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Verimatrix’s Software Navigates Sea of Content Piracy

Verimatrix Inc. keeps those who won’t pony up for online content from watching it, a sought-after service in the age of digital streaming.

Demand for its software transformed Verimatrix from a small San Diego startup to a 247-employee company in sleek Sorrento Valley digs. It hopes to continue this upward trajectory with a big push in data analytics, which brings a new set of technology and privacy challenges.

Companies such as cable provider Spectrum, a division of Charter Communications, rely on Verimatrix to thwart the stealing and distribution of content that siphons off revenues. As piracy constantly evolves, so, too, does the company’s software.

“Any sort of security platform, it’s like the anti-virus software on your PC. If you’re two versions behind, you’re done. So there is a continual arms race,” said Verimatrix CEO Tom Munro.

In 2005, the company launched a digital forensic watermark that traces pirated video back to its source. A more recent, albeit small part of Verimatrix’s business is cutting down on password-sharing, the act of divulging passwords to family and friends so they can watch content for free.

Digital Rights Management

The company’s bread-and-butter, though, has been software that encrypts movies and TV shows before they’re delivered over a network — and then unscrambles them once reaching the right subscriber. This became important about a decade ago, when cable companies started transitioning to IPTV (Internet Protocol Television).

Verimatrix’s anti-piracy tools fall under so-called digital rights management, or DRM. It’s increasingly in demand with “over-the-top,” Netflix-type streaming models that put content in the crosshairs of pirates.

In many ways, DRM has gotten more challenging with the rise of households streaming on multiple devices, and competitors include the likes of Cisco and Microsoft. How can Verimatrix compete with these giants?

“One of the things we’ve done well is span what’s called proprietary security regimes,” Munro said. “Google has one, Apple has another and Microsoft has another. But your household might have all three, and you want to be able to subscribe to a service that allows you to watch video on all of those seamlessly.”

Echoing this reason for Verimatrix’s success was Bill Rosenblatt, president of the consulting firm GiantSteps Media Technology Strategies, who has consulted for many DRM-related vendors, including Verimatrix in 2011, though he no longer has business ties to the company.

Hardware Security Is Stronger

Rosenblatt called Verimatrix a leader in one-stop DRM, but sees a big obstacle ahead: Verimatrix’s DRM isn’t built into devices.

“If there’s any principle or truism in the security field, it’s that hardware security is always stronger than software security,” Rosenblatt said.

While this could hurt Verimatrix, Rosenblatt said he expects the company to continue doing well in international markets, as well as among small and medium providers that choose Verimatrix’s DRM over building their own content security infrastructure. Today, more than 900 pay-TV operators in 110 countries use its increasingly cloud-based services.

Financials provided by Verimatrix show a company expanding, with three-year revenue growth of 58 percent — $48.16 million in 2014, $60.79 million in 2015 and $76.28 million last year. Its staffing jumped during the same period from 149 to 247, the majority of whom are in San Diego.

Plotting a Big Data Course

For Verimatrix, the next frontier appears to be data analytics. An artificial intelligence platform embedded in its software watches for anomalous behavior to detect hacking attempts, for example.

But data analytics are critical in another area. Verimatrix turns data into actionable intelligence for TV operators looking to improve customers’ experiences, from showcasing new channels to improving Wi-Fi. To boost its data capabilities, Verimatrix in June acquired MiriMON technology and its development team from Genius Digital.

In addition to technology challenges, Verimatrix has sought to craft data-collection policies that won’t run afoul of privacy-conscious consumers. Regardless of the company’s action, Munro sees “clouds on the horizon” because of an uncertain regulatory environment, particularly the potential for worldwide regulators to craft overly restrictive privacy rules in response to bad apples.

“Our strong compass is in favor of individual privacy with the data we collect,” he said. “I think it’s really important as a culture, and as a company, that we find a respectful middle-ground. But I think the danger is that bad actors that overreach could spoil that for everyone.”

Going from pure content protection to data analytics is no small feat. In Munro’s book, the right ingredients are in place.

“What we’re finding is that the security foundation we’ve laid is really critical to doing a good job on the data side,” he said.

Sharing the Reality

It’s not the company’s first time plotting a new course.

Founded in 1999, Verimatrix initially created online security tools for digital music. The company’s 37,000-square-foot office — complete with lunchtime workout classes in its gym; colorful, square offices; and an open-air atrium — is 18 times larger than its original space.

But growth has brought the challenge of maintaining company culture, said Munro, who was employee No. 7 when he came aboard as CEO in 2005.

“This is my fifth startup, so I’ve seen this movie a few times,” he said. “There comes a point where you suddenly don’t know everybody’s name. Or maybe you know their name but don’t know their work. And a manager, instead of having four people working for them, has six, eight or 10.”

So that’s why there’s a picky hiring process that emphasizes knowledge as well as personalities that fit within the culture; employees take part in sessions to determine priorities; and there’s transparency in employee communications. Notably, Munro gives employees the same overview of the state of the business that’s presented to the company’s board of directors.

“You may as well share the reality of it to get people going in the same direction,” he said.

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