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Video vanguard

George Boardman

The founders of Telestream in Nevada City weren’t interested in catching the latest video technology wave – they wanted to create a new one.

That led to the development of hardware – Telestream calls its pieces “appliances” – and software that make it easy to access or exchange broadcast-quality video and audio over Internet data networks.

Since the company introduced its first product in 1999, Telestream has sold its systems and software to television and cable networks, television stations, production facilities, NASA and the U.S. military.

More than 20 manufacturers of other video equipment have integrated Telestream technology into their systems, and the company is considered the de facto leader in automated media encoding and delivery.

The company hit the break-even point in 2001 and is now racking up double-digit gains in revenue and profits. However, Telestream is privately held and doesn’t release financial results.

Don Castles, president and CEO of Telestream, is the first to admit that none of this was envisioned when he left Grass Valley Group to co-found the company in 1998. “We wanted to do something different, but we didn’t know what ‘different’ was.”

Telestream’s founders focused on the video chain – the process of making, transmitting, receiving and then using video – while they tried to anticipate the future of the technology.

“Instead of being the eighth supplier of technology that was already out there, we wanted to create a new wave, not catch it,” he said last week.

Changes in the broadcast and computer industries pointed the way. In 1997, an industry standard (MPEG-2) was established to compress a studio-quality video picture to about 1/40th of its original size for use in digital television, high-density CD-ROMs and television broadcasting.

At almost the same time, broadband communication via the Internet was coming into general use. “We wanted to use the Internet as the backbone for transferring video,” Castles said.

Telestream pioneered the concept in 1999 with ClipMail Pro, which has since evolved into four encoding and delivery systems. That’s been followed by FlipFactory for streaming media and now MAP, which allows users to capture, organize and review live video feeds from a laptop computer.

MAP products have become popular with TV news operations because field reporters can now transmit video from laptops over any Internet network, including wireless.

Telestream also benefited from the broadcast industry’s shift from analog to digital technology, making it possible to broadcast the same program in the U.S., France and Germany without adjusting for conflicting broadcast formats. Telestream technology makes it easier to move that program between the three countries.

As a result, 70 percent of the company’s products are sold to the broadcast/video production industry.

Much of the value Telestream brings to its customers is through software that converts incompatible data to the industry standard. While MPEG-2 is the standard, the way it is used varies. FlipFactory, for example, offers 26 variations.

Telestream’s appliances are assembled and tested at company headquarters because it can obtain circuit boards and other components in what Castles calls “video valley.”

“There’s a tremendous support structure here … that enables us to be responsive to our customers,” he said.

Castles wants to broaden the company’s sales into other markets – particularly companies like advertising agencies that have to move images long distances – and increase international sales from 25 percent of revenue to at least 50 percent. Still, Telestream expects 2004 to be a record year.

The founders raised $19.3 million from Intel Corp., two venture capital firms and 50 “angel” investors to start Telestream.

The company could either go public or be acquired by a larger firm, a decision Castles said the investors will make at the appropriate time.

For now, the company doesn’t look any more than 12 months into the future. “If I tell you what we’re going to be doing in three years, it’s just a bunch of smoke,” he said. “We look at things a year at a time.”

But he did acknowledge that Telestream has more than enough work to keep its 45 employees busy for the next two years.


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