Hubris, Intrigue & Incompetence Bringing Kit Digital Down

Hubris, Intrigue & Incompetence Bringing Kit Digital Down
– It May Have Built Half of Europe’s OTT Broadcast Catch Up,
But It May Well Shut Down
– A Truly Advanced Set of Technology Products But the Same Old
Human Weaknesses
– Novel Accounting Methods Need to Be Unravelled Before the
Prognosis Is Clear
By Philip Hunter of Faultline

It is a fight for survival now at Czech/US video management
software company Kit Digital, which has now admitted
overstating quarterly and annual revenues between 2009 and
2011, precipitating a halving in share price and rumors of a
fire sale. Yet a casual visitor to the NAB Show in Las Vegas
this January might have concluded the company was in good
health at its stand, a gleaming white double-decker with
multiple conference rooms and floor-to-ceiling windows, was
the early talk of the show.

But it was actually part of the hubris that had enveloped the
company under the leadership of chairman and CEO Kaleil Isaza
Tuzman, whose reign was characterized by a string of 15
aggressive acquisitions. It was at the end of that NAB show
that we had the first indication of chickens coming home to
roost when Tuzman abruptly resigned, a move somewhat
implausibly presented as being part of a long planned natural
transition to make way for someone better placed to take Kit
Digital onto the next stage of its presumed journey towards
being one of the few big hitters in OTT.

It was certainly true that Tuzman’s previous record did not
inspire confidence in his ability to take the company further
forward, having presided over the spectacular rise and fall of
the Internet government contract tracking company govWorks
Inc, which went bankrupt in 2000 when the dotcom bubble burst,
as told in the TV documentary “”

At least then there was the excuse of the dotcom bubble
bursting, and in some ways Tuzman is more culpable for the
fate of Kit Digital, by sponsoring reckless acquisition,
failing to enforce proper financial controls and neglecting
investment in R&D. There was nothing much wrong though with
the principle product, the KIT Video Platform, a cloud-based
video asset management system, available in two editions, KIT
Cloud and KIT Cosmos. The former is a turnkey platform for
multi-screen video publishing and monetization, aimed at
enterprises and smaller media or content operations, while KIT
Cosmos is the top end customizable package for broadcast-grade
multi-screen broadband TV deployments.

Key Issues
The company was, and still is, in the right place at the right
time with a platform for multi-channel service providers and
broadcasters to build OTT and TV Everywhere services.

But it does not matter how good the product is if the
management is incompetent or even profligate, having resorted
to smokescreens to maintain the illusion of success. As one
example of this, Kit Digital created its own market segment
which it called VAMS (Video Asset Management Systems),
reporting that this market was worth $430 million in 2011 and
that it had 35.6% of it. No analyst was in a position to
contradict this assertion since nobody else recognized VAMS as
a market segment to measure.

Now Kit will restate its quarterly and annual financial
statements issued between 2009 and 2011, along with the
quarters published so far this year, and will delay
publication of figures for the quarter ending September 30,
2012 until this has been done. The company said the
overstatement relates to irregularities related to “perpetual
software license agreements” put in place by the previous
management team, and were discovered as part of an
investigation by the company‘s Audit Committee.

Kit was already preparing to lay off 300 staff, 22% of the
total, as part of a restructuring plan announced in May 2012
seeking a $40 million annual expenditure cut, and now more job
losses can be expected. While that first tranche of layoffs
are coming in non-core areas, the company is now facing cuts
in core developers and architects. The extent of further cuts
is unclear, since Kit says it “cannot currently quantify the
potential impact of the restatement”.

Meanwhile one idea on the table appears to be an equity buyout
led by Tuzman himself. However this is hardly likely to
inspire confidence among either investors or staff, and there
is no evidence yet that Tuzman actually has persuaded equity
investors, who are not usually fools, to back this apparent
lost cause.

We can only hope that the remaining Kit staff end up with
someone more competent to rescue the company, which still has
some valuable assets and customers. Part of the challenge will
lie in reinvigorating the platform and integrating all the
components that have recently been acquired.

This appeared in Faultline.


About the Author

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