Telstra saw itself owning the 'next Youtube' but its huge investment in a Silicon Valley start-up came to nought.

By Joe McDonough

Posted on February 2, 2018

Telstra’s first attempt to slide into Silicon Valley has fallen flat, with the telecommunications provider telling investors today that it was writing down the entire value of the US streaming business it poured hundreds of millions into between 2012 and 2014.

Ooyala — a firm started by three Google alumni — developed a software platform that allows video to be streamed on websites, smartphones and tablets in high quality. It was once touted by backers as the “next Youtube”.

Telstra bought into the company in 2012, before taking full control two years later, with the aim of transitioning into a global tech giant.

But co-founder and chief technology officer Sean Knapp walked away, some of the Telstra executives involved in the investment moved on, and most crucially it couldn’t keep pace with changing market dynamics. In 2016, Telstra wrote down almost half of the $500 million it had injected for its 98% share.

And while it hoped to resurrect the languishing tech firm, it announced to the ASX this morning that it would recognise an impairment charge of $273 million against goodwill and other non-current assets in the half year numbers to write Ooyala’s value down to zero.

“This was a business that Telstra purchased when the market dynamics were very different. When we announced the initial impairment 18 months ago we indicated that we would be working closely with the team to turn around the performance,” said Stephen Elop, Telstra’s group executive for technology, innovation and strategy.

“We believed Ooyala remained a young and exciting company with leading offerings in intelligent video, which were continuing to evolve and scale. While some of these initiatives have been successful, the market has continued to change.”

Telstra will cut its losses on Ooyala’s advertising technology arm, and instead concentrate on its OVP video player and a workflow management system divisions.

“From here we will sharpen Ooyala’s focus by exiting ad tech and focusing on the underlying video platform and continuing to serve our customers,” Mr Elop said.

“We will increase emphasis on our differentiated Flex media logistics product and we will drive operational efficiencies and leverage our go to market partnerships with companies such as Microsoft. In addition we will remain alert for broader strategic options for Ooyala in a market fragmented across multiple providers.”

Telstra shares are down just under 1% at $3.61 on Friday morning, following the announcement.

And the write-down will take a chunk out of its original first-half projection of a $1.7 billion profit, when it reports on February 15.