The Group has been undergoing re-organization and transformation in our business organization in recent years as shown in the two charts below.
The Group completed transformation of our business organization in February 2008 in line with the changing market opportunities. The business segments of Digital Infrastructure, Digital Fixed Media and Digital Mobile Media, as previously reported in our annual reports, have been re-classified according to the solutions offered to the end-users.
The Group's business is organized under two major groupings:
This group was formed to streamline and track the Group's efforts in the rapidly growing digital media market.
The Digital Media group has three segments of:
Two main integrated segments/solutions are offered under this grouping:
The Group is constantly looking at opportunities for growth, especially in the digital media sector, which is evidenced by our business developments from products developments to new contracts secured, and partnerships with other leading players in the industries. New contracts being secured form a major part of our daily operations, but only certain major ones are announced due to sensitivity issues and commercial reasons.
For a clearer understanding on our business developments, please see below stated announced major developments since the past year of 2007 for your reference under our two new business groupings of Digital Media and Infrastructure Enabling:
October 2007 - Established New Media Content Group
The Group made a strategic move into consumer media with the creation of our New Media Content Group focusing on the China market. This new division will leverage on the extensive client base of DMX in China; especially in the provisioning of digital and interactive TV services, so as to become one of China's leading new media companies operating in the areas of Mobile, Internet and Digital Cable TV content offerings.
China commenced cable network digitization in 2003. As of 2006, there are 13m digital CATV households, a penetration rate of 9% of total CATV households. Pay digital CATV households reached about 2m in 2006. According to Informa Telecoms, this will increase to 13m households in 2010, a CAGR growth of 45%.
As mandated by the Chinese government, all households in China will be digitized by 2015. Digitization creates greater opportunities for consumers to interact through their TV screens and view content in a very personalized manner.
Services like Video on Demand (VOD), Pay Per View (PPV) matched with a greater choice of content offering will help drive cable operators business beyond basic subscription revenue. By being part of this growth and adding a content offering to the existing hardware and software solutions we provide to operators, DMX will be well positioned to generate future recurring revenue streams.
The Group saw additional market opportunities for the digital video software that we have developed as part of the solution offering under the former Digital Fixed Media segment. To capitalize on these opportunities, the Group set up a wholly-owned subsidiary - BEE MediaSoft Limited (BEE) in Hong Kong in February 2007. BEE is primarily engaged in the development and marketing of world class digital video software for the enabling of digital video services delivery over cable, broadband, mobile and other network media.
BEE's forte lies in the comprehensive technology suite comprising the required components for the provision of enhanced TV and interactive value-added services, from full-featured middleware to asset management and operation support at back office. The establishment of BEE allows the company to pursue opportunities with system integrators and channel partners to market the software as part of their solutions to cable operators for digital TV or telecom/service operators for IPTV; thus enlarging the Group's market coverage. As a software supplier, BEE is positioned to benefit from growing trend of enhanced and interactive TV and video services.
June 2007 - Launch of Vision TV by BEE
Vision TV is a comprehensive, tightly integrated TV middleware designed by BEE for TV service providers to offer enhanced digital video services through broadband, cable, mobile networks and any other media on a variety of client environments. With this, TV service providers can offer advanced TVoD services such as Video-on-Demand (VOD), Network-based Personal Video Recording (nPVR), Time-Shifted TV, Pause-Live TV, and TV- shopping etc. with easy back office management.
This new Vision TV client runs on Windows CE based set-top boxes and is designed to facilitate Internet TV service providers who serve PC users by adopting Microsoft Windows Media and DRM technologies for digital video service delivery, to expand their customer base to households using set-top-boxes for service delivery.
The Group aspires to provide a TV middleware with innovative features that runs on a variety of operating and client environments so as to offer the maximum flexibility and applicability to TV service providers, and bring better TV experience to viewers. The cross-platform capability of our products, which can be applied through broadband, cable, mobile and other media networks, will provide us with a unique differentiation and competitive advantage in the digital media industry.
The projected figures for worldwide IPTV subscribers have been on the rise, with better industry outlook being predicted.
According to a report by Informa Telecoms in December 2007, it was forecasted that there would be 38.4 million global IPTV subscribers by 2012 in a market worth of US$14.7 billion.
December 2007 - Appointed by Beijing Gehua Cable Networks Holdings Co., Ltd. as a total solutions provider for digital TV broadcast
Our Beijing office has been appointed by Beijing Gehua Cable Networks Holdings?Co., Ltd. as a total solutions provider for digital TV broadcast. Beijing?Gehua, one of the three cable operators listed in Shanghai Stock Exchange, is the only?cable TV operator in Beijing. Beijing Gehua serves over 3 million subscribers in Beijing, a city of more than 17 million in population.
Under this appointment, DMX shall design, supply and implement the total solutions for a digital TV broadcast system, which consist of infrastructure from third party technology vendors together with its own proprietary software solutions - Vision TV - a digital TV middleware and MOSS - a media operation support system.
The Group invested US$5 million for 10% equity stake in Beijing CNTI Media Holding Co. Ltd (CNTI), a company that holds a long-term technical service contract with China Teleformation Culture Media Co. Ltd (CTCM). CTCM is a Mobile TV operator with legal rights to deliver Mobile TV services on the mobile network. This credential is one of only 6 government awarded licenses, and allows CTCM to deliver services to any mandated Chinese network.
This relationship will also allow DMX the opportunity to develop products and service in the areas including content production, and Mobile advertising.
In 2006, China Mobile generated US$8.5 billion revenue from value added services (VAS) alone. 3G launch in China is imminent and research suggests there will be some 31 million Mobile TV subscribers by 2010.
To further align the Group's strategy to focus on Technology Provisioning and Digital Media, the Group formed a strategic alliance with an IPTV solutions provider in the United Kingdom by taking a 19.9% equity stake in Complete Media Systems (CMS) - a pioneering provider of end-end-end IPTV delivery systems in the United Kingdom. Its product offerings include a range of next generation, high definition, multi-service, multifunction Set Top Multimedia Centre products for the IPTV market.
CMS is our strategic partner for Europe and the Group has been working with them in providing the required components for DVB and IPTV service providers to deliver enriched TV services with superior video quality and performance.
BEE entered into a technology partnership with NASDAQ listed Harmonic Inc. (Harmonic), to provide advance TV-on-Demand (TVoD) solutions to Telco and cable video service providers, offering innovative, high quality and reliable on-demand TV services to consumers.
Harmonic, the global market leader in IP-based video processing and on- demand solutions in Telco and cable markets, is powering the head-end and on-demand asset management for the world's largest IPTV services.
The collaboration between BEE and Harmonic would result in higher performance television-on-demand services with the reliability, scalability and cost-effectiveness that are of importance to IPTV service providers and cable operators today, and in the future.
Under this agreement, BEE and DASAN Networks (DASAN) will join forces to market IPTV solutions, which consist of BEE's Vision TV, Vision AMS and MOSS as well as DASAN's IP-set-top-box. Dasan is the largest networks equipment manufacturer in Korea and a leading provider of broadband access equipment to promote and deliver interactive TV solutions in Japan, Korea and United States.
May 2007 - Entered into US$1.68 million Contracts with Suzhou Digital TV Company Limited and Taizhou Digital TV Company Limited
The Group entered into contracts totaling US$1.68 million with Suzhou Digital TV Company Limited (Suzhou DTV) and Taizhou Digital TV Company Limited (Taizhou DTV) to build digital TV head-end platforms in support of their plans to digitize TV services.
Under these contracts, DMX is commissioned to build end-to-end head-end platforms for Suzhou DTV and Taizhou DTV that prepare and process digital content for TV service provisioning and lays the foundation for future interactive value-added services.
Suzhou DTV is a newly formed subsidiary of Suzhou Broadcasting Network Co. Ltd., which manages and operates digital TV service provisioning in Suzhou. Upon completion of the project, Suzhou DTV can offer 150 digital channels to 1 million subscribers.
February 2008 - Launch of Vantage
Under the new business segment of Managed Services, the Group has launched Vantage, new division generating recurring revenue and providing managed services, including Managed Security Services (MSS).
Aspiring to be a regional service provider offering all-round managed services in Asia Pacific, Vantage specializes in enterprise network and system management, and security management. Beginning with MSS, Vantage offers all year round-the-clock risk management security services through a Vantage Security Operation Centre (SOC), for each and every operating country of DMX.
This new division complements our Infrastructure business and enhances our suite of services and solutions and enables us to become a one-stop-shop to our enterprise customers, with our MSS helping them to protect their growing and valuable businesses through essential secured network connections.
The global market for managed security services is growing, with independent market analysis forecast stating that the industry was worth approximately US$2.9 billion in 2006, and expected to grow to US$3.7 billion in 2008.
DMX started as an IT solutions provider with our core competence in Infrastructure enabling. As the IT infrastructure of telecom operators and companies mature; especially in countries where rapid economic development and growth were registered over the past few years, there is a shift of IT requirements. The trend is the provision of more value added services to corporations so as to enable them to differentiate themselves through service offerings.
The proliferation of internet, increasing awareness of security threat to networks, more stringent corporate governance are giving rise to demands for network security and related services. This is especially evident in developing countries. The IT security solutions market in Asia Pacific is expected to grow at an annual rate of 15% from 2007 till 2011. China, in particular, is forecast to grow at a faster pace at over 20% per annum. This market is expected to reach over US$5.8 billion by 2011. At DMX, we have offered security solutions and focused on services since 2006. With the impending growth in these markets, the Group has also started a new division, Vantage, offering managed services, to complement the Infrastructure solution business.
The Group has been positioning itself for explosive growth in digital media and interactive television; especially in China. Despite a slow start since 2004, the conversion of analog to digital Cable TV (CATV) subscribers grew at over 80% in 2007 from 2006. The growth is forecast to be more than 40% per annum in the next 3 to 4 years. China expects to switch to full digital TV service by 2015.
As telecom and service operators try to derive more revenue from their broadband networks and retain existing customers, we see more operators keen on offering Internet Protocol TV (IPTV) services. This trend is happening on a global basis.; with Informa Telecoms and Media forecasting worldwide IPTV subscribers to reach 38.4 million by 2012.
The digital media market will become an important driver for DMX. Besides our professional skills in implementing large scale digital media solution for operators, our most important differentiator is our multi-media video software which was developed based on international standard. We have made various penetrations in the CATV and IPTV sectors. The Group secured the first optical backbone network contract for the digitization of the CATV industry in Central China. We also secured a number of trials for operators in a number of countries for their IPTV projects.
Besides Digital TV and IPTV, Mobile TV will likely become an important trend as consumption of video content on the move increases. Anticipating this trend, DMX formed a New Media Content Group. The first strategic move was to invest in Beijing CNTI Media Holding Co. Ltd ('CNTI'), a company that holds a long-term technical service contract with China Teleformation Culture Media Co. Ltd ('CTCM'). CTCM is a Mobile TV operator with legal rights to deliver Mobile TV services on any mobile network. This credential is one of only 6 awarded nation-wide licenses. Our investment in CNTI became more significant after China's State Administration of Radio, Film and Television (SARFT) ruling in January 2008 that only state-owned enterprises or companies in which government has some ownership are allowed to operate online audio and video programs. This rule has tremendous impact on video transmission in any form. Only license holders are allowed to transmit video contents in any form. As such, we see tremendous benefits from participating with a company that has the mobile TV license.
Besides tapping on the benefits of the Mobile TV platform of CNTI, the relationship will also allow DMX to develop products and service in the areas including mobile content and Mobile advertising; which is anticipated to be the next growth opportunity.
Overall, stocks in the technology sector, like many others, are recently battered under the current market conditions and the expected recession in US.
There have been many short sellings and margin calls on stocks in the market recently, which has a great impact on our stocks - one of those that investors, especially those on margins, have on their portfolios.
As such, these market conditions have a severe impact on our share price, irregardless of our strong fundamentals. Our share price is currently trading abnormally below our net book value.
We are still essentially a profit-making Company as evidenced from our past track record, and would like to clarify that there is no market rumor or any negative news on our Company to warrant such a drop in our share price.
DMX came through a challenging period in 2007 with the slowdown in the infrastructure solutions market. After years of rapid growth in the infrastructure business, the growth is forecast to be slower due to changes in operating environment and increasing maturity in the market. DMX is adapting to the market changes through focusing on certain areas where there is future growth, such as security solutions and services. Besides enhancing our specialty in security solutions, the Group recently launched Vantage, a business division to offer managed services.
The Group has identified exciting growth opportunities in the digital media industry. The digital media market in China is experiencing rapid growth and the Group looks forward to tapping into this market potential. The marketing of DMX's proprietary suite of multi-media software through our subsidiary, BEE Media Soft Ltd, is proving successful as inroads are being made with other system integrators and channel partners in the digital market, which is in addition to the traditional coverage of DMX.
The Digital Media group, consisting of three segments: Digital Media Solution, Multi Media Software and the recently set up New Media Content, achieved a 37.3% revenue growth to US$35.7 million in 2007. This significant growth was mainly attributed to the China cable TV industry. The Group secured several new cable operator clients for our digital media solutions and multi-media software. Overall the business segment contributed 22.1% of the Group's total revenue, an increase of 5.9% over previous year's contribution of 16.2%.
The increase in digital media business compensated for the slower infrastructure business, and gains that have been made in the digital media segment are significant, as we see continuing opportunities in this market to create income streams different from our past model.
Going forward, DMX has in place sound fundamentals to ensure that the company remains profitable. The prospects in 2008 are good and the Company is focused on delivering shareholder value through improvement to gross margins and creation of recurring revenue through software and services.