Elemental, Riding Wave of Online Video Delivery, Picks Up More Broadcast Business as Rivals Exit

File this under “one to watch more closely.”

Before I tell you about the company or its news, consider a few trends. People are watching more videos on their iPads and other tablet devices. Broadcasters, cable companies, and video content owners are starting to focus more on how to deliver TV shows and other entertainment “over the top,” directly to Internet-connected devices. Amazon.com (NASDAQ: AMZN) is now competing in cloud-based entertainment (online music and video); one of its advantages over Netflix, Hulu, and others is that it’s an early adopter of using graphics chips (GPUs) for cloud-computing applications like video processing.

Speaking of video processing, there has been some interesting activity in that sector. In the last month, North Carolina-based Inlet Technologies was acquired by Cisco Systems (NASDAQ: CSCO) for $95 million. And the Irish Times reported a rumor that San Francisco-based online video firm Envivio plans to file for an IPO in July (with a valuation between $280-$340 million). That might leave Portland, OR-based Elemental Technologies, one of the few independent companies left in the sector, in a good spot.

And Elemental has some news today: PBS, the broadcasting network, is using Elemental’s software, together with a system from Redmond, WA-based RadiantGrid, to convert video files to the right formats quickly and efficiently for distribution. The significance to Elemental is that the startup now counts seven of the 10 biggest media networks as customers, including Disney/ABC, CBS Interactive, and Time Warner Cable.

“It’s a sign you’ve been approved by someone willing to bet on new technologies to lower their cost and provide a better experience for consumers,” says Elemental CEO and co-founder Sam Blackman. He adds that PBS will save millions of dollars per year by switching to file-based video delivery. (If you know what a transponder is, the PBS system can now use one instead of seven of them, Blackman says.)

A quick update on Elemental: The company, which started in 2006 with the idea of reinventing how people watch video online, now has 39 employees, and its revenues this quarter are “very significantly greater” than in the same period last year, Blackman says. He declined to give more specifics about revenue growth or profitability.

Given some of the ongoing consolidation in online video companies, I asked him about possible exits for Elemental—but he didn’t take the bait. “Elemental is completely focused on creating great products for our customers,” he says. “Our focus is on not getting distracted.”

Nevertheless, the market is opening up to the mainstream, which could bode well for a fundamental technology play like Elemental. “The space is definitely heating up,” Blackman says. The trend towards Internet video delivery to devices like tablets, he says, is “a wave that’s growing very fast right now and lifting companies in the space.”

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