Telstra (ASX:TLS) has warned shareholders that it expects to be hit by a $273 million impairment charge after the decision to write down the value of its intelligent video business, Ooyala, to zero.
Telstra acquired nine per cent of Ooyala in 2012. Australia’s largest telco then invested an additional US$270 million in the US-based video streaming company in 2014, boosting its stake from 23 per cent to 98 per cent of the business.
The acquisition was part of a broader strategy to provide end-to-end solutions for broadcasters and over-the-top companies.
At the time of the investment surge, the telco said Ooyla would become a subsidiary of Telstra and operate as an independent business, retaining its brand, structure and management under the Group following the takeover.
Now, Telstra has told shareholders that, following completion of its impairment testing process for the half year ended 31 Dec 2017, it expects to “recognise an impairment charge of A$273 million against goodwill and other non-current assets in its results for that period to write the company value down to zero”.
This estimate is subject to audit and risk committee and board review and approval.
Telstra said it identified challenges in the business and changing market dynamics 18 months ago and impaired the business at the time of its 2016 results.
According to Telstra group executive technology, innovation and strategy, Stephen Elop, who is chairman of the Ooyala Board, there have been “substantial efforts” over the past 18 months to improve the business performance.
“This was a business that Telstra purchased when the market dynamics were very different,” Elop said. “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.
“We believed Ooyala remained a young and exciting company with leading offerings in intelligent video which were continuing to evolve and scale,” he said. “While some of these initiatives have been successful, the market has continued to change.
“The new Ooyala management team is making positive progress through improved booking trends, product quality and reduced customer churn. However the business has yet to achieve sufficient scale,” he said.
According to Elop, there are three key parts of the Ooyala business -- ad tech, OVP (video player) and a workflow management system (Flex media logistics).
“Ad tech, has not performed well and we will therefore seek ways to exit that part of the business,” he said.
Although the subsidiary's ad tech business is likely to be discontinued, Elop said that Telstra sees a future in the other core parts of the Ooyala business, including the business's video player and the workflow management system.