The Crazy ObjectVideo CEO Interview

JH
John Honovich
•Published May 06, 2012 00:00 AM
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The last we heard from ObjectVideo, they boldly proclaimed manufacturers had only '60 days or else' to kneel before sign long-term patent license agreements. With time running out, OV's CEO has released an interview where he ominously talks about the future for the industry and how essentially everyone must pay him. Inside this note, we dig into the claims made and analyze their significance and potential impact.

Here are the key claims made by ObjectVideo's CEO in the interview:

  • Ultimatum: On what happens when the ultimatum ends on June 1st: "After that we will have another conversation with companies not under license, but the tone will be different from how we approach them with today’s generous Amnesty Program." [Editor's Note: It may or may not include a baseball bat.]
  • At risk: What kind of companies are in the risk zone for infringing Object Video's patents? “If a company is generating metadata for use with analytics." [Editor's Note: That pretty much means everyone.]
  • ObjectVideo is anxious to check 'below the hood' inside of company's source code for features like 'calibration and image segmentation,' happily noting "we have found that there are a lot more below the hood than we ever thought."
  • IP Ignoramuses: "There is a need to raise awareness of intellectual property rights in the security industry."
  • OV is just like your favorite musician: "Musicians get their part of royalties when people download their work. Nobody questions that. This is just the same"
  • Buying OV software: "A spinoff effect [of forcing companies to license their patents] is that some companies have now become more interested in our software when they realise that they have to pay for the patents anyway."
  • 2010 investment: The CEO and his investor partners "recapitalised and paid more than $27 million to get a 65 percent share of OV."
  • Improved Profitability: "When we closed the investment and got in to the company, it was at a break-even level, more or less. The profit was roughly $900,000 – far too low. We estimate the profit in 2012 to be well over 25 times the profit in 2010."

Let's walk through each of the claims here:

Everybody Needs to Pay

OV pretty clearly wants every analytics vendor to pay. The 'generating metadata' claim is particularly broad. Video analytics are essentially useless without metadata because no description of what can be provided without it. Furthermore, calibration and image segmentation are fundamental techniques likely used by most analytic systems. OV's CEO claims should make it clear that everyone is at risk.

Ultimatum and Invalidation

While OV ominously talks about changing the tone after June 1st, the reality is OV still has a long hard fight. The US ITC trial is scheduled to run through 2013. Worse for OV, Bosch is clearly fighting back hard seeking to invalidate OV's core patents both in Europe and the US. Of course, the promotional piece interview leaves out the barriers OV continues to face.

Nothing Like Musicians

OV's claim that they are just like musicians is laughable. Indeed, it is more like Madonna demanding payment for anyone who releases a pop song. No one would have a problem with Madonna asking for royalties on someone re-using one of her actual songs but it is crazy that she should be paid for anyone doing a song in 'her' genre. Likewise, OV would hear no objections if companies were counterfeiting their source code but when they claim that anyone who 'generates metadata' falls under their purview, they become persona non grata for manipulating the legal system.

Valuation Confirms OV Failure

OV's 2010 valuation is extremely low, signifying how poorly the company historically performed. The 2010 pre-money valuation was ~$15 million USD (based on claim that a $27 Million investment gained a 65% stake). OV was a company that took in way more than $50 Million in VC funding over the past decade. To only be valued at $15 million a decade later is terrible. It signifies that their historical investors lost most or all of their money and they failed to come close to meeting their business plan. While this does not surprise us at all, it does confirm the obvious.

Future Profits

OV is now saying that its profits will grow 2,500%, from less than a million in 2010 to over $20 Million in 2012. We suspect that a significant portion of these project profits comes from successfully winning the US ITC case, so take this projection with a grain of salt. However, OV has also quietly won over $25 Million in US defense contracts. Isn't that great? Thank god for the US government. Not only do we all lose from the broken patent system, US tax money continues to fuel speculative gold-plated analytic research projects.