot of money being spent around our space that is very, very significant. Every customer we go into, in addition to spending money on us, it's currently spending money on hardware, on staff. They're building integrations. They're building customizations. They're doing ad technologies. They're doing additional analytic technologies, what we do. But they also buy Omniture. There's this huge amount of money being spent around us as well. And so as we add new things, take the new Live module that we've just added or take some of the additional transcoding options that we added last year when we bought Zencoder, we're able to capture more of that footprint of dollars, become more indispensable to the customer. So this is just the beginning, in our opinion, of expanding our product line to really offer a portfolio of services around media processing and delivery. And so while I can't tell you everything we'll do over the next 3, 4, 5 years, I can see a world where we can continue to build out our portfolio, capture more of the footprint of the spending in a lot of these customers. And you'll start to see more and more million-dollars-plus customers, more and more $500,000-plus customer and so on.

Christopher Menard

And just remember our top 10 customers are just about 10.5% of our revenues today. Our top customers are roughly 2%.

Unknown Attendee

So considering -- I mean, the highlight that Jeremy gave on overall industry growth, can you update your numbers about the potential size of the industry and how that has changed since your IPO roadshow? I guess that's the last time that you spoke about it.

Christopher Menard

Yes, we haven't made any changes to the estimate. We think the total TAM is a couple billion dollars per year.

Unknown Attendee

And if I'm correct in thinking, is the industry kind of an inverted triangle, where the smaller customers really are contributing a small percentage of total revenues, and the large customers on top are the majority of the revenues of the industry?

David R. Mendels

It's a good question. I think we'll see how it all plays out. If you look at the model, and our best one, we did segment by the top 25, the top 100, the top 500 and so on, all the way down to the bottom 100 million websites in the world. And we do think there's opportunity across that. Our focus hasn't shifted, but it has focused and we have tightened our focus a little bit over the last 1.5 years to focus more on the top half of that pyramid. And so right now, we're seeing the most satisfying growth and the most opportunity there. So in that sense, what you're saying is -- you're actually correct.

Unknown Attendee

Can you give us a quick update on the sales hiring? I know on the earnings call, you spoke about how media is basically in every -- do you think you'll become -- go deeper into this verticalization strategy Or just media is the only vertical that you will kind of...

David R. Mendels

I think over time, that's a very logical path to consider. But it's not something we're going to do right now. So we have a great sales organization. I walked through the pyramid. We have the 3 tiers. And so we have a media-focused group. And the other group really sells to everyone else. But within that, it's largely around the digital marketing use case, very broadly understood. So mission-based organizations, [indiscernible] based organizations. We've categorized together with that. And those sales representatives tend to have a geographic territory and they're responsible for all the organizations within that territory. You can see over time an opportunity to further verticalize. We're not -- we don't have that in our road map for this year. But if I pick out, I don't want to say when we'll do it -- but over the next several years as we achieve scale, there's definitely an opportunity to do that and build specialization, whether that's with government or with health [ph] space or with education or with large enterprises, corporate enterprises. So it's definitely something for the long term. But I think we need to achieve a little more scale before we decide to create a digital vertical team.

Unknown Attendee

Chris, you talked about more than about 50% of your customers are premium customers, I think now in annual in advance terms. What types of new [indiscernible] or incentives are having to provide some of those customers, if any, to sort of move from quarterly or monthly, or whatever they are, to annual?

Christopher Menard

I know there's been a movement, but most of it is just -- it's the new customers. We now lead with -- it's annual. This is what we do. And because that's common in SaaS, we get some pushback in case we don't get a ton of pushback. So a lot of the movement has been the new customers over the last 2.5 years.

Unknown Attendee

And what about on the -- are you pushing the existing customers as well toward...

Christopher Menard

We're pushing. Those are harder conversations. We're not willing to give up revenue dollars to get annual in advance s. So if you've been good customers for 4 or 5 years and you've been paying us monthly or quarterly, you're still monthly or quarterly. Yes, sorry. Andrew?

Unknown Attendee

You said your TAM is about $2 billion today, which would imply you're roughly 5% penetrated today. But it seems like your growth rates have been slowing down over the last couple of years. Are you happy with the growth rates you're at currently? Can you just talk to that whether what sort of -- whether the growth rates of the past are still achievable in your vision or -- and what's cost the stumble here?

Christopher Menard

Okay. Let me do it.

David R. Mendels

You can take the first one.

Christopher Menard

So first, the top of guidance is 20% this year. We're not disappointed with 20%. Obviously, we want to be more than 20%. We had a couple headwinds this year. We had a lot of incremental overage revenue the last year. We saw this big step-up in overage revenue in Q1 that we rode all of last year. So if I go back and I look back at 2011, the average overage revenue was between $600,000 and $800,000 per quarter. Last year, it went up to $1.4 million, $1.6 million. And we rode that consistently throughout the year. And this year, I'm saying I'm forecasting on the low side, about $1.4 million. I won't get burned by overages. But that contributed about 3 points to growth last year. And it's also the volume business. The volume business, as we talked about, we're not going to invest as much in the margin, which means it's going to be a little bit flatter. That was about 3 incremental points of growth for last year, too. But we put our guidance that think we can see. Our methodology hasn't changed. From a guidance perspective, we look at what's in backlog. We look at professional services there's on the book to deliver for the quarter. We forecast the overages at historical rates, not the $600k but the recent historical rates. And we forecast renewals at the averages which is the low 90s, not 97s. And when we overage view, it's because we view one of those metrics.

David R. Mendels

I'll just add not talking about this year in the guidance, but when we think about the long term, as Jeremy has said often, we think we're still early. A lot of that money that we think is in TAM isn't being spent on any vendor today. We are the market leader. If you look at Frost & Sullivan, they pegged us a clear market share leader, probably twice as big as our next largest competitor. And most of the competitors are tiny, little fragmented companies, where people are just building their own kinds of stuff. So we do think we're early. We think there's a long-term opportunity for significant growth. We think we can continue to grow through continued product line expansion and owning more of share of wallet in our customers by solving more problems for our customers. We continue to grow with that secular growth of consumption of content across all these devices as our customers grow. We continue to grow at geographic expansion, at sales force expansion. As Chris mentioned, we've seen incredibly strong growth in Asia Pacific. So we see a lot of different factors that can cause us to continue to grow very strongly over the next many years. So we remain very excited and bullish. We're not -- there's no disappointment and there's no concern.

Christopher Menard

I mean, if you compare back 25 years ago, people used to think they could build their own email systems. Sooner or later, people converted to an off-the-shelf software. We think we're still going to get to that.

Unknown Attendee

In terms of delivering your longer-term strategy, are there any key pieces of the puzzle that you're missing at the moment that you need to include?

David R. Mendels

I think there are always things that you need to add, but there's no one piece that we need to add. We're very excited about what we've been able to add over the last year or 2. So adding Zencoder gave us best-in-class cloud transcoding. And then out of that investment, in talent and R&D, we now have a new Live transcoding service. And out of that, we've been able to build the new Video Cloud Live module that we announced this morning. And so we love the fact that we're able to innovate, continue to solve new customer problems, add new product lines, get more hopefully more share of wallet, and we will grow from our customers. We're going to want to continue to do that over the next few years. But there's no one piece that we're missing. Rather, we see a lot of opportunity around us and we're going to keep looking for opportunities to go after that, both organically and potentially through some level, but not some major play, but some level of acquisition to tuck in over time.

Unknown Attendee

Just as a follow-on. Is there any rationale that you guys getting into the kind of ad network space, LiveRail, that kind of thing?

David R. Mendels

Is there any rationale? I suppose, but it's not a major focus for us today. What we like about our position with our customers is that we're able to be neutral. We're able to be swift in terms of how they want to monetize and who they want to partner with from an advertising technology and advertising network perspective. And so we can work with the ad networks. We can work with the [indiscernible] and the DoubleClicks, we can work with LiveRail, et cetera. And we're able to be a hub of integration, where our customers have a lot of choices in their monetization strategies. Are there opportunities for us to potentially participate in that over time? Sure. But there's nothing specific that we're thinking about and we don't view it as a whole. But there may be some opportunities there over time.

Unknown Attendee

Two questions. Looking at the U.S. only, do you have a sense for how many more of these sales reps could do $100,000 deals plus you would need in the U.S. to be able to completely cover the country adequately? Or are you already covering the territory adequately today with the reps you have?

David R. Mendels

So It's sort of a dynamic problem as you invest in demand generation and in market awareness, that you add reps. And then you look for when most of your reps are at capacity, then you start to dynamically add more. So I think we'll be able to add reps over the long term and continue to divide territories. So we were just recently, we took one territory where we had a very large pipeline. We realized, hey, this is time to split the territory and add another rep. And that's a process that you sort of go through dynamically over time. So I don't know what the final number will be. Our ambition is to be very large company, so I think it will be a large number, but I can't tell you exactly what that will be at this point.

Christopher Menard

And I think we've raised quotas each of the last 3 years. So it's not just adding reps. We're adding quotas as we give the more things to sell.

Unknown Attendee

Okay. And then finally on Zencoder, if all of your premium customers actually used and paid for Zencoder, how big a revenue business would that be?

David R. Mendels

So it's a little bit complicated. So all of our premium customers today do get transcoding as part of their Video Cloud license. So it's part -- there is some transcoding included in that license fee. And so -- and that will be integrated with Zencoder. The technology there will be the Zencoder. The question is there are people that are using above and beyond the capacity that's included in the license. As they scale up and they get additional transcoding hours, there's a golden opportunity for them to buy more transcoding per month on a per-hour basis. How big is that opportunity? I think we're going to have to see how it continues to evolve. I think that there is a significant opportunity. We think that the reasons that we're excited about Zencoder were multiple. One is we think there's a standalone business in transcoding that's hundreds of millions of dollars in a market size by itself. And it's ripe for disruption because doing this by buying just hardware and software and staffing it and getting technical people to manage it for you is extremely difficult and expensive. And the cloud is a better way to do it because most people, content is variable. It's not common. It's not a single stream -- a consistent stream. So anything we have peaks and valleys, you have this problem, where you either have to buy too much hardware, which is economically inefficient; or you buy too little, which gives you a bottleneck all the time. And so we think that there's a great opportunity for the standalone business. We think it gives us a competitive advantage for the Video Cloud suite because what we can do is when we go up against the competitor, we can say we have higher quality, we have higher performance, we support more formats, we support more features. And then it's also an opportunity to grow within the Video Cloud customers, who in addition to their publishing workflows that they have today, have other transcoding needs, live transcoding needs, et cetera. So I think there's a good opportunity, but I can't put the exact number on it.

Unknown Attendee

How important are analytics to you guys and what's your kind of product road map there?

David R. Mendels

So analytics are very important, and there's a couple different ways to think about analytics. So for our customers, analytics are very important. They want to understand how their investment is paying off. They need analytics in order to optimize their revenue strategy, optimize their marketing strategy, understand if the videos they're using are driving sales or driving awareness or whatever their cause or mission is. And so it's a very important part of what we do. We handle analytics -- and really there's 2 ways to think about it. First of all, we provide really high-quality, realtime video analytics that give you a lot of detailed specific information about how a video is being viewed, where it's being viewed, how the person found the video, how long they watched the video, attention span, things like that. That's what's built into our system. It's actually a new system. We demonstrated it a little bit this morning. Actually a little bit --I think Albert showed a little bit today. And so it's a great new system. It's realtime. it's high performance, and we're really excited about it. And that solves a set of problems for people to understand their video performance. But another key part of analytics is customers want to understand how video fits in with the overall site funnel for campaigns or how are people moving through the site from this page, this page, this video, to this page, this shopping cart. And so for that, they're not just using us, but they also have to use things like Adobe Omniture or Google Analytics or Webtrends. And so we've invested in building an open API for analytics so that other things can plug in. And that's an area where we're best-in-class as well. So when we go into a customer and they ask us on analytics, they probably want to know about our analytics. They probably want to know, "How well do you support Omniture? How easy is it going to be for me to get this into my overall marketing dashboard, not just my video marketing dashboard?" And so we do both of those. It's a big investment. We also work with Nielsen/NetRatings. We work with comScore, people who understand audience measurement. We have customers that have as many as 7 different analytic systems running in our player at the same time Because they're trying to solve a lot of different problems: royalty reporting, audience measurement, demographics measurement, et cetera. And so it's a big part of the value proposition that we offer. We're going to deliver best-in-class analytics for video, and we're going to integrate with everything else around it. And I think that is a competitive advantage for us over time. A question in the back.

Unknown Attendee

Could you define or expand on what overage is and any implications it might have for pricing or contract structure?

Christopher Menard

Yes, So what an overage is, a customer has typically a 1 to 2-year contract. And for each year, they have a certain set of entitlements, which has mostly video views, number of accounts, videos in their library, [indiscernible] delivery fees. So let's take the example of video views. When you go over your video views that are in your base contract, it's kind of like going over your cell phone minute plan, and we send you an incremental bill for those video views. It's not like cell phones from 10 years ago. It's not punitive. It's either at the same rate that's in your contract, or if you're going into heavy overages, it's at a better rate. And those go directly to revenue. Those aren't taken ratably in any given period. And in any given quarter, that averages between $1.4 million and $1.6 million of revenue for us. It's been pretty consistent over the last 5 quarters.

Unknown Attendee

When you look at the revenue contribution from your top 10 or 15 customers, what is the split between license and capacity base revenue?

Christopher Menard

Yes, we've never broken out the difference between capacity base versus the base license fee. But we want a really strong gross margin, around 72% to 74%, most of...

Unknown Attendee

Roughly it's 20-80?

Christopher Menard

I've never broken it out, and I'm not going to break it here.

Unknown Analyst

When you look at the volumes from those customers, at what rate have they been growing whether it's streams or more capacity? What has been the volume growth, let's say, for the last 12 to 18 months?

Christopher Menard

So what's the growth within the top 10?

Unknown Analyst

Yes. Well, [indiscernible] customer base, if you wanted to...

Christopher Menard

The top 10 customers in their percentage of the actual revenues has been pretty consistent for the last 2 years at roughly 8% to 11% in any given quarter.

Unknown Attendee

I'm looking at...

David R. Mendels

If you look at the streams chart that Chris showed, you could figure that's -- the Express customers, they do so few streams. They're barely even on that chart. So that -- you can think about that almost as a proxy for premium streams because the volume customers, even though there's a lot of customers, you have these number of streams they do is probably -- it's not that as few as the people in this room.

Unknown Attendee

[indiscernible]

David R. Mendels

I -- you can see what that chart is. I don't have it off the top of my head.

Unknown Analyst

Okay. Because I'm just trying to estimate what is the price going down by so that we can get to your revenue trajectory. Because we're all trying to understand a, if streams are going by x percent, there's a wide disparity between that versus your revenue growth and ...

Christopher Menard

It's not a good indicator one-for-one. But if you do math in Q1, revenue grew 24%, streams grew 24%, and that's just luck. There's no direct correlation. I wish there was because it would be easier for people to build their models. We tell people to look at the revenue retention rate. We report the net new customers for both premium and volume, and we give you the guidance. And you can take that triangle and kind of back in to what's happening overall.

Unknown Attendee

One last one on the churn. You talked about higher churn in the volume business. Where are you with respect to that, like are through 50% of the churn, or there's more to expect?

Christopher Menard

Yes. Coming into the quarter -- the question was on the churn in the volume business, there's 600 customers left at that $5 per video level. And they were almost all of the volume churn, probably more than all of volume churn in the first quarter. So I think we're a couple of quarters away of watching to see how many more of those turn out. I think we're good. Great. Thank you for coming.

David R. Mendels

Thank you.

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Source: Brightcove, Inc. - Analyst/Investor Day
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