TiVo is acquiring Durham startup Digitalsmiths, which is focused on search, personal recommendations and browsing technology that provides video users from pay TV to mobile devices with catered choices.

The deal was announced early Wednesday.

The firm’s co-founders told WRALTechWire in an interview that they will remain with the company after the deal closes. They also expect almost all of Digitalsmith’s employees to remain with the firm.

Digitalsmiths also will remain based in Durham. Digitalsmiths moved to the Triangle from South Carolina in January 2007.

The company also had not been put up for sale but was approached by multiple potential buyers, co-founders Ben Weinberger and Matt Berry said. The two have known each other for 14 years, having met at a business incubator at Southern Illinois University, which they both attended.

TiVo declared DigitalSmiths “the Pay-TV industry’s most broadly adopted cloud-based content discovery and recommendation service.”

Its proprietary “personalized video discovery” technology that enables TV watchers to quickly find programming through search and even fits their mood has now landed the company seven of the top pay TV providers in the U.S. The company’s employee headcount has surged in recent months (“north of 70,” an exec told WRALTechWire) and announced a new operation in Denver last fall.

While the company is privately held and won’t discuss details of its finances, it does acknowledge reaching “continued profitability.” The firm began turning a profit in 2013.

Digitalsmith’s co-founders hailed the news and said the Digitalsmiths team would become part of San Jose, Calif-based Tivo. Digitalsmiths is based at the American Tobacco Historic District. The venture capital-backed firm launched in 1998.

“The Digitalsmiths team is excited to be part of TiVo,” Weinberger said in the deal announcement. “Both Digitalsmiths and TiVo share an acute focus to improve the consumers’ viewing experience, and we understand the importance of the ‘service’ or ‘cloud’ to achieve this goal through next generation personalized video discovery solutions. “I look forward to working as part of the TiVo team to provide a best-in-class product set to service providers, consumer electronics manufacturer’s and content providers.”

Added Berry, who serves as chief operating officer and chief technology officer:

“TiVo values our core mission of providing superior personalized video discovery experiences for our customers and partners.“TiVo’s acquisition of Digitalsmiths underscores the robust technology and deep customer base Digitalsmiths powers. We are confident joining forces with TiVo profoundly enhances our ability to seamlessly deliver industry leading video discovery solutions that drive superior customer satisfaction and better usage metrics for video services.”

Digitalsmith investors include Triangle-based Aurora Funds as well as 406 Ventures, Chrysalis Ventures, Cisco and Technicolor 

Its clients include: Time Warner Cable, Bright House Networks, Cisco, Foxtel, Warner Bros., Paramount, Technicolor, Univision, Turner Sports, the NBA, the PGA, NASCAR, zeebox and i.TV.

According to the company, Digitalsmiths technology is now licensed for use in more than 100 million households with international growth now the “largest area.” An executive recently told WRALTechWire that Digitalsmiths’ technology is more widely used “than any other solution, including: iOS, Android, Roku, Xbox, Playstation, and multiple set-top boxes models.”

“New Opportunities for Tivo”

In the announcement, TiVo CEO Tom Rogers said Digitalsmiths provides “new opportunities” to expand its own video-related services.

“The Digitalsmiths acquisition opens new opportunities to commercialize and deploy TiVo’s cloud based services and technologies to operators, in an extremely cost effective way that can be offered either independently or in conjunction with TiVo’s renowned user interface,” Rogers said.

“Additionally, Digitalsmiths contributes expertise, data opportunities, and approaches that complement and extend TiVo’s extensive work in advanced television to customers seeking search, recommendations, and portability. Our acquisition of Digitalsmiths will expand TiVo’s role with Tier-one U.S. Service Providers through its significant relationships with the 7 of the top ten 10 U.S. Pay-TV providers, which serve 64% of the country’s Pay-TV households.”

Highlights of the Deal

Tivo cited several reasons for making the deal:

• Accelerates TiVo’s evolution to a device and UI independent cloud-based Software-as-a-Service, yielding a significant expansion in market opportunity for TiVo.
• Digitalsmiths’ cloud-based service allows Pay-TV operators to deliver an advanced user experience integrating search, recommendations, discovery and browsing across a variety devices including iOS, Android, Roku, Xbox, PlayStation, Kindle and multiple set-top boxes
• Digitalsmiths has relationships with 7 of the top 10 US Pay-TV operators, reaching 64% of US Pay-TV households; Pay-TV Customers currently 10% penetrated and expected to grow to over 50% penetration in the next few years
• Digitalsmiths is experiencing rapid growth in transaction volume. The company’s cloud service handled 90 million transactions in July 2013, growing to almost 150 million in December 2013
• High growth opportunity; Digitalsmiths revenue has experienced rapid revenue growth since launching its Seamless Discovery service; Anticipate positive Adjusted EBITDA contribution in Fiscal 2015 (begins February 1, 2014); Expect continued rapid growth in revenue and Adjusted EBITDA as well as material contribution to TiVo’s financials in Fiscal 2016
• TiVo will pay $135 million in cash for Digitalsmiths