Posted on: 12 September 2011 by Ross McSweeny
IFE Services has had a very good year, according to Managing Director Andy McEwan, who spoke with Inflight just before the APEX show opened in Seattle this week.The other thing he wanted to say besides having added 11 net new companies to its portfolio, was he sees major consolidation over the next two-to-three years amongst the mid-tier distributors and he intends to participate. McEwan is looking for critical mass and horizontal acquisitions with other content providers/distributors will give him just that.He also sees a major change coming in the current inflight entertainment business model, one that leverages a passenger’s own personal electronic device which means portable-device producers will struggle.“This is an interesting time for technology as we transition from analog to digital,” he said. “A lot of analog is going out of service because of its intense maintenance issues. They are now entering obsolescence and the gap is being filled by digital boxes that can do the same job with digital, plug-and-play that offers a selection of movies and more. Ours is the lightest portable unit at 186 grams which could be used as an interim step in the replacement of analog systems or as the next step in IFE."Portable devices also increase the flexibility of the airline," said McEwan. "Current imbedded systems are usually installed for the life of the aircraft while portable devices can be used when such a system goes down or to replace that system, providing much more flexibility.“In my view the portable device will be the passenger’s own device and streaming content,” he continued. “That means the companies providing these devices will struggle. For us, we also provide the content and other services — formatting for the various systems at an airline, for instance.”American became the first US carrier to offer streaming content. McEwan indicated, however, that streaming content will likely change the business model.“Hollywood wants security so that will have to be addressed,” he said. “It will have to be robust. The commercial model will be challenging. It will probably change what the passenger pays to the airline and what the airline is charged by Hollywood. I project streaming will replace traditional revenues for studios and they may seek guarantees for a minimum number of viewings. They may charge a fixed minimum for having the movies and then a variable charge based on the uptake.”Adding acquisitions for growth“We’ve grown very successfully organically,” he told Inflight, “and we are looking at acquisitions to supplement that growth. Our intention is to be the leader in the $600 million per- year market segment that provides content to small- and medium-sized airlines.”"Today," he said. "There are two large players in the distribution market — Spafax and IFE Alliance — with the mid-tier made up of four to five material companies. Below that is a larger number of smaller companies who might cater to one or two airlines.“Consolidation will make that eco-system narrower,” he added. “There are two ways that consolidation will happen. There will always be a lot of very small players. There is horizontal and we are looking for other content providers to help maximize our margin. There is also vertical consolidation with content providers merging with companies that are upstream or downstream in the supply chain. Our preference is horizontal.”IFE Services now has 50 clients across all geographic regions with its core business to provide value added services and content to airlines.He indicated games did not get a large uptake owing to the lack of sophistication and limited number of games available on board.“From a games perspective the offerings now are pretty poor so there hasn’t been great uptake,” said McEwan. “But for people interested in a gaming device, that can also do other things necessary for IFE, the technology is enabling a better experience.”However, he sees that changing rapidly for two reasons. IFE Services offers a proper gaming system since the PSP is a gaming platform. Secondly, the rise of Asian carriers and the growing traffic to, from, in and around Asia will make a huge difference since they are much more geared to gaming than are traditional markets. Between the two factors — more sophisticated equipment and rising traffic, he sees good growth rates for gaming in the future.
Kathryn Creedy, Inflight / Inflight-Online.com