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Ken Kirschenbaum

Does RMR tell the whole story?

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Wednesday, September 4, 2013

Today, Ken Kirschenbaum, an industry attorney, broached the topic of valuation in the alarm industry in his email to subscribers. In the monitoring space, a company’s valuation is based “exclusively on a multiple of RMR,” Kirschenbaum explains. A reason for this is that, in a sale, an alarm company isn't selling its ongoing business so much as its subscriber accounts. 

While the RMR multiple can shed light on the value of a company on the verge of a sale, it doesn’t tell everything. In fact, as Kirschenbaum explains in the preface to an article by Dorsie Mosher of the Davis Group, RMR multiples can fall into a wide range based on several variables, such as contract stipulations, as well as financing and accounting decisions within the company. 

This is why investors and financial institutions tend to prefer EBITDA—earnings before interest, taxes, depreciation and amortization—to RMR. They regard the former as the more telling valuation metric, says Mosher, because, simply put, the figure is less prone to flux due to uncontrollable variables. Through EBITDA, investors can get a better idea of how much cash will be generated to pay debts and finance future growth. 

“A company can have $1 million in RMR and still be losing money, which is certainly not what the investor is looking for,” Mosher writes.

Kirschenbaum, for his part, believes EBITDA is not about to replace RMR multiples as the primary valuation metric in the alarm monitoring space. But when it comes to mergers, acquisitions and financing, it’s worth keeping in mind that RMR isn’t the only valuation category all parties are taking into account. 

The value of an IP address

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Monday, August 5, 2013

As promised in my last blog, I’m going to touch on another service discussed in Ken Kirschenbaum’s new technology seminar, held last Friday, that could offer some significant benefits to monitoring companies.

The company, called Keep Your IP, is an IP forwarding service that allows dealers to retain their IP addresses, giving companies the ability to move from one central station to another without sacrificing the value they’ve built within their organization. Davin Roos, president of Keep Your IP, discussed several benefits of maintaining IP continuity. The crucial word? Control.

If, for instance, a dealer wants to partition some accounts, or even sell the entire organization, the fact of selling to a company that uses a different central station can devalue the sale, Roos explained. Having your own IP address (and, by extension, your own server) can help companies avoid incurring costs that result from the man hours required to make necessary changes. Roos added that the company is working with some of the major central stations to bundle packages that feature the service to dealers.

Some additional benefits for dealers include having the luxury to move central stations if a current one is under-performing, greater RMR consistency (especially during times of economic crisis), and the freedom to make changes after a central station switches their Internet service provider. 

Yesterday is gone, tomorrow is here: Notes from the webinar

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Thursday, August 1, 2013

Earlier today I listened in on a technology webinar, hosted by Ken Kirschenbaum, an industry attorney, that featured several voices both in the industry and in intersecting fields. Many of the speakers are at the forefront of technological innovation as it pertains to the central station space, so naturally the discussion dealt primarily with how to stay competitive by leveraging new technology that can improve retention and carve out new sources of RMR.

A recurring theme of the talk, unsurprisingly, was the emergence of the cableco and telecom giants, and what the competitive implications are with respect to their entry.

In 10-minute intervals, panelists presented commentary on a range of products and services. Some were pretty compelling, not only from a novelty standpoint, but also because many of the products seem like they could have some allure for monitoring companies and their distributors.

One of the more non-traditional services was presented by John Hoffe, president and CEO of Linked24, a product suite with several applications for mobile devices. Designed for dealers, the service features a GPS locator which, depending on the mobile device, can report an updated location of a loved one every three minutes. But that may actually be the company’s least buzzworthy product.

Another offering from Linked24 is its “Safe Text” service, which monitors incoming and outgoing messages for anything untoward, such as “inappropriate language and acronyms,” according to the website. If it detects any one of more than 750 pre-selected words, the text is uploaded to a customer portal for review. It’s a helicopter parent’s dream, and, brave new world though it is, it’s tough to imagine this product won’t find a home somewhere. But we’ll have to wait and see if that home will be among the dealer networks of wholesale monitoring companies.  

That’s not all. There’s also an “Emergency Shake” product that allows a customer in dire straits to open a Linked24 application then shake or drop their phone, whereupon a camera is engaged to shoot a 10-second video clip. The administrator of the account is then automatically notified.

Some of these offerings may come across as a bit intense from a personal privacy position, but there’s no question some have the potential to thwart an unforeseen problem, particularly the phone shake feature. And, with the mobile surge in full swing, it’s not unrealistic to imagine dealers giving strong consideration to products of this ilk to help boost their RMR.

It dawned on me just now that I’ve alluded to one speaker thus far, despite the fact there were several more who offered insight and product commentary that were more than worthy of mention. In my next blog or two, I’ll be sure to highlight the most resonant points offered by some of the other knowledgeable panelists. Stay tuned...

Contract chat: exculpatory and limitation of liability clauses

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Wednesday, July 31, 2013

A few weeks ago, in response to a Georgia appellate court decision upholding a verdict against Monitronics in a multi-million dollar case, Ken Kirschenbaum, an industry attorney, posed a simple question on his email newsletter to subscribers: "Why should an alarm contract be drafted so that judges find so much confusion?" 

It's a fair question. There was little consensus among the appellate court judges, and some of the judges who concurred with the original verdict cited different reasons for doing so. While the case is not yet settled (it may yet move to a higher court), the implication seems to be that the exculpatory and limitation of liability provisions in the contract were not established in a manner that could provide adequate protection.

This is an issue that stands to remain relevant for central station alarm monitoring companies everywhere. The case, too, is a big enough deal that Kirschenbaum himself updated some of his standard form contracts to make the protective provisions more enforceable, and account for some of the worst case scenarios which surfaced in the Veasley v. Monitronics case.

From Kirschenbaum’s newsletter:

“Why did I make the changes even though the Monitronics case is likely to be appealed and hopefully reversed? Because the same issues raised in Monitronics have been and will continue to be addressed in courts all over the country. Courts are looking for ways to impose duties on the alarm companies and avoid contract enforcement.”

Part of what makes the Monitronics case so legally murky, and even intimidating from a contractual standpoint, is that the end result, as Kirschenbaum points out, was personal injury. What’s more, the injury was caused by service rather than equipment negligence, the court determined.

Kirschenbaum’s piece is worth a read in its entirety because it discusses the sheer breadth of considerations that have to be made when designing a contract with clear and enforceable protections. You can subscribe to his newsletter here.

Remote doormen: No jacket required for RMR, but mind your data

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Wednesday, June 26, 2013

Does anyone remember Carlton, the heard-but-never-seen doorman from the forgettable ’70s sitcom “Rhoda”? Little did anyone realize it, but the character was destined to become a model for RMR more than 30 years later: a remote gatekeeper providing access without the need for actual flesh and blood at the doorway.

Carlton and his real-life colleagues have increasingly given way to remote doorman service, with access granted after audio and video review by a central station operator. Depending on the technology that has been installed, the operator can also escort a person through the building after allowing entry. It’s typically safer and cheaper than a 24/7 doorman, and it negates the need for mindless chitchat.

The problem lies in the recording of the encounter, or more specifically what can happen to the data after the encounter. A security company generating RMR from a remote doorman needs to know what regulations are in place to govern the surveillance and what can happen if they don’t meet the letter of the law.

Industry attorney Ken Kirschenbaum took on the topic in a recent online missive that serves as an effective primer for anyone looking to dip into this stream of revenue. Here’s a bit of what he had to say:

The service necessarily has to be concerned with state video and audio laws. Video laws vary; some are rooted in voyeurism laws and others refer to using another’s picture for commercial gain. Audio laws are more similar and are either one-party consent or all-party consent. 

“As with any video or audio system or services, you run the risk of misuse. You also can’t escape the likelihood that other non-consenting people may be in the range of the equipment. For example, while escorting the mailman or the pizza delivery guy in the building, the operator may pick up video or audio of a tenant or others in the corridors or lobby. While the mailman may understand that he is talking with an operator who can see him on video, others [who] may be picked up and recorded are not so advised, and in any event have not consented.

“The real problem is not in the listening or recording, but in the improper use of the data. If data is not disclosed to anyone, then no one is the wiser. It's when the data [becomes] public or it is used for an improper purpose—such as blackmail—that you need to be concerned with violation of the video and audio laws and the consequences that flow from such improper conduct.

For more information on the audio and video laws that could affect your company, click here.

Lowe’s Iris: Boon or bane in fight against false alarms?

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Wednesday, August 8, 2012

On one hand, it’s hard not to see the appeal of Lowe’s new Iris home management system. It’s do-it-yourself for those with the dexterity to install a thermostat, it’s cloud-based so homeowners can control and check on their properties remotely, and it’s inexpensive: starter kits range from $179 to $299, and there are no monthly fees for those who choose to do their own alarm monitoring.

On the other hand, how many homeowners are really prepared to be their own central station?

Sarah-Frances Wallace, a Lowe’s spokeswoman, recently touted the self-monitoring aspect of Iris in an interview with SSN's Tess Nacelewicz. Wallace said homeowners “can respond appropriately” when they receive a security alert, using an Iris camera to see “if there’s an intruder in your home that would require police response … or if it’s the dog knocking something over.”

Wallace said DIY monitoring helps avoid the problem of false alarms, for which many municipalities now charge homeowners a penalty. “This kind of gives the homeowner more control over triggered alarm events in the home,” she said.

But what happens when the homeowner decides the alarm is legit, they call 911, police respond and they find nothing amiss? What happens when the scenario gets played out three or four times in a month at the same residence? Do you think the municipality is going to continue to absorb the cost of dispatching officers and cruisers?

Ask any alarm company owner and I think you'll get a consistent response to that. Municipal budgets are tight and they're only going to get tighter. Just because a professional wasn't involved in the installation and monitoring of a system doesn't mean local officials are suddenly going to forgive and forget when it comes to false alarms.

For homeowners who want a little help when it comes to dealing with alerts from their Iris system, Lowe's offers a self-monitoring service for $9.99 a month. "You can set it up so if there's a triggered event in your home, it would email [or text or call] your neighbor … [or a] small network of people you'd want to receive notification of events," Wallace told SSN.

The service is ideal "if you're on vacation and you receive a notification that there is an event in your home," she said. "You could contact your neighbor—because they've also received [the notification]—and they could look into it for you."In a perfect world, it all ends well. If a pet triggered the alarm and the neighbor happens to be around to make that determination, everyone sleeps easy that night. But what if it wasn't Fido who did the deed and it's an intruder instead? What happens when the neighbor walks headlong into that situation?

Hello, Ken Kirschenbaum.

The point is, there are times when it pays to do things yourself and times when it pays to let professionals handle it. Again, it's hard to dispute the appeal of Lowe's Iris system for many people and for many applications. But should home security be one of them? Let the buyer beware.

Court decision favors ADT—and other alarm companies

Industry attorney: It's 'a good decision for the alarm industry’
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05/02/2012

PASADENA, Calif.—ADT came out a winner in a recent court decision here, and the finding also is good news for others in the alarm industry, according to industry attorney Ken Kirschenbaum.