Virtualising video: Linius Technologies

Chris Richardson is the CEO of Linius Technologies. We spoke to Chris just over a year ago in July 2017 when they had just done a deal with IBM and were about to do a deal with Microsoft which they did. The shares bounced up from 5 cents to 20 cents, it was 21 in fact they touched, now they’re all the way back down again to 6.5 cents. 

I thought we’d better check in with Chris to see what’s going on, why that happened and why couldn’t they sustain the increase in the share price? I presume it’s because they made promises to get some revenue last year and that has not been fulfilled because he told me in the interview they’d start making revenue by the end of 2017 and that did not happen in fact; as we sit here there’s still no revenue hitting their bank.

The thing is Linius is worth persevering with because it’s a very interesting technology to virtualise video so that you can actually extract data and index video and do all sorts of things with video.

Considering that 80% of the internet traffic is video, the world is kind of going video and this company has some very interesting technology to allow video to be turned into data but it’s taking a long time. 

I first heard about this company about five years ago or six years ago, and thought it would take off but it hasn’t yet taken off. I think it's worth continuing to check in with Chris Richardson to see what’s going on and the answer is, of course, he says in the interview any day now. 

Here's Chris Richardson, the CEO of Linius Technologies.

Chris, when I last spoke to you last year I think the share price was about 5 cents and you’d just done a deal with IBM.  You then did a deal with Microsoft and the shares popped up to – I think they got as high as 21 at one stage.

That’s right.

Then almost all the way back down again.  I wonder whether that’s because you said last year, in fact in our interview you said, that you would be making revenue last year in 2017 but that hasn’t happened yet and still hasn’t.  I guess the market is getting disappointed.

Well it is true that we had expected our first revenue generating deals to close in fiscal 2018, so before the end of June.  That in fact did not happen although we have since closed our first revenue generating deals and made a number of announcements around both that deal and how we’re replicating it through our channel which is one of our main ways to go to market and scale the business quickly.  I’m sure there is a little disappointment in the market in terms of the speed with which revenue is coming, certainly we would prefer it all came faster as well although to be completely honest I think a bigger issue with the share price is the largest shareholder in the company, Phoenix Myrrh, which if you recall the history they came in as a block of shares when we did the RTO and they were under escrow until earlier this year.  Now that they’ve come out of escrow if your listeners have followed the changing substantial shareholder notices they’ve sold down a fair bit of their holdings.  Of course I can’t speak directly to their internal operations but we were given to understand that that was mostly due to tax liabilities they had to pay for.

They put a fairly strong downward bit of pressure on the share price but I think in recent weeks we’ve started to really fire on all cylinders in terms of news flow and I expect that to continue for the remainder of the year.

Phoenix Myrrh, have they finished selling as far as you’re aware or not?

As far as I’m aware, yes, but of course we have no direct control over that.

Yeah.  Okay, I suppose just before we get onto the deals that you’ve been announcing when I did speak to you last year the expectation would have been that IBM and then Microsoft would have turned into revenue pretty quickly, were they not revenue deals that you did with those big firms?

The IBM deal is in fact a reseller deal, it gives them the capability to resell our technology and us the capability to resell their technology.  Actually, IBM – everything is moving more slowly than we would like and I suppose it’s no surprise at all that the largest enterprises move the slowest.  I will say that we’re very positively engaged by IBM, in fact we have an ongoing proof of concept with Warner Brothers that we’ve announced and IBM is directly involved in that.  We expect them to be involved in our channel strategy going forward in an increasing way.

I would have expected by now that you’d do a deal with YouTube as well and I think we talked about that last time but how are you going with YouTube?

The streaming platforms, whether they’re free platforms like YouTube or Twitch, or the commercial VOD platforms like Netflix.  Really we’re not seeing immediate huge benefits from our technology in them.  Certainly we do think there are some back-end cost reductions and they could potentially have in the tens or hundreds of millions of dollars.  Our focus has really been on the revenue generating side of the business where it’s value creation and we’re getting the most traction – if your listeners recall we were targeting four what we term horizontals, we had search, anti-piracy, security and defence and personalised advertising. 

Over the last 8 to 10 months really the search horizontal has leaped out as the one that is getting the most immediate success in the market place and within that horizontal realistically there are four verticals where it’s getting the most immediate traction, education, sports, news and corporate communication.  We see those reflected in the commercial deals that we’re winning, we see them in the proof of concept of the Oklahoma State University, in the education market in the US which is ongoing and the revenue generating commercial deal with Newstag and we have a bunch of activity that should result in announcements soon in both the sport and corporate communication verticals.

Let’s talk about Newstag because I think that’s the revenue producing deal that you’ve mentioned, isn’t it?

Yes, it is.

As I understand it you’re getting monthly license fees plus $1 per video that’s virtualised, is that right?

Yes, that’s right.  I think there’s some discounts along the pricing in short term if they were to monetise it but that is the basic structure of the deal.

How big is Newstag, I don’t know much about them?

They are a start-up in Stockholm, so they’re not a big global company however their founder has over 20 years’ experience including leading major news organisations around the globe and the Newstag organisation currently delivers hyper-personalised news feeds into over 150 countries and they are working on personalised and efficient news feeds for over 20 global broadcast clients including CNN, the AFP, Bloomberg and the list goes on.  While they are small they are a key player in the space and they’re at the cutting edge of hyper-personalisation which is why they’re a great fit for our technology.  They immediately saw the benefit, they think there’s huge opportunity in it and we, of course, think there’s huge upside in this entire vertical.

Has any money hit your bank account yet?

I do not believe any money has hit our bank account yet but really that will all show up in the quarterly reports.  To be honest this story is still – I don’t know how long but we’re a very long way from any point where we would expect investors to be valuing us on some sort of financial multiple, whether that’s multiples EV/EBITDA or cash flow, or any of these things.  Really the story is a story of growth and scaling the market.  The point of these deals like Newstag and really the next three, four or ten, whatever it is, are all about proving market validation and proving that the thing we’ve been saying about Linius all along, that this is a transformative technology that has a huge impact on a variety of industries, is that not only true from a technical perspective but also true from a business perspective.  To the extent that any of these deals close the point is then to extrapolate that into the broader market.

Newstag for example, while they’re small and they will result in revenue in the bank it’s really about okay, now let’s go out and replicate the solution we have with Newstag into the hundreds of news agencies and broadcasters around the world and to do that through our channel partners like IBM or like MediaAMP who are now in the education vertical where there are 5,000 higher education institutions in the United States alone and the ability to virtualise their content is of tremendous value to them both in terms of education but also in terms of finance and the ability to fundraise and deliver a personalised feed to their alumni communities.  It’s really about this vision of continuing to build and scale the business and get to as much virtual video content as we possibly can more so than it is large dollars in the bank account.  Although, of course we do want the dollars and it’s important to show the trajectory.

Yeah.  I note that earlier this month you launched your own software as a service platform, Linius Video Services.  Is this your direct to market strategy now?

Yeah, it definitely is.  We entered beta with that back in January and have been working primarily with a number of internal close partners and system integrators to flesh that out.  Particularly going to market and taking people’s credit cards for the first time is a different thing than enterprise software so we wanted to make sure we had everything working right before we launched it commercially.  From my perspective it’s kind of the most exciting thing that we have in the long term.  In the short term we going after these key verticals and those will get replicated in the channel and that will be a big business for us. 

But from the technological perspective the most exciting thing to me about this paradigm shift in virtual video is 100% of the time, and I may have said this the last time we spoke which makes it more exciting that it’s still true 100% of the time, when I sit down and talk with a client, with a partner, with really anybody in the industry and the penny drops and they understand what it means for us to be able to extract the data from the deal and to allow to be indexed, tagged, analysed and enriched with AI technology.  They come up with new applications that we’ve never thought of before.  That’s really what LVS is about, it’s about enabling that ecosystem of developers, inventors, enterprises to go out there and do things that were never before possible in the world of video that now become possible with virtual video.

For example we are already building things on top of LVS, that’s where Newstag is being built on the SaaS version of the software and the same thing is true of the OPC POC environment.

Right, so what are you going to charge for LVS?

Well, the pricing is available on it, it’s publicly available, it’s a little chart so it’s all based on volumes and number of API calls so I’m not going to read the chart here but anybody is welcome to go sign up for an account and there’s basically a monthly minimum based on your buy-in tiers including a free level.  Developers can get in and start messing around and trying virtual content on their own for free at low scale and then it goes up from there to tens of thousands of dollars per month depending on how much content you’re putting through the system.

How big do you think this market is?

Overall the cloud services market is nearly $200 billion US this year.  That covers a whole lot of territory.  We, of course, think that this is just a key to unlock the door to the value of virtual video and as we’ve said before those original four horizontals, we were going after those because they were sort of the most accessible from a market perspective.  Each one of them is worth tens of billions but then again LVS is really predicated upon going after the rest of the world, the part that we’re not attacking.  I have no idea how many tens or hundreds of billions that’s worth but 80% of the traffic on the internet today is video and we aim to transform almost all of it, so it’s big.

Ever since I heard about Linius I was excited about it, it’s just taking, I guess, much longer than I expected.  It’s one of those things you look at it and you think yeah, that’s going to take off, of course.  But, it hasn’t taken off and I suppose with all these things investors have to be patient.

They do, and those of us internal at the company have to be patient as well and believe me that is very hard to do, because we see the value of the technology and we want it to grow incredibly quickly and return a tremendous amount to shareholders in terms of shareholder value.  I think what’s really going on as we look back over the last 18 to 24 months and think about the journey of the corporation is that – and again, in hindsight things are always easier to see but this is a paradigm shift in technology and when you’re dealing with things that are that transformative it’s not an automatic easy win.  Because even though when we walk into a client and explain the technology they get it, they love it, really our pipeline is filling more and more every day and although the deals that we thought were going to close earlier this year haven’t largely closed yet they’re still all very bullish, they’re still excited about the technology, they’re still in the pipeline.

I think one of the big challenges for us, and that’s why I sort of – priming the pump and getting these first few deals flowing so that we can more easily put this through channel, is that if you go and talk to these enterprises they love the idea but it’s not like they have a line item set aside for virtual video because the thing didn’t exist yet.  They all want to do this stuff but they’re fitting it into their existing technology calendar where they have one, two, three or ten priorities that are sort of already in process and it’s just a matter of getting the cycles from them to implement this.  But, they’re all very excited about the technology and like I said our pipeline is large and growing across all the verticals and it’s just a matter of time.  Things are going to start falling down like dominoes any day now.

Any day now.  That’s good.  The most recent appendix 4C statement we’ve got is for June, the June quarter.  According to that you had $10 million in the bank at that point and you were burning $2.5 million per quarter.  That means on that basis you’ve got enough money for 12 months.  Is that still the case?

Yeah.  We had over a year’s worth of cash in the bank and really quite a bit of runway beyond that because there are a number of options outstanding, some of which are expiring in the coming year and we expect a fair percentage of those to be exercised and then some of which we expect to be exercised as the share price rebounds to get through this issue with Phoenix Myrrh shares.  Our imagination is that we’re in a good cash position for still 12 to 14 months from this point even though it is well passed the end of June.  Of course, that assumes no revenue and as I’ve already said although numbers are small now cash is starting to hit the bank and we expect more cash to have done so by the end of this fiscal year.  Yeah, we’re in a good cash position, very excited about the direction we’re going and where we’ll be come end of June 2019.

That was Chris Richardson, the CEO of Linius Technologies.