Prospectus Summary
This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should carefully read the entire prospectus, including “Risk Factors” and our consolidated financial statements and related notes, before making an investment decision. Unless the context otherwise requires, we use the terms “Synacor,” the “company,” “we,” “us” and “our” in this prospectus to refer to Synacor, Inc. and its subsidiaries and predecessor entities on a consolidated basis.
Our Business
We provide an Internet platform and a portfolio of digital content and services that enable broadband service providers to create a compelling online experience for their subscribers. Our platform is used to create customized Internet portals and includes integration infrastructure, subscriber personalization capabilities, a content management and delivery system and a customer-branded video player and toolbar. Our platform also aggregates free and paid digital content and value-added services, including video, from third-party providers to create a customized and branded Internet portal solution. We deliver a seamless subscriber experience by integrating these services and products with existing customer billing and management systems, thereby allowing our customers to extend their brands and enhance their subscriber relationships. We believe our solution assists our customers in promoting subscriber retention, increasing average revenue per user, or ARPU, and cultivating new revenue streams.
Our customers primarily consist of providers of high-speed Internet access, or broadband service providers, such as cable television multi-system operators, or MSOs, telecommunications operators, or Telcos, and independent Internet service providers, or ISPs. Our customers include, among others, Charter Communications, Inc., EarthLink, Inc., Embarq Corporation, Time Warner Cable Inc., United Online, Inc. and Virgin Media Limited. Based on our own internal estimates, we believe that, as of March 31, 2007, our customers had over 21.0 million broadband Internet subscribers, over 5.0 million narrowband Internet subscribers and over 33.0 million household television subscribers in the United States and the United Kingdom.
We have an extensive network of relationships with digital content and service providers. By combining our technology platform with our portfolio of digital content and services, we enable our customers to flexibly package content and services for their subscribers, which allows them to differentiate their brand and respond to changing subscriber needs. Our content providers include, among others, CinemaNow, CNN, Encyclopedia Britannica, Fox Sports Interactive Media, MLB Advanced Media, MusicNet, Inc. and NASCAR.
We generate subscriber-based revenues from the provision of our technology platform, value-added services and paid content. By using Internet search and advertising technologies, we also generate revenues from subscribers’ usage of our customers’ websites, which we refer to as traffic. We have a revenue-sharing relationship with Google, Inc., or Google, that allows us to monetize search activity that takes place on our customers’ portals, and we work with several advertising networks to monetize traffic generated by our customers’ portals with display and other forms of non-search advertising.
Our Industry
The Internet has emerged as a global digital medium for content, communications, advertising and commerce. According to International Data Corporation, or IDC, the number of households with Internet access in 2006 was approximately 72.3 million in the United States and 306.7 million globally. IDC estimates that the number of broadband Internet subscribers in the United States will increase from 56.3 million in 2006 to 91.5 million in 2011, while the total number of broadband subscribers globally will increase from 232.7 million in 2006 to 386.6 million in 2011.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1The growth of the Internet has also led to increasing demand for digital content and services. According to Frost & Sullivan Limited, or Frost & Sullivan, the U.S. residential online paid content and services market, which includes music, online games and video, is projected to grow from $3.1 billion in 2006 to $8.8 billion in 2011. As digital media consumption, commerce and overall usage grow across the Internet, advertisers are also shifting a greater proportion of their marketing budgets online. According to IDC, online advertising spending in the United States is projected to increase from $16.9 billion in 2006 to $31.4 billion by 2011.
Against this backdrop, there is an emerging trend towards convergence of digital media within the residence. Consumers are increasingly using their home networks to access multimedia, such as streaming video, music and online content, from multiple platforms, including personal computers, stereos, home theater systems and a variety of Internet-enabled networked devices. IDC forecasts that the number of network-enabled video devices, one of the key building blocks of this “digital home,” will grow from 1.6 million units in the United States in 2006 to 45.3 million units in 2011, for a compound annual growth rate, or CAGR, of 96%.
As usage of the Internet continues to grow, the broadband access market has become increasingly competitive due to the commoditization of Internet access, pricing pressure, evolving consumer demand and the advent of competing new access technologies. MSOs and Telcos are competing directly with each other by packaging broadband Internet access with other services, such as fixed-line voice, television and mobile communications. At the same time, Internet media and technology companies such as AOL LLC, Google, Microsoft Corporation and Yahoo! Inc. are competing with MSOs, Telcos and ISPs for consumer loyalty and spending. To retain subscribers in this competitive environment, broadband service providers are seeking to evolve from providers of basic voice, television and Internet access services to integrated providers of digital content and service offerings.
To maintain and grow their subscriber bases and effectively compete in the current environment, broadband service providers are seeking to provide a differentiated solution—in particular, compelling digital content and value-added online services—that can help promote subscriber retention and increase their ARPU. Providing online content and services, however, has not traditionally been a focus of broadband service providers, and many have not developed the expertise required to provide a seamless user experience integrating a broad range of online offerings. Constantly changing subscriber needs and tastes and rapidly evolving technology, coupled with the difficulty of delivering a digital media experience, create technical and management challenges for companies seeking to deliver these offerings. Broadband service providers are also challenged to extend and strengthen their brand beyond the core Internet access market.
Our Solution
We provide an Internet platform and a portfolio of digital content and services that enable broadband service providers to create a compelling online experience for their subscribers. Our solution provides our customers with the following key benefits:
Differentiation of Broadband Service Providers’ Offerings. Our platform enables broadband service providers, both domestic and international, to differentiate their offerings by packaging and customizing a wide variety of free and paid digital content and value-added services for their subscribers. Our platform also includes a comprehensive content management and delivery solution that enables our customers to aggregate and deliver content and service offerings from diverse sources.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1Access to a Diverse Portfolio of Digital Content and Services. We have an extensive network of relationships with content and service providers and aggregated a broad portfolio of digital content and services. Using our platform, we and our customers can flexibly package such content and services and make them available to their subscribers.
Ability to Integrate Different Technologies. We integrate our platform with our customers’ internal systems, which allows subscribers to access third-party content from within the customer-branded portal with a single sign-on and consolidated billing.
Focus and Expertise in Delivering Services and Content. We are singularly focused on developing an Internet platform and providing a portfolio of digital content and services for our customers. The size of our customer base, together with their associated subscriber footprint, and the depth of our technology expertise provide us with the ability to continually develop and refine our solutions in a way that may not be feasible for many of our customers on a stand-alone basis.
Support for Online Branding Strategies of Broadband Service Providers. Our solution is a “white label” solution that features the customer’s brand and not ours. Unlike co-branded solutions, where the solution provider could have different or competing objectives and could seek to promote its own brand, we focus solely on strengthening our customers’ relationship with their subscribers.
Enhanced Customer Presence in the Digital Home. Our solution offers our customers the ability to extend their presence in the digital home by providing them with a flexible technology platform that scales across multiple devices, including personal computers, television sets, personal multimedia players and mobile phones.
Our Strategy
Our goal is to accelerate the growth of our business and to achieve long-term profitability. In order to achieve this goal, we seek to:
Risks Related to Our Business
Our business is subject to a number of risks that you should be aware of before making an investment decision. These risks are discussed more fully in “Risk Factors” beginning on page 8.
Some of these risks are:
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1Our History and Corporate Information
Synacor was originally formed as a New York corporation in January 1998 with the name Chek, Inc., or Chek. Chek, an Internet messaging technology provider, designed and managed a proprietary messaging platform that supported the hosting of branded e-mail and time management applications. In December 2000, Chek acquired MyPersonal. com, Inc., or MyPersonal, through a recapitalization and stock swap and changed its name to CKMP, Inc. MyPersonal developed white label Internet community portals and built and managed a flexible platform for delivering content-rich, branded portals to affinity groups with a focus on the educational marketplace. In July 2001, CKMP, Inc. changed its name to Synacor, Inc., and in November 2002, Synacor re-incorporated under the laws of the State of Delaware. MyPersonal remained a subsidiary of Synacor until May 2007 when it was dissolved.
Our corporate headquarters are located at 40 La Riviere Drive, Suite 300, Buffalo, New York 14202. Our telephone number is (716) 853-1362. Our website address is www.synacor.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus or in deciding whether to invest in our common stock.
Synacor® and other trademarks of Synacor appearing in this prospectus are the property of Synacor. This prospectus contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
Industry Data
We make statements in this prospectus about our industry, including historical and projected future broadband subscribers and usage and on-line advertising expenditures. We have derived this information from reports and analyses prepared by third-party market research firms, including the following: IDC; Frost & Sullivan; eMarketer, Inc., or eMarketer; and comScore, Inc., or comScore. We have no reason to believe that any of this information is inaccurate in any material respect; however, we are not able to independently verify this information.
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1The Offering
The number of shares of our common stock to be outstanding following this offering is based on 11,800,955 shares of our common stock outstanding as of March 31, 2007, which assumes the conversion of all outstanding shares of our preferred stock, but excludes:
Unless otherwise indicated, this prospectus reflects and assumes the following:
End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1Summary Consolidated Financial Data
The following tables summarize the consolidated financial data for our business for the periods presented. You should read this summary consolidated financial data in conjunction with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, all included elsewhere in this prospectus.
We derived the summary consolidated financial data for the years ended December 31, 2004, 2005 and 2006 and as of December 31, 2005 and 2006 from our audited consolidated financial statements and related notes, which are included in this prospectus. The summary consolidated financial data for the three months ended March 31, 2006 and 2007 and as of March 31, 2007 are derived from our unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include, in the opinion of management, all adjustments, which include only normal recurring adjustments, that management considers necessary for the fair presentation of the financial information set forth in those statements. Historical results are not necessarily indicative of future results and the results for the three months ended March 31, 2007 are not necessarily indicative of the results to be expected for the year ending December 31, 2007.
callerid=999 iwidth=455 length=60 End box 1 END LOGICAL PAGE PAGEBREAK BEGIN LOGICAL PAGE Begin box 1The following table sets forth consolidated balance sheet data as of December 31, 2005 and 2006. The table also sets forth consolidated balance sheet data as of March 31, 2007:
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