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A marriage made for TV Featured

9:47am EDT April 22, 2005
There are 100 million televisions in the United States, and about 70 percent of those are connected to the world through cable television. However, that number has steadily dropped with the introduction of satellite television -- and that's where the former N2 Broadband comes in.

N2, which recently merged with United Kingdom-based TANDBERG Television in a $118 million deal, is a provider of scalable, open-platform solutions for on-demand entertainment.

"One of the reasons we've been very successful is that we've had a product that helps the cable operators reduce churn" -- the cable industry term for people moving from cable to satellite or other platforms, says Reggie Bradford, former president and CEO of N2 and now president of TANDBERG Television Americas.

"That's really what's going on in cable," he says. "The total (number of) cable subscribers is flat, but there is a big growth in digital. People are migrating away from analog boxes to digital. Video-on-demand in '04 hit about 24 million households -- using or have access to it. That's expected to grow substantially in the next couple years with more content coming in."

That made N2 a very attractive company, one ripe for acquisition.

"We had several suitors that wanted to acquire N2," Bradford says. "The reason that Tandberg was most attractive to me personally and looking out for all of our shareholders is that there is really no overlap in the business."

N2's focus is entirely in the United States, while Tandberg's operations are largely in Europe and Asia. There is no overlap in product offerings, either.

Smart Business spoke with Bradford to learn how the company he once owned fits into the bigger picture and how he intends to manage the TANDBERG Americas operation moving forward.

What was the impetus behind selling the company to TANDBERG Television?

Their impetus and ours was fairly consistent, and that was that we saw an opportunity that we could accelerate both companies' business models by putting the companies together. We saw that N2, as a stand-alone entity, could continue to grow in the foreseeable future. But at some point, we were going to hit a wall.

As we continue to grow the business model, we start competing with much larger companies and selling into huge customers, and they're increasingly concerned to make sure that smaller companies that they do business with have strong balance sheets and plenty of cash flow and ability to invest in R&D. And while we've done a good job as a $20 million company, it gets harder to go to $50 million or $100 million.

We saw an opportunity -- we could combine with TANDBERG, have a company with over $200 million in revenues, $100 million in cash, very profitable, and maintain our ability to grow the business inside of that.

How will this change your approach in the marketplace?

For (the former) N2, it will give us the capability to sell our products into additional market segments -- the broadcast market and the telecommunications market in addition to cable. And within North American cable, it will dramatically increase TANDBERG Television's presence, awareness and, hopefully, revenues.

They basically haven't been able to crack that market, and it's a tough market. We have real solid relationships with the Top 10 cable operators and even a lot of the small to mid-sized ones. I think we'll be able to positively affect their business right out of the chute.

Does it take a special mindset to handle that technology environment?

In any industry, any job, there are a number of consistencies -- leadership, having a sense of urgency, having a nose for the football. Those capabilities are important to anything you do in life. Those are all transferable.

On the emerging side, you've got to have a much more heightened sense of urgency. You just can't sit around on your heels and wait for things to happen.

No. 2, you (must) be substantially more precise in your decision-making because mistakes are much more costly in an emerging business than they would be in a traditional (business). In a mature type of company, you can make a lot of mistakes and still have a nice market share. In this one, you make a mistake, you're dead.

What were the challenges to making sure the merger was successful?

No. 1 is to make sure the employees understand what their position is, what their value is, what their role is and what their accountability is. The second area to make sure it's successful -- maybe it's 1A, really -- is the customers and making sure that the customers No. 1, have buy-in to the plan. No. 2 is to agree with and see the value that the two companies can bring together better than we could have individually.

We've worked very hard in the last few weeks to get in front of our customers, laying out the vision and getting their input and buy-in as opposed to just telling them, 'This is happening this way.'

Where there concerns about the merger?

I don't think there was any concern about control. The only concern was, could we continue to grow our value by staying the course as an independent company -- in terms of valuation, shareholder value -- things like that. Our board unanimously decided this was the best course of action because there is consolidation happening in the market. Our customers are consolidating, our vendors are consolidating, and I think this is a great outcome for our shareholders.

Everybody is very pleased with this decision. We've certainly thought through the other options -- keeping the company independent, perhaps taking the company public, and ultimately decided this is a much better outcome for us.

How difficult was it to arrange the deal?

We met about a year ago, the CEO of Tandberg and myself. Basically, we put together a distribution agreement that got announced last spring, whereby TANDBERG would distribute N2's products into Europe and, to a lesser degree, Asia. In the late summer, early fall, the CEO of TANDBERG came to me and said, 'We're interested in pursuing a tighter relationship. In fact, the integration is going so smoothly and the opportunities are so enormous that we'd be better off putting the companies together. Is that something you'd consider?'

I said, 'Absolutely. Let me go talk to the board.' It was probably, from when we first started talking to the time the deal got announced, maybe two or three months. There were other people pursuing the company aggressively. It probably took a little more time than normal because we had to consider all the options.

How will your role as president of TANDBERG Television Americas differ from your previous role?

The role is enhanced somewhat in that Tandberg has an Americas existing business. Last year, they sold around $50 million of U.S.-based revenues to the broadcast industry. My role will now be to take over the management of that business, plus the N2 business.

How do you deal with the rapid pace of change in the cable market?

There is huge transformation in cable right now and in the content industry, and we're one of the big catalysts of that. One of the things that I always preach to our people is, never rest on your laurels. Always maintain an aggressive vision and be on the balls of your feet, is what I tell people.

There's a lot of truth to Andy Grove's, "Only the paranoid survive." I think that is how you continue to innovate and take advantage of change. We've had to reinvent ourselves several times. This merger is a case of N2 reinventing itself yet again. That's what companies have to do to be able to survive in this market -- really in any market -- but this one is particularly disruptive.

Is it enough to react or must you anticipate changes?

Absolutely, you've got to anticipate. If you don't, someone else will, whether it's two kids in a garage trying to mow you down or Microsoft.

What did you learn from your experiences as chief marketing officer at WebMD Corp.?

WebMD was a company that achieved tremendous success in a very short period of time in a very different market than the one we have today. Obviously, the go-go '90s were driven by a huge stock market run-up and lots of access to capital.

What I learned was there's a huge component of building a business called creating momentum in the marketplace for the customers, the employees the investors and driving that through. That translates to any market.

I also learned that, while growing a company through acquisition is important, it's equally or probably more important to make sure you've thoughtfully considered the implications on integration and those types of activities.

How about your work experience with Miller and Philip Morris?

Whenever I talk to young people, I strongly recommend for people to go to work for a company like Miller when they get out of college because it teaches you tremendous fundamentals of business and tremendous discipline. I wouldn't trade those eight years for any experience in the world.

It gave me a great base from which to determine my strengths and opportunities and help condition myself for the market and be able to grow from that. It was a great experience. But at some point you have to decide, what do you want to be when you grow up, and I ultimately decided I was an entrepreneur at heart and that I was much better suited to growing a business at a fast pace, disruptive, always-changing environment than I was in a staid, mature environment.

What is the biggest business challenge you face?

I would say, and this is consistent with why we think this merger makes the most sense for us, the biggest challenge for us is, we're in a highly concentrated market with a few very large customers that control a lot of spending in the industry, so the customers have a lot of leverage over their vendors. And they are very demanding in terms of the products and services.

And we've got to be able to have seamless execution and be competitive in the market with pricing and services. That's always a challenge. This merger gives us an opportunity to sell across more channels.

HOW TO REACH: TANDBERG Television, +44 (0) 23 8048 4000 www.tandbergtv.com