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SunnComm Expands International Customer Support for MediaMax Using Innovative Strategy
September 15, 2004 09:00:00 AM ET
Innovative Customer Support Strategy Rejects Out-Sourcing in Favor of
Distributing the Fulfillment of Select Customer Support Inquiries to Its Technical Staff
SunnComm International (OTC: SCMI), a leader in digital content security and enhancement for optical media, announced today that it has initiated an aggressive plan to support the many millions of purchasers of audio CDs containing SunnComm's MediaMax copy management and enhancement technologies. The customer service initiative for MediaMax to date has yielded a tremendous amount of industry support for the product.
Peter Jacobs, president of SunnComm, said, "It is clear that SunnComm needs to be available on a global basis to answer questions such as 'how can I make a licensed copy of the music' or 'how can I use MediaMax to send a copy of a song to a friend' which are typical inquiries from consumers using a totally new product. We recognize satisfied consumers are paramount to the success of MediaMax in the US marketplace and equally important for every region around the world."
The company is expanding its current in-house technical staff to support the anticipated 2004/2005 worldwide release schedule containing its proprietary MediaMax copy management and content enhancement technology. "We believe that SunnComm's own technical staff best understands MediaMax, and that our team can best relate to the consumer experience and deliver the best customer support experience," said Michal Avniel, SunnComm's MediaMax division V.P. "By keeping our customer support in-house, we are assured of consistent, concise, prompt and courteous responses to music fans that purchase MediaMax CDs."
SunnComm's staff is currently fluent in 11 languages and has begun phasing in multi-lingual and regionalized support according to a prioritized plan and release schedule by its licensed record label and CD replicator customers. English, German, Spanish, French, Dutch, Polish, Mandarin Chinese, Hebrew, Bosnian, Croatian, and Serbian are some of the first support languages to go online. By the close of Q2/05, SunnComm expects to provide customer support to more than 40 countries across Europe, Australia, and North and South America.
"Linking our MediaMax customers to a helpful, knowledgeable, and friendly customer support staff highlights the kind of hands-on attention SunnComm is committed to deliver in order to provide the highest quality of service through a responsive and empathetic group willing to do whatever it takes to create a positive customer contact," commented Peter Jacobs. "There can be no better insurance of delivering high quality service than to have our technical staff and customer support personnel working together as a team. For us, saving money by out-sourcing our customer support domestically or offshore would be a false economy. SunnComm has earned high praise from our record labels, distributors, and retailers by delivering useful, friendly, and empathetic after-support to those purchasing MediaMax audio CDs. Our ability to identify and relate to the audio CD buyer/music fan drives our entire development process and is one of the significant distinctions that keep SunnComm far ahead of our competition. That's why we are America's largest supplier of copy managed and enhanced CDs," concludes Jacobs.
Thank you Sable, very good post, I agree 100%.
Q: Dear Mr. Jacobs.
The participants on InvestorsHub discussion board are concerned that MSVN may have developed the technology to interact their copy management protection for Itunes/Ipod. How are we doing in that development process. MVSN is likened to Goliath and we as David, it will not take a lot for them to overpower our position with major labels. We are also greatly concerned about not being able to get out of the pinks and unto a major board. How are we progressing towards that objective?
Lastly, we are concerned about our falling pps. We are on the threshold of dynamic growth and our earnings potential appears to be skyrocketing
however our pps is lower now than when we were in the development stage and not earning a dime in revenue, why are we taking such a beating? Tough questions, maybe so, but they are all of great concern to myself and my fellow investors many of which have been with Sunncomm from the first year. Hope you will find the time to respond.
Thank You. (8/23/2004 10:30:59 PM)
A: Let´s take ´em one at a time. SunnComm believes that Apple and their iPod technology is proprietary to Apple. Thus, we have chosen a path that respects the proprietary nature of Apple´s technology and that involves cooperating with Apple to provide consumers with the ability to convert music found on MediaMax CDs to Apple´s iPod. No other competitor has attempted this path, and I believe our goals regarding iPod playability on MediaMax CDs is the honorable way to go and will ultimately reward SunnComm, our shareholders, and the consumers. Time will tell.
Regarding your "David and Goliath" scenario, I think that your analogy is correct. Our largest competitor is a billion dollar company, and the odds of SunnComm becoming the market leader in optical media copy management has always been a longshot. However, at this time, MediaMax is the ONLY copy management system used commercially in the world´s number one CD marketplace, the US. What we do at SunnComm is focus on the deliverables to both our record company customers and their consumers. Nothing is more important to us than developing a copy management product with 100% playability that incorporates value-added features intended to increase awareness to consumers of the artist´s and other rights-holder´s wishes to limit the number of times that their work may be duplicated. We have seen our competitor´s new product and we believe that MediaMax 5.0 is superior in many ways. Again, time will tell - we can only do our best.
We have begun a process that is intended, with the help of SEC Regulation SHO and some very smart consultants, to flush out all individuals who are naked short our stock along with brokers with failed deliveries of SCMI on their books. This plan will culminate in moving off the OTC exchange. Management has made the decision not to reveal the details regarding this plan until they happen because doing so might jeopardize the plan´s effectiveness.
The market influences on SunnComm´s price per share are complex and factors, other than our business successes, seem to have more impact on our pps. There are plenty of stock market analysts out there who will tell why the market did what it did yesterday, but none who can consistently predict what it´s going to do tomorrow. SCMI is no different. General knowledge has it that once SunnComm lands enough contracts to become profitable, our share price may become more stable and cause our shareholder´s less heartburn. All SunnComm employees are shareholders as well, and want the same things as our other shareholders.
In summary, there are a lot of "ifs" about SunnComm. As you have said that you´re a long term investor, I don´t have to tell you that investing in SunnComm´s stock is no "get rich quick" scheme. Paraphrasing Warren Buffett, if you believe in a company´s business plan and you believe in its management, then a lower share price should represent a buying opportunity. If, on the other hand, you wake up one morning and the company has changed either its management or its plan, then you need to decide whether to continue holding your shares. The same is true if you lose confidence in management.
One thing is certain - they´ll be more surprises to come... Hopefully, most of them will be pleasant, but certainly not all of them will be. I believe that over the last 4+ years, the SunnComm people have proven that they are better trained than our largest competitor at dealing with whatever situation comes their way.
Best regards,
Peter
FBI gets tough in battle over copyrights
WASHINGTON - The FBI seized computers, software and equipment as part of an investigation into illegal sharing of copyrighted movies, music and games over an Internet "peer-to-peer" network, Attorney General John Ashcroft announced Wednesday.
Search warrants were executed at residences and an Internet service provider in Texas, New York and Wisconsin as part of the first federal criminal copyright action taken against a P2P network, in which users can access files directly from computers of others in the network.
The warrants sought evidence about the operators of five "hubs" of the "Underground Network," an organization of about 7,000 users who, prosecutors charge, repeatedly violate federal copyright laws by swapping feature films, music, software and computer games.
"The message is simply this: P2P or peer-to-peer does not stand for 'permission to pilfer,'" Ashcroft said at a news conference.
Unlike file-sharing networks popular with tens of millions of Internet users worldwide, the smaller network targeted by the Justice Department was managed by centralized "hub" computers that restricted participation. Technical experts said it operated similarly to the former Napster service, which the entertainment industry shut down in July 2000.
Industry groups say Internet piracy of intellectual property is a huge and growing problem. Ashcroft estimated $19 billion is the total cost to creative artists, management firms, distribution companies, theaters, and all the employees connected with them.
Jack Valenti, president of the Motion Picture Association of America, said the Justice Department initiative, dubbed "Operation Digital Gridlock," should "puncture the myth that illegal activity on the Internet is safe because it is not traceable."
Charges and arrests are likely to follow after the evidence is examined, investigators said. The maximum penalty for criminal copyright infringement is a fine of $250,000 and five years in prison.
The individuals involved in the search warrants operate some of the Underground Network's hubs, which act as a central point for people granted membership to exchange copyrighted files. Ashcroft said the hubs can store digital data equivalent to 60,000 full-length movies or 10 million songs.
The five hubs are called Movieroom, Project X/The Asylum, Achenon's Alley, Digital Underground and Silent Echoes, according to an FBI affidavit.
In a related development, the Recording Industry Association of America continued its legal campaign to halt illegal downloading of music by filing another 744 copyright infringement lawsuits Wednesday against individuals using such P2P networks as eDonkey, Kazaa, Limewire and Grokster.
The Justice Department also is preparing to announce the results of a nationwide campaign against the purveyors of e-mail "spam" that involves more than 100 arrests, search warrants, subpoenas and other law enforcement actions, said industry and law enforcement officials.
Many cases in "Operation Slam Spam" involve "phishing," which are e-mails that appear to be from financial institutions and other legitimate businesses but are actually fraudulent. They are used to induce people to provide credit card numbers and other personal information.
Other cases in the crackdown involve pornography and use of spam, or unsolicited e-mails, to infect computers with viruses that can obtain personal data or be used by a hacker to further spread the virus.
Congress last year passed a law making fraudulent and deceptive e-mail practices a crime punishable by up to five years in prison. Industry groups say spam e-mail accounts for almost three-quarters of the e-mail in the United States and costs consumers and businesses as much as $10 billion a year.
Music Companies
To Launch Format
With CD, DVD
By ETHAN SMITH
Staff Reporter of THE WALL STREET JOURNAL
August 25, 2004; Page D3
In an attempt to shore up music sales, a consortium that includes the four global recorded-music companies announced yesterday plans to introduce a new kind of disc that plays like a CD on one side and a DVD on the other.
The new format, known as DualDisc, is set to reach stores in October, with a handful of releases from Warner Music Group, Sony Corp. and Bertelsmann AG's Sony BMG Music Entertainment, EMI Group PLC and Vivendi Universal SA's Universal Music Group.
The discs were test marketed in February and are expected to reach wider audiences in October. The music companies have high hopes for the discs. Though album sales are up 7.5% for the year, they have fallen much more than that since 2000, and music retailers are struggling. At the same time, consumers continue to complain that they don't get enough for their money when they buy CDs. The DualDisc is an attempt to address these issues. Music companies for the past year have had some success bundling bonus DVDs with CDs.
The first batch of releases is likely to include a mix of new and old titles, by Miles Davis, Nine Inch Nails, Jane's Addiction and others. Prices will vary from title to title, but will mostly be near the cost of traditional CDs -- especially for those titles released only on DualDisc. The DVD side of some DualDisc titles will include surround-sound mixes of albums, much like the existing DVD-Audio format. Others will include material such as music videos, short films and the like.
DualDiscs are slightly thicker than traditional CDs, according to people familiar with the matter, potentially causing playback problems for about 1% of users. These people say that rate is virtually indistinguishable from the number of problems encountered by people playing traditional CDs. A spokeswoman for the DualDisc consortium said the new product "is totally within the overall thickness specification for both CD and DVD."
Past attempts to introduce replacements for the 20-year-old CD have been lackluster. DVD-Audio and Super Audio CD, or SACD, releases have appealed mainly to a small audience of audiophiles. Even the best-selling DVD-Audio titles, for instance, typically sell just a few hundred copies a week, according to people in the music industry, compared with tens or even hundreds of thousands of copies for top-selling traditional CDs.
Q: Since you have yet to answer my last email, I´m beginning to think this company is a scam. How is it that emails of no consequence are answered before mine? Why is the stock crashing? Can I please get my questions answered! (8/13/2004 1:32:37 PM)
A: Hi Jim,
The stock isn´t "crashing." SunnComm is NOT a get rich quick scheme, but a company who must build relationships with some of the largest entertainment companies in the world in order to succeed. What IS important to us is licensing more record labels for the use of MediaMax, developing improved products that will help SunnComm remain the market leader in our business, and increasing revenues.
Sorry, but all emails can´t be answered...especially questions regarding the comings and going of SunnComm´s price per share. Expect more ups and downs as the company grows through this stage. With market conditions the way they are, the company´s share price is simply beyond our control and in my opinion has absolutely nothing to do with our true value. Hopefully, as we progress, our value will fall more in line with both what I believe is our true present and future reality.
Everyone at SunnComm is doing their part in making our business plan a success.
(It´s a little late to call the company a scam. We have real customers, real products, and real revenue. The time to call us a scam was back in the days our products were in development. If you think these days are tough, you should have been around during the time before we had sold our products to anyone (-:
Best regards,
Peter
Q: What do you mean "bona fide SunnComm shareholders"? (your press release 7/27) (8/12/2004 1:18:59 PM)
A: Thanks for the question. The company and its consulting experts have determined a method by which we can assure that only shareholders who are the true holders of SunnComm shares will receive the up and coming Quiet Tiger dividend.
Although I cannot talk about specifics, I can say that we will leverage both the existing NASD rules regarding short sellers as well as the new SEC federal laws regarding short selling that is coming into effect, Regulation SHO, when making these determinations.
All bona fide shareholders will have nothing to worry about on dividend distribution day.
Oh ya, 380 mln outstanding and counting makes me feel much better... thnks Alj
Too many shares outstanding... 450 mln. The number of shares outstanding being deluted every chance management gets to issue new shares to support business. At this rate it would be very hard to climb to the level you mentioned.
One more time - Would it be possible that company started issuing ADDITIONAL 50 mln shares that were authorized at the shareholder's meeting?? Most likely they are desperate for the additional capital due to all the development and expansion and probably would want to issue these shares ASAP while price is still relatively up on previous announcements.
Also...
Not issuing QTIG shares to SCMI shareholders does not help either since this was clearly stated by the management as a done deal. It starting to look like these announcements are
made for public relations or other reasons (PPS), but not to really benefit shareholders. This is very disappointing to say the list since management keep making these annoncements while in fact they have no intention to execute. Due to this being Pink Sheets stock, they do not have be accountable, so here I am answering my own questions.
Could it be that the company started to issue these additional 50 mln shares that were approved during the shareholder's meeting?
05/16/04 Institutional holdings of BSML increased significantly
DVD copiers try to get around law
Associated Press
Posted Monday, May 10, 2004
NEW YORK - Court rulings have pulled the most popular software for copying DVD movies off the market, but a new program, already on sale at CompUSA and Wal-Mart, is trying to get around these rulings and still let users duplicate copy-protected discs.
The new software, called 123 Copy DVD, sells for as little as $19.99. Out of the box, it won't copy the vast majority of commercial DVDs, which are protected by encryption.
However, the manufacturer, also called 123 Copy DVD, has a Web site with a link to another site that contains a piece of decryption software. Users can easily download that patch, which allows the program to copy any disc.
Steve Thomas, the manufacturer's vice president, said the site with the decryption software is not affiliated with 123 Copy DVD.
But that claim is contradicted by Web site registration records, which show that both 123 Copy DVD's site and the site with the patch are owned by the same company, Bling Software Ltd., which has a Gibraltar mailing address.
Reached later, Thomas said he had been unaware that Bling Software owned the site with the patch. He identified Bling Software as 123 Copy DVD's parent company.
Federal judges in March ordered another company, 321 Studios Inc., to stop marketing its best-selling DVD copying software. That was a victory for Hollywood studios, which contended that DVD-copying products violate the 1998 Digital Millennium Copyright Act. That law bars circumvention of anti-piracy measures used to protect DVDs and other technology.
Thomas said that because 123 Copy DVD does not ship with decryption software, it does not violate the law.
Bruce Sunstein, an intellectual-property lawyer for Bromberg & Sunstein, a Boston-based law firm, said that the manufacturer is on shaky legal ground.
ITunes tweaks copy rules
By Matthew Fordahl Associated Press
Posted Monday, May 10, 2004
A year after Apple Computer Inc. proved that commercial music downloads from the Internet can be both convenient and legal, its pioneering iTunes software has undergone a revision that offers a flurry of advances - but takes one step backward.
ITunes 4.5 bumps up the number of computers that can play a song purchased from Apple's iTunes Music Store. It lets you share playlists and create attractive inserts for CD cases. And it builds on an already impressive set of features designed to help people discover new music.
But in a change that only the recording industry will appreciate, iTunes reduces the number of times the same list of purchased songs can be burned to compact discs.
Most people never hit the old limit of 10 burns and probably won't come close to the new restriction of seven. But such rules seem silly given that an audio CD can be easily duplicated. At least the new restriction doesn't apply to songs bought before last week.
The limit apparently hasn't cooled iTunes' popularity. Since the updated software was released last week, a record 3.3 million songs have been downloaded, Apple said Wednesday.
ITunes still sets the standard for music organization software and the ever-increasing population of online music stores. No one has come close to iTunes' ease of use and features.
The software itself remains free, works on both Windows-based and Macintosh computers and integrates perfectly with the iPod portable music player. I downloaded the 19.5 megabyte file for Windows and the 10 megabyte file for my Mac, and they flawlessly updated my systems.
If you haven't set up a library of music on your computer, the jukebox component of iTunes offers to organize one for you.
I have thousands of songs in my library and was impressed at the efficiency of both browsing and searching. Tracks also can be organized in playlists, which can even be set to update automatically based on factors like the number of times you've played the song.
Music can still be burned to a CD or DVD, provided the computer is equipped with a burner and the digital rights management restrictions on purchased music haven't been exceeded.
Another useful new feature called "Party Shuffle" automatically queues up songs from the library or a specific playlist and can give preference to music that you rate most highly.
The jukebox also has a handy feature that Microsoft Corp. is sure to hate. It can now convert unprotected Windows Media Audio files into iTunes' AAC format, making it easier for people to switch from Microsoft's music player to iTunes.
The iTunes Music Store, which is integrated into the iTunes software, has also undergone renovations, particularly getting more helpful at discovering new music. Songs still cost 99 cents and most albums $9.99. (The store remains available only to U.S. customers, though Apple says it's still planning to extend it to other parts of the world within the year.)
The front page showcases new releases, exclusives and staff favorites, among others. Apple's also making available music videos that can be watched gratis as well as movie trailers that appear with - surprise! - links to soundtracks. In all, more than 700,000 songs are for sale.
In recent months, Billboard charts dating back decades (minus any songs that aren't licensed for online sale) have been posted. Now, the store also links to lists of the most popular songs played by more than 1,000 radio stations from Abilene, Texas, to Youngstown, Ohio.
Now, users can publish their playlists so that they can be viewed - and ranked - by other users. So called iMix lists also can be e-mailed to friends and family, who can listen to the standard 30-second previews of each song before deciding whether to purchase it.
It's a fun way of sharing, even if it's not the old Napster. Apple attaches a price tag to each list of songs.
The improvements go on: 30-second previews can be saved in playlists that serve as wish lists; users can copy links to songs to e-mail to friends; Apple is even giving away free music each week.
All the improvements outweigh the tighter copyright restriction, but the fact that the rules are fluid lends credence to concerns that people are losing freedom and control over what's stored on their computers.
It also begs the question: What's next?
Quarterly Report for MACROVISION CORP Excepts
>>>>>>>>>>
MUSIC TECHNOLOGY
Revenues from our music copy protection technology products were 3.1% and 2.7% of our net revenues in the quarters ended March 31, 2004 and 2003, respectively. Currently, substantially all of our music copy protection technology revenue is from international territories. Additional product features, currently under development, may be required for the product to be accepted in the United States. We believe that revenues from our music copy protection technology products may increase in absolute terms as more customers in more geographic territories adopt our technology.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
NET REVENUES. Our net revenues increased 35.4% from the first quarter of 2003 to the first quarter of 2004. This increase is primarily driven by increased revenues in our video and software technology products. Video's DVD copy protection revenues increased $3.6 million or 25.9% from the first quarter of 2003 to the first quarter of 2004, due primarily to the continued strong growth of the DVD format and continued high penetration among Hollywood studio customers. In addition, during the first quarter of 2004, we recognized approximately $2.2 million of revenue from studio volume replicated during the fourth quarter of 2003. We were not able to record this revenue in the fourth quarter of 2003 due to delays in payment of amounts resulting from a prolonged contract negotiation. The increase in DVD revenues was partially offset by continuing decreases in videocassette copy protection revenues. Revenues from videocassette copy protection decreased $779,000, or 44.8% from the first quarter of 2003 to the first quarter of 2004, reflecting the continuing trend of Hollywood studios to discontinue copy protecting or more selectively copy protect their VHS releases. Digital PPV copy protection revenues increased $1.1 million or 38.2% from the first quarter of 2003 to the first quarter of 2004, due to increased demand for digital set-top boxes and an increase in usage fees. PC Games revenues decreased $223,000 or 20.0% from the first quarter of 2003 to the first quarter of 2004 due to decreasing volumes and per unit pricing received from a number of customers. Music revenues have increased $412,000 or 54.1% from the first quarter of 2003 to the first quarter of 2004 due to increased market acceptance of our CDS-100 and CDS-200 products by the music labels. Revenues from our software technologies group increased $5.8 million or 76.6% from the first quarter of 2003 to the first quarter of 2004, primarily due to increased market penetration.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
In November 2002, we acquired the assets and operations of Midbar for approximately $17.8 million in cash and related acquisition costs. In addition, we are subject to an additional maximum payout of $8.0 million based on a percentage of revenues derived from our sales of music technology products through December 31, 2004. During the quarter ended March 31, 2004, we paid $723,000 of such contingent consideration in cash relating to the second half of 2003.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Net cash provided by financing activities was $2.4 million and $1.2 million in the first quarters of 2004 and 2003, respectively. The net cash provided by financing activities are from proceeds of stock option exercises and the employee stock purchase plan. In May 2002, our Board of Directors authorized a share repurchase program, which allows us to purchase up to 5.0 million shares in the open market from time-to-time at prevailing market prices, through block trades or otherwise, or in negotiated transactions off the market, at the discretion of our management. Our repurchases of shares of common stock have been recorded as treasury stock and resulted in a reduction of stockholders' equity. We did not repurchase any treasury stock in the first quarters of 2004 and 2003. As of March 31, 2004, 2.0 million shares remained authorized for repurchase.
At March 31, 2004, we had $63.0 million in cash and cash equivalents, $112.6 million in short-term investments and $104.1 million in long-term marketable investment securities, which includes $24.9 million in fair market value of our holdings in Digimarc. We have no material commitments for capital expenditures but anticipate that capital expenditures for the next 9 months will aggregate approximately $3.9 million. We also have future minimum lease payments of approximately $36.2 million under operating leases. We believe that the current available funds and cash flows generated from operations will be sufficient to meet our working capital and capital expenditure requirements for the foreseeable future. We may also use cash to acquire or invest in businesses or to obtain the rights to use certain technologies
Has Macrovision No Shame?
The Motley Fool Take
http://www.fool.com/news/mft/2004/mft04050506.htm?source=eptyholnk303100&logvisit=y&npu=y&am...
By Rich Smith
May 5, 2004
On Monday after the bell, California-based intellectual property rights defender Macrovision (Nasdaq: MVSN) reported yet another fabulous quarter, whether judged by revenues, earnings, or pro forma (Latin for "ad lib") earnings.
For the first quarter of 2004, revenues rose 35% over the year-ago quarter. Net income for the company as a whole rose a whopping 55% compared to the prior first quarter, and per-share diluted earnings performed almost as well, up 50% at $0.21 per share (3% share dilution accounted for the divergence between companywide and per-share results).
With results like these, you have to wonder why Macrovision even bothered to report pro forma results. Usually, companies only resort to bragging about their "pro forma profitability" when they have not yet achieved GAAP profitability. Think Amazon.com (Nasdaq: AMZN) pre-2002.
Macrovision, in contrast, not only reported wonderful GAAP profits, its $0.21 in GAAP earnings trounced Wall Street's analyst estimates of $0.14. Yet the company went on to argue that, if you strip out goodwill amortization, gains and losses on investments, and other petty details, it actually earned $0.22 a share in "pro forma" profits -- a whole extra penny! Hooray!
No, check that. Boo! Hiss! There is a reason that pro forma reporting got the bad reputation it has today. American companies used it all the way from Bubble to Burst, to make their results look better than they really were.
When you let a company get away with telling you that this charge was "onetime," that cost was "non-cash," and the other loss was not so much a "loss" as an "impairment," you give that company free rein to manipulate its results and report whatever "profits" it wants to, whenever it wants to. That Macrovision felt compelled to use these kinds of accounting tricks and gymnastics-of-prose to eke out an extra penny on top of objectively great results, shows how pervasive the pro forma culture remains.
So this is my message to Macrovision: Next time, leave that extra penny on the table. Be satisfied with your GAAP profits. As Motley Fool Hidden Gems members know, GAAP is not a perfect system for measuring profitability (free cash flow analysis is better; structural free cash flow is better still). But it is a danged sight better than the malleable results embraced by pro forma accounting
Sony unveils music service, mulls 'iPod killer'
May 04, 2004 7:37:00 PM ET
LOS ANGELES, May 4 (Reuters) - Sony Corp. , which pioneered the market for portable music with its Walkman player 25 years ago, on Tuesday became the latest entrant into the increasingly crowded online music market.
The new service, Sony Connect, a unit of Sony Corp.'s Sony Corp of America, offers consumers more than 500,000 tracks at 99 cents a single and $9.95 per album.
Like competing services, including Apple Computer Inc.'s (AAPL) popular iTunes, Sony Connect lets customers buy songs and download them to portable music players. Users can also listen to songs that have been copied or "ripped" from CDs.
Some analysts questioned whether Sony's service is too late given the entrenched competition and the huge success Apple has had with its popular line of iPod music players.
But Sony Connect said it could still prosper if more customers turn to legitimate services and away from the remaining song-swap sites the record industry blames for a three-year slump in sales.
"Billions are still stolen, while only millions are sold. We're not trying to lure customers (away from other services), but to expand the market," said Jay Samit, general manager for Sony Connect.
A second Sony executive said the company had also not ruled out launching its own line of hard-drive based music player -- a device some observers have already dubbed an "iPod killer."
Sony's disc-based Walkman devices start at about $60, far below the iPod line, which starts at about $250.
Todd Schrader, vice president of marketing for portable audio products at Sony, said the company was "aggressively looking into a hard-drive device."
IPOD AN 'EXPENSIVE DEVICE'
But, he, added, that the "IPod is an expensive device. No matter what your level of income or technology preference, there is a device that will work with Connect."
Sony hopes to sell 7 million of its Walkman-branded digital music players in the United States by year-end, he said.
Apple remains the dominant force in digital music, having sold more than 3 million iPods, claiming nearly 50 percent of the digital music player market, while its iTunes store claims 70 percent of all songs bought online.
"Sony is a very strong brand and it's likely to be a real contender in the market, but what will determine their success is whether they unveil a device to compete with iPod," said Phil Leigh, an analyst with Inside Digital Media.
Josh Bernoff, analyst with Forrester Research, said he believed Sony had waited too long to enter the market, particularly as Apple faces a renewed push by Microsoft Corp. (MSFT) in the digital music sector.
Microsoft this week updated its digital-rights-management software for music and movies, saying it would work with more online services and devices, enabling them to connect to home PCs to play digital content over TVs and stereos.
Analysts said this could pose a problem for both Apple and Sony, whose services are tied to their own hardware.
"While Sony's is an extremely well-designed service, it's likely to be successful mostly with people who own Sony devices. It's too late and incompatible to compete effectively," said Josh Bernoff, analyst with Forrester Research.
"Obviously, the download market is taking off, but the preponderance of the services launching now are based on Microsoft Windows media and Sony's service works only with its devices," he said.
FROM MVSN First Quarter Revenues and Earnings Report
........ "We are very pleased with our first quarter results," said Ian Halifax, CFO at Macrovision. "Our revenues benefited from strong DVD copy protection revenues, and increased momentum in our enterprise software business. The first quarter was important to us for a number of reasons, notably the renewal of a multi-year copy protection contract with Twentieth Century Fox Home Entertainment, significant additions to the customer base in our enterprise software business and the release of the CDS-300(TM) solution for music CDs. ......
Digital Rights Management – An Emerging Market
Ben Johnson, Analyst First Securities Northwest
April 26, 2004
Digital media distribution and content delivery over the Internet is a burgeoning market,
driven by the increasing uptake and advances in broadband service as well as the growing
number of people online. Worldwide, the number of Internet users has grown to about
600 million at the end of 2003 (IDC) and is expected to reach about 1.4 billion by 2010.
Moreover, it is estimated that one out of every three households in the U.S. has
broadband service making consumption of Web content easier and faster. The number of
online households with broadband access is expected to grow to close to 60 percent
penetration by 2006.
The combination of more users online and more users with improvements in broadband
access has created an unprecedented demand for Web content. It has also given rise to
file sharing applications such as KazaA, Grokster, Morpheus and ShareMonkey, which
have been widely embraced by the Internet community. The primary activities associated
with these applications are sharing of music and video files. The music industry estimates
that it is losing as much as $4 billion annually to online piracy. Meanwhile, movie piracy
is costing the movie industry an estimated $3 billion annually as about 500,000 movies
are downloaded illegally over the Internet every day. Broadband access enables the
transfer of full-length movies in less than 40 minutes time, and this is expected to
increase to as little as 45 seconds with next-generation technologies on the horizon.
Exhibit 1. CNET Top 10 Downloads, Week Ending April 25, 2004
Rank Service Weekly Downloads Total Downloads Weeks on Chart Description
1 KazaA 1,471,089 346,014,103 104 P2P file sharing program
2 Ad-aware 1,317,297 37,114,958 75 Spyware/adware protection
3 ICQ Lite 1,186,297 47,522,332 81 Instant messenger program
4 Spybot 539,407 16,208,108 61 Spyware/adware protection
5 WinZip 525,680 117,179,917 393 Zip file software
6 iMesh 422,358 71,651,521 209 P2P file sharing program
7 ICQ Pro 2003b 230,890 245,221,883 344 Instant messenger program
8 Morpheus 198,497 122,484,952 156 P2P file sharing program
9 LimeWire 191,983 20,882,140 40 P2P file sharing program
10 Avant Browser 182,832 4,206,062 38 Ad/pop-up blocker
Despite copyright laws, and lawsuits from coalitions such as the Recording Industry
Association of America and the Motion Picture Association of America, as well as
through legislation in Washington, illegal file sharing is not going away. According to the
RIAA, computer users are downloading more than 2.6 billion copyrighted files (mostly
recordings) each month. At any given moment, there are more than 5 million users online
offering well over 1 billion files for copying through various P2P networks. The ease
with which consumers can download copyrighted content is fueling a pervasive
environment wherein consumers can find any content they want, and download it with
relative anonymity. This is further exacerbated by casual attitude that consumers have
towards the illicit aspect of the activity (see Exhibit 2 below). The existing P2P
marketplace is home to more than 80 million users in search of content.
Exhibit 2. P2P Network ShareMonkey User Poll
Below you can find all of ShareMonkey's polls since version 3.0 of ShareMonkey was released.
Do you think P2P will damage the movie industry?
(Added 23-02-2003)
37.54%
No, the same fuss was made when recordable video tapes were released
23.37%
No, they will always make millions
9.91%
Maybe, if enough people download their movies
13.43%
Yes, and P2P movie downloads should be regulated
15.76%
Yes and I don't care
Total Votes: 25,146
Source: ShareMonkey website, March 2004
Given the distributive nature of the Internet and the increasing sophistication of P2P
networks, the challenge for the entertainment industry is to find ways to deliver content
over the Internet that is both easy to use and secure while simultaneously supporting their
business models. To address that challenge, Digital Rights Management (DRM)
technologies are gaining wide acceptance with both the RIAA and the MPAA as an
effective and preferable means of protecting copyrighted content that is distributed over
the Internet. In addition to its ability to manage and control access to content, DRM
provides businesses with the flexibility to support a broad range of business models. In
April, 2003, we saw the first broad commercial implementation of DRM when Apple
moved to sell songs over the Internet for the iPod with iTunes (wherein songs purchased
from Apple’s online store can be burned onto CDs and played on up to three computers,
but are transferable only from the iPod).Thanks to DRM, the online music store market is
starting to get crowded with the likes of Walmart, Virgin and Napster 2.0 jumping in.
Not only has the entertainment industry broadly accepted DRM, it has become a priority.
IDC expects that the DRM market will grow rapidly over the next few years, climbing
from $96 million in 2000 to $3.57 billon by 2005. Consequently, we believe that the
DRM sector is timely from an investment standpoint, and will name a few companies that
are best positioned to see steady revenue growth as they provide DRM technologies to
counter online piracy that pervades the increasingly sophisticated and expanding P2P
networks.
2
What exactly is DRM?
Digital Rights Management restricts the use of digital files to protect the rights of
copyright holders. These technologies control file access (number of views, duration of
views, pay-for or free), altering, copying and saving. DRM technologies can be contained
within the operating system, program software or in the actual hardware of a device.
There are basically two aspects to DRM: (a) content is encrypted in a shell that can only
be accessed by authorized users (“containment”) and (b) the content is “marked” or
“tagged” as a signal to a device that the media is copy-protected.
The DRM Intellectual Property Land-Grab….Who is Grabbing?
Despite the widespread acceptance of DRM in the fight against online content piracy and
file-sharing, it is still a new and evolving technology that lacks standardization.
Consequently, the jockeying for position amongst several DRM firms has created an
unsettled environment, fragmented by incompatible formats and copy-protection
schemes. Ultimately what is needed for universal adoption of DRM is standardization
and interoperability that will allow consumers to access protected content and view or
play it on any number of proprietary platforms.
In the middle of the fray are bellwethers such as Microsoft, IBM, Sony and Phillips
(Intertrust), Apple, RealNetworks and Sun Microsystems. Ultimately, most of these
companies are fighting over who will control the software that controls the content. Here
is a brief overview and how we see them positioned in the marketplace:
The Key Players - Publicly Traded
• Microsoft (MSFT – Nasdaq) – The likely 800 pound gorilla in the DRM space is
promoting Windows Rights Manager, which is currently being held in check by a
legal challenge from Intertrust over patent infringements on Intertrust’s
technology. Microsoft has been widely accused of unfair dominance in digital
media. In December, RealNetworks sued the juggernaut for more than $1 billion,
accusing it of illegally monopolizing the market by requiring Windows users to
accept the Company’s media player. While the Company is, on the face of it,
driving standards to push towards interoperability through establishing the
Content Reference Forum (see www.crforum.org) with Macrovision (MVSN –
Nasdaq), ContentGuard, Universal Music Group, NTT, Verisign (VRSN-Nasdaq)
and ARM, the UK silicon house for mobile phone chips, its core specification 1.0
is clearly based on the work of ContentGuard – of which it is a shareholder. Last
week Microsoft announced that it is getting ready to release “Janus”, a copyprotection
software that will add a clock function to portable music players that
run on its Windows Media Audio (WMA) format. The Janus “app” would allow
downloaded tracks to be programmed to expire creating “rentals” of subscriptionbased
music libraries.
3
• Apple (AAPL – Nasdaq) – Given the huge popularity of iPod, Apple has been
able to pull ahead of Microsoft and RealNetworks in the DRM race. Recently, HP
announced that it is joining forces with it, reselling a variation of the iPod. This
means that a significant amount of Windows users will be pushed toward Apple’s
proprietary DRM scheme based on its AAC format and Fairplay (as opposed to
Microsoft’s WMA format). The importance of this cannot be overlooked since the
DRM land-grab really boils down to a format race. Whoever’s format reaches
scale first will likely be the one that the majority of copyright holders and
manufacturers go with. In the last quarter, Apple shipped 807,000 iPod units,
blowing away the Street’s consensus forecasts at about 500,000, and has a
backlog of iPod orders that it does not anticipate catching up with until at least the
4th quarter of this year. The iPod/iTunes component of Apple’s business is clearly
its strongest division and we think that if management at Apple can just stay out
of its own way, the iPod could eventually become a catalyst for users to switch
from Windows to the Mac. However, that is a big “if”. Pace Real Network’s
recent attempt to reach out to Apple for an alliance that would allow Real’s media
format to work on the iPod in an attempt to fend off steep competition from
Microsoft which plans to launch an online music store later this year. We think
this is a mistake on Apple’s part in that the key for any real growth in the industry
is allowing consumers to play downloaded music on any device. Instead, by
isolating itself, Apple is playing the same “tune” all over again that it did in the
1980’s when it lost dramatic market share to Microsoft by not effectively
establishing channel partners.
• Sony/Royal Phillips - Last year Sony and Royal Phillips got into the DRM game
through establishing a joint venture to purchase an interest in Intertrust
Technologies, which owns several DRM patents and technologies. The
Companies took Intertrust private in the transaction. The Intertrust JV is
developing a DRM system which Phillips plans to launch by June this year that
will allow consumers to play digital music and video on any player. Recent
rumors are that Sony is eyeing Apple’s iPod as an acquisition candidate. Sony
also plans on launching its own MagicGate DRM later this year. This week,
Microsoft is paying $440 million to InterTrust as a settlement to patentinfringement
claims. By the way, InterTrust is reportedly working on a DRM
interoperability layer that is, among other things, supposed to make Apple’s
iTunes play on other non-iPod devices.
• RealNetworks Inc. (RNWK – Nasdaq) – The Company’s Helix DRM 10
platform makes it possible to deliver secure media content to PCs and non-PC
devices including mobile devices and home appliances. Real Networks recently
announced its own online music store with improvements to its RealPlayer that
lets customers play music purchased through Apple’s iTunes store without
licensing Apple’s FairPlay DRM scheme (chances are that Apple will have
something to say about this in court sooner than later). RealNetworks is pursuing
a strategy that offers greater flexibility than Microsoft and Apple through
supporting each of the competing encoding formats, as well as the MP3 format.
This will enable consumers to be able to use a single media player on their PCs to
play and organize music purchased from all of the major online music sites.
4
However, songs downloaded from Real’s music store are encoded with Helix and
cannot be transferred directly to an Apple iPod. The Company has about 1.15
million paying subscribers for its premium players and streaming services.
• IBM (IBM – NYSE) – Big Blue’s Media and Entertainment group has launched
in initiative called extensible Content Protection (xCP) that includes encryption
software that allows media providers to give consumers to ability to view content
on any xCP compliant device. The Company provides DRM functionality through
its Electronic Media Management System (EMMS). Last week, IBM unveiled
xCP at the National Association of Broadcasters convention in Las Vegas, adding
to an even more fragmented marketplace for choosing a DRM scheme to go with.
• Macrovision Corp. (MVSN – Nasdaq) – Macrovision has rolled out a number of
application specific DRM solutions. Last October, it released a DRM technology
for the CD gaming market called Fade, which initially allows pirated games to
function normally, but gradually disables the game features over time. The idea
here is to get the gamer “addicted” to the game and then make it slowly
unplayable. This past week, it announced shipment of its FlexNet Publisher, the
cornerstone of its next-generation DRM system, which allows software publishers
to maximize their revenue by tailoring custom licensing packages in addition to
preventing piracy. The Company is working closely with Microsoft in the
development of its technology, as its latest music protection product – the CDS
300 – features Windows Media Digital Rights Management. It shouldn’t surprise
anyone then that Macrovision has received notice in January from the U.S. Patent
and Trademark Office of a second patent interference proceeding with InterTrust.
Menwhile, Macrovision has brought suit against 321 Studios the same week that
321 Studios has infringed on its patent on DVD copy protection technology. The
Company has more than 160 domestic patents issued and more than 850
international patents either issued or pending.
Private Co’s to Watch
• ContentGuard – Has developed XrML, which will likely become the common
platform for DRM in the entertainment industry given the fact that it has been
adopted by Microsoft and it is a very rigorous language with lots of flexibility.
Could be an acquisition candidate at some point for Microsoft or Sony, a licensee.
ContentGuard’s XrML is also endorsed by Hewlett Packard (HWP – NYSE),
Adobe Systems (ADBE – Nasdaq), Portal Software (PRSF – Nasdaq) and
Xerox Corporation (XRX – NYSE). In fact, in early April, Microsoft and Time
Warner (TWX-NYSE) both announced that they has become strategic investors
(Xerox already had an equity interest).
• Digital Containers Inc. – The Company has patented key content security,
authentication, e-commerce and media playback technologies suitable for use in
P2P networks and DRM. DCI’s DRM technology enables content to be played on
Microsoft, Apple and RealNetworks’ systems.
5
DRM Coalitions to Watch
• Project Hudson – Made up of Intel, Nokia, Samsung, Toshiba and Matsushita
that is focused on an Internet-based wireless DRM protection scheme that would
make it possible for users to share digital files on a limited basis or for files to be
shared for promotional purposes.
• Content Management License Administrator – An industry group set up by
Nokia, Intel, RealNetworks, mm02, Matsushita, Samsung and Warner Brothers
focused on providing vendors and service providers with processes and guidelines
for delivering digital content to mobile handsets and other devices that use the
Open Mobile Alliance (OMA) Digital Rights Management version 2.0 spec.
RealNetworks and RSA Security have recently announced plans to support
version 2.0.
Don’t Forget the Watermark
Digital watermarking is a pretty cool complement to DRM, allowing content to pass
through an analog environment (the “analog hole”) and over legacy equipment and while
still carrying information to identify usage rights, and then back to DRM. Richard
Parsons, CEO of Time Warner characterized the problem that the analog hole poses for
content providers, “Video content, even when delivered digitally in a protected manner,
must be converted to an unprotected analog format to be viewed on the millions of analog
television sets in consumer homes. Once content is ‘in the clear’ in analog form, it can be
converted back into digital format which can be then subject to widespread unauthorized
copying and redistribution, including over the Internet. This problem applies to all
delivery means for audiovisual content, from DVDs to pay per view to over the air
broadcasts.” Digital watermarking is believed by many to be the most promising
technology solution to blocking the analog hole.
• Digimarc Corp. (DMRC – Nasdaq) – Digimarc’s digital watermarking
technology enables DRM systems to connect content outside the DRM (in the
anolog domain) back the DRM. The Company has developed considerable
intellectual property, with more than 140 patents and an additional 350 pending.
The Company is effectively to digital watermarking what Content Guard and
Intertrust are to DRM. Digital watermarking is not DRM exactly, but worth
noting, as the technology will likely play a major role in DRM platforms moving
forward.
• USA Video Interactive (USVO – OTCBB) – Like Digimarc, USA Video
Interactive is a provider of digital watermarks. While considerably smaller, and a
relatively new entrant to the marketplace, the Company is developing some digital
watermaking IP of its own, which could make it a player to watch. In January, it
announced its first licensing customer and OEM partner, Tri-Vision International
(patent holder for v-chip technology).
6
Parting Thoughts
With the demand for content and rich media over the Internet surging and the prevalence
of increasingly sophisticated P2P distribution networks, the clamoring over who will be
the winner in the DRM wars is anything but “much ado about nothing”. Who will win the
platform war between Sony/Phillips, Microsoft, Apple and Real Networks? Microsoft
just always seems to come out on top of races like this, but Sony/Phillip’s InterTrust is
the holder of key patents. The pending infringement case will likely tell the tale. And
who will win the format war between Microsoft and Apple? It has been interesting to see
Apple change its colors in this one. They used to go it alone, and just assume that
offering superior technology would be enough. This time they are partnering up with
channel technology vendors such as Hewlett Packard that can give them the scale they
will need to take on Microsoft and its channels. Can smaller niche players like USA
Video Interactive stake their place in the market? If they do, chances are pretty good they
will go the way of InterTrust through acquisition by one of the larger players.
So what investment makes the most sense? The bad news, as we have noted above, is that
given the early stages of the market it is still not clear who the winners will be. The good
news is that chances are the key players mentioned in this report will be around long after
the dust in the DRM market has settled as they are generally well-positioned with
diversified product portfolios and revenue streams. In fact, the real money is only just
beginning to be invested in the market.
In 2003, we saw entertainment companies finally start building business models that
accommodate the Internet, but 2004 will be the year in which digital media and premium
content drive the online distribution channel. This is good news for DRM.
Digital Rights Management Index
Company Ticker
Stock
Price
Mkt. Cap.
(mil) 52-Wk Range
FY03 Rev
(mil)
FY04E
Rev (mil)
FY03
P/S
FY04E
P/S
Apple Computer Inc. AAPL $27.53 $10,241 $12.98-$29.58 $6,207 $7,490 1.63 1.35
Digimarc Corp. DMRC $13.24 $267.7 $11.02-$17.48 $85.6 $93 3.05 2.80
Macrovision Corp. MVSN $18.34 $903.6 $16.00-26.93 $128.3 $140 7.76 7.12
Microsoft Corp. MSFT $27.54 $297,277 $23.59-$30.00 $32,187 $35,900 8.54 7.66
Real Networks Inc. RNWK $6.68 $1,127 $4.73-$9.29 $202.3 $240 5.74 4.84
* Price as of 4/23/04
For More Information Contact:
1st Securities Northwest, Inc.
Ben Johnson (800) 547-4898
18824 SE Mildred St.
Portland, OR 97267
7
REGULATION AND CERTIFICATION
I, Ben Johnson, hereby certify that the views expressed in this research report accurately
reflect my personal views about the subject security(ies) or issuer(s). I further certify that
no part of my compensation was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed by me in this report.
The material herein is for informational purposes only and is not intended to, and does
not constitute the rendering of investment advice or the solicitation or an offer to buy
securities in any jurisdiction where such an offer of solicitation would be illegal. First
Securities Northwest, Inc. is not responsible for the marketing or price performance of
these securities. The information contained herein has been obtained from sources that
we believe to be reliable, but we do not guarantee its accuracy or completeness. Past
results are not necessarily a guarantee of future performance. The opinions expressed
herein reflect the judgment of the author at this date and are subject to change without
notice. First Securities Northwest, Inc. and its officers, directors, shareholders,
employees and affiliates and members of their families may make investments in a
company or securities mentioned herein before, after or concurrently with the publication
of this report. First Securities Northwest, Inc. does not pay any bonus, salary or other
form of compensation to an equity Research Analyst that is based on a specific
investment banking transaction.
The foregoing discussion and material contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the Act). In particular,
when used in the preceding discussion, the words “plan”, “confident that”, “believe”,
“expect”, or “intend to”, and similar conditional expressions are intended to identify
forward looking statements subject to the safe harbor created by the act. Such statements
are subject to certain risks and uncertainties and actual results could differ materially
from those expressed in any of the forward- looking statements. Such risks and
uncertainties include, but are not limited to future events and the financial performance of
the companies which are inherently uncertain and actual events and/or results may differ
materially. These risks and other important information may be further discussed in
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with the Securities and Exchange Commission: http://www.sec.gov/edgar.shtml
In terms of revenue... if they could sustain exponential growth such as March 1 mln, April 2 mln, May 3 mln @ 0.03 cent a CD this would translate into gross revenues for
March - 30,000 April - 60,000 May - 90,000 etc.
Too bad these projections are not available from management, but hopefully these CD sales numbers will be forthcoming. This way there may be a possibility to approximately calculate projected per share revenue.
Downloading Music Gets More Expensive
Fledgling Services Raise Prices on Some Hot Albums;
Will 99-Cent Songs Survive?
By ETHAN SMITH
Staff Reporter of THE WALL STREET JOURNAL
April 7, 2004;
To see the future of online-music prices, look no further than "Fly or Die," the new album by rock-meets-hip-hop trio N.E.R.D.
For months, digital-music services have been touting albums for $9.99 to entice more people to buy online. But Apple Computer Inc.'s iTunes Music Store has been charging $16.99 for "Fly or Die," while Roxio Inc.'s Napster service sells the 12-song collection for $13.99. Both prices are higher than the $13.49 that Amazon.com charges for the CD itself. The same pricing shifts are showing up on albums by a growing slate of artists, from Shakira to Bob Dylan.
Unburdened by manufacturing and distribution costs, online music was supposed to usher in a new era of inexpensive, easy-to-access music for consumers. In many cases, buying music online is still cheaper than shopping for CDs at retail outlets. But just a year after iTunes debuted with its 99-cent songs and mostly $9.99 albums, that affordable and straightforward pricing structure is already under pressure.
Some titles are cheaper on CD than when purchased in digital form. See a sampling of artists and prices
All five of the major music companies are discussing ways to boost the price of single-song downloads on hot releases -- to anywhere from $1.25 to as much as $2.49. It isn't clear how or when such a price hike would take place, and it could still be months away. Sales of such singles -- prices have remained at 99 cents -- still account for the majority of online-music sales.
The industry is also mulling other ways to charge more for online singles. One option under consideration is bundling hit songs with less-desirable tracks. Another possibility is charging more for a single track if it is available online before the broader release of the entire album from which it is taken. There is also talk of lowering the price on some individual tracks from older albums.
Several record-company executives acknowledged that pricing changes are being discussed at all five major companies.
The new pricing developments come as digital-music sales are growing steadily. Some 25 million digital tracks were sold in the first three months of this year, versus 19.2 million for all of the second half of last year, according to Nielsen SoundScan.
That growth is why some in the industry are uncomfortable with the talk of price increases. Most music-company executives believe that the download market is still in a critical early-growth stage, which could be disrupted by raising prices. "For us right now the issue is not, 'Do we make another $300,000 by raising the price five cents?"' says a music company executive. "It's making sure the market grows."
"Fly or Die" by N.E.R.D. Amazon charges $13.49 for the CD, but it's $16.99 on iTunes.
Revenues in the music industry have been dragging in recent years, in part because of the rise of illegal downloading services. Raising digital-music prices could spur additional illicit downloading. Weaning people off those illegal services by giving them an alternative that they consider viable is critical to the industry's future profitability.
N.E.R.D.'s "Fly or Die" is far from the only album that now costs significantly more to download from iTunes than to buy on CD. And many high-profile albums from two of the big five music companies, Sony Corp.'s Sony Music Entertainment and EMI Group PLC, are now priced on iTunes and its competitors well above the $9.99 norm. Sony artist Pete Yorn's "Musicforthemorningafter," for example, costs $13.99 on iTunes and $10.88 on average in retail stores, according to the NPD Group. Albums by EMI artists from Kylie Minogue to Blur also cost more in digital than physical form. (EMI also distributes N.E.R.D.)
The reason this disparity is so pronounced at EMI and Sony is that both companies routinely set wholesale prices for online albums higher than their competitors, according to people familiar with the matter.
A much smaller number of titles from the other major music labels also cost more than $9.99 on iTunes. A handful of albums from Bertelsmann AG's BMG, Warner Music Group, and Vivendi Universal SA's Universal Music Group also cost more online than they do as CDs. But these tend to be double discs such as OutKast's "Speakerboxxx/The Love Below," which incur higher costs in certain kinds of royalties when sold online than as traditional CDs.
"There's a lot of experimentation in the industry," says Peter Csathy, president and chief operating officer of Musicmatch Inc., which sells digital music.
The music companies are reluctant to talk openly about their wholesale pricing strategies, but they are quick to blame the retailers for higher prices. A spokeswoman for EMI, for instance, stresses that the retailers, not record companies, ultimately set the prices consumers pay.
However, the digital music services say they base their retail prices directly on the wholesale prices the music companies charge. "Our pricing comes when the fees come in from the labels," said Musicmatch's Mr. Csathy.
"Self Portrait" by Bob Dylan. Amazon.com charges $10.99 and iTunes $13.99.
ITunes, the market leader among downloading services, and its competitors offer music at two distinct price points: Single tracks cost 99 cents. A full-album has generally cost $9.99, regardless of how many songs are on it.
Napster was until recently the lone holdout among the major online services on full album prices, charging $9.95 for numerous titles that cost between $12.87 and $16.99 on iTunes. But two weeks ago, it relented and created a higher tier of album prices, set at $13.99.
Separately, Walmart.com, the online arm of Wal-Mart Stores Inc., recently rolled out a slightly cheaper 88-cents-per-track price. Many observers, however, argue that any advantage conferred by the 11-cent difference will be offset by a user interface that early reviews have called less friendly than those of other services. Executives at competing services also contend that research shows consumers don't care much about price differences within the band of about 75 cents and 99 cents.
The issue of online music prices raises philosophical debates for music executives. Some executives, for example, believe they should be charging a premium for the online versions of older tracks because consumers may be willing to pay more for harder-to-find material.
Global Music Sales Slid Again in 2003
Industry Group Says Positive Signs
Are Emerging for This Year
DOW JONES NEWSWIRES
April 7, 2004 6:30 a.m.
LONDON -- Global recorded-music sales slid again in 2003 as rampant piracy and illegal downloading continued to inflict damage, but positive signs are emerging in 2004, a leading industry body said Wednesday.
The International Federation of Phonographic Industries, or IFPI, said global sales of recorded music fell 7.6% in 2003 from the prior year, measured by value. That suggests something of a pickup in the second half of the year, after a 10.9% decline in the first six months of 2003.
And strong U.S. album sales toward the end of 2003 have continued into 2004, the IFPI said.
In 2002, global music sales fell 7% from the 2001 level.
The global music market totaled $32 billion in 2003, down from around $38.5 billion in 1999, the last year the music industry experienced world-wide sales growth.
Sales of music videos rose 47% last year, offsetting a 9.1% drop in sales of CD albums and a 19% fall in sales of CD singles.
The IFPI said Internet piracy remains a significant factor in the decline in music sales, according to research. "Global music sales had another difficult year in 2003, under the combined effects of digital and physical piracy and competition from other entertainment products," said IFPI Chairman Jay Berman.
But he highlighted positive signs in 2004 and the growing importance of music videos. "However, there are some encouraging signs, particularly in the U.S. market where the increase in album sales of late 2003 has continued into this year, and in the U.K. and Australia," he said.
"Meanwhile, music video sales are rapidly becoming an important revenue stream for the industry," he said.
Last time this happened, when PPS went up to over 0.45 over couple of weeks last year was when some market maker got a tip in advance of the Media Max release. There was similar volume and jumps in PPS. It looks like some speculators accumulating positions in advance of some news release IMO. Stock took
a sharp dive after the Shift Key fiasco.
I hope this is in advance of the next level of software release
that would actualy be credible product in preventing
CD copy. This is only a conjecture, but I would not be surprise if there is such (or a similar) announcement. We have been waiting for this very long time...
This idea just plain laughable... Buying back shares with what money??? Usually buy back occurs when business has some free funds, but in this case they have been issuing large number of stock to raise funds, just to stay in business being small startup company.
Copy fight
Two veterans of the Internet wars debate the raging battle over who should control our entertainment
Published March 28, 2004
If everyone's a criminal, maybe the law is wrong.
That's the contention of Lawrence Lessig, who you might just say is DJ Danger Mouse's patron saint.
Lessig, a professor at Stanford University Law School, is one of the leading advocates for changing copyright law. Via his popular blog, as well as in various books and media appearances, Lessig promotes the view that any system that makes criminals out of millions of otherwise law-abiding citizens -- like the more than 100,000 people who have downloaded Danger Mouse's "The Grey Album," a groundbreaking but illegal mix of the Beatles' "The White Album" and Jay-Z's "The Black Album" -- is a broken system. The law must be updated to reflect the new digital reality, Lessig contends.
But in that brave new digital world, how will artists pay their rent? Enter Internet pioneer Ken Waagner, who oversees all things online for the Chicago band Wilco.
When a record label rejected Wilco's "Yankee Hotel Foxtrot" three years ago, Waagner and the band decided to put a streaming version of the entire album on the Wilco Web site (www.wilcoworld.net ). Commercial suicide, said music-industry conventional wisdom.
That was half a million albums ago.
"Yankee Hotel Foxtrot" has been Wilco's best selling CD, and since its release a few months after the band's online adventure, Wilco's stature, sales and concert revenues have only increased.
So what's a content creator to do? Give away his or her work? Find other ways to pay the rent? Hope the RIAA shares some of the money it has made from suing downloaders?
And as for the downloaders themselves -- is the copyright system ever going to catch up with the reality of pervasive online file-sharing? Or are penalties for getting the stuff we want online only going to get more and more severe?
Is it ever going to be easier -- and maybe even cheaper, maybe even legal -- to get all the cool stuff you want online?
The Tribune recently sat down with Waagner and Lessig, deemed the "Elvis of cyberlaw" by Wired magazine, to ask them these questions.
Have you both heard "The Grey Album"? What do you think of it?
Ken Waagner: I think it's interesting. I don't think it's an amazing album, but I think the concept is really amazing and it's pretty well executed.
Lawrence Lessig: Well, I'm a lawyer so I don't know anything about the quality or the taste. . . . I find it amazing that it generated the level of protest that it generated. Because you know five years ago, I don't think there would have been the ability to build an online protest movement around copyright, but this is what they did.
It's one thing to defend fair use in an ordinary case, but this was a pretty blatant taking without any permission of other people's work and remixing it. And the idea that that would have generated the political response that it did -- I think it's bad news for the record companies.
Waagner: I think the record companies forced people's reactions. Sometimes it seems to me that they're just trying to shoot themselves in the foot, [trying to] self-inflict the injury to make it worse than it really is, just to get more pity and to get more legislation, "See how bad we're damaged?"
Like when they announced their figures were down again this year and just really complaining, and by how badly they're handling the public relations of the whole situation.
Lessig: My organization, Creative Commons, has this license that [Brazilian musician and activist] Gilberto Gil has pushed us to create, which is called a mash license. A mash license says, "You're allowed to take my content, you're allowed to sample my content for creative purposes, even for commercial purposes you can sample my content -- you can do that all without hiring a lawyer or talking to me ever. What you're not allowed to do is take a verbatim copy of my content and distribute that."
So when Gil got us to do that license, he wanted to release a bunch of his content under that license. Warner [Brothers Records, Gil's label] said, "Absolutely not." He said, "Why? What possible reason would there be? This would inspire a great new burst of creativity around my work." [But the labels are] still stuck in this [mentality of], "We've got to control absolutely everything."
Waagner: The thing that just keeps coming back is that the record industry had distribution pretty well put into a box. They controlled physical distribution -- if you wanted to play the game, you had to get into [their] system.
But isn't the central issue compensation -- shouldn't the Beatles make money from their compositions, shouldn't Wilco make money from their records?
Lessig: Well, I'm a strong believer in copyright. And in my view, what copyright is is the right of the author to control what happens to his or her work. In my view, that means if Gilberto Gil says, "I want my work to be available for other people to build on top of even without paying me," he should be allowed to do that. There shouldn't be a record company that says to him, "No, we're not going to let you do that." I wouldn't favor forcing artists to turn over their work, but I would favor allowing artists to be much more creative about the ways they distribute their work.
But how are bands supposed to get paid when content is given away?
Waagner: I've always looked at the Internet as a free broadcast license and a free printing press, and whatever you do with it is just empowering. From having run an independent label and spent 20 years trying to help bands get heard, get written about and get distributed, to all of the sudden have this opportunity to just do it was so empowering.
From there, helping spread the word -- selling more records, selling more concert tickets, selling more T-shirts, [doing] the things that you can't replicate online, the things you can't replicate or swap, that's really the concept.
What we did is, the band [Wilco] went from thousand seaters to selling out 3,000 [seat concert halls] to 5,000 [seat halls], and they went from selling 200,000 physical records to almost 500,000 physical records. So that's the benefit of [the Internet]. I don't think anybody hearing your music is a bad thing.
I've always felt that the record companies [could have] played the psychology of the MP3 a little smarter. [If they had] not been like, "Oh, my God!" -- if they would have been like, "So what, it's an MP3 -- it sounds like crap, people have been listening to music for free forever and it's not a threat," instead of going into this horrible litigious mind-set .
Lessig: I go between thinking [the major record labels] were just stupid and thinking they were extremely smart. The stupid is exactly what you just said. The extremely smart is they realized, as you said before, that they had distribution in the box. . . . And the Internet was going to destroy that ability to control distribution. So they really needed to fight this new technology if they were going to preserve their old business model.
Now the point is, their old business model wasn't better for the artists and it wasn't better for consumers, it was better for [big record companies]. When people talk about alternatives [to that model], serious people are not talking about alternatives that make artists worse off and they're not talking about alternatives that would make consumers worse off, they're talking about alternatives that might make five companies worse off.
What are the alternatives that serious people are talking about?
Lessig: The closest alternative to the existing system are things like iTunes or the new [legal] Napster. And, of course, iTunes is better than where we were before, because it's cheaper and it's a really nice interface. But the problem with that model is that these are technologies that require digital-rights management -- DRM -- built into them. DRM is this overhead technology that will make it extremely hard to make music accessible on all sorts of different devices.
Some people then talk about another alternative, which is basically the way radio stations pay for music that they play regularly on the radio. It's a simple method for counting what's getting distributed so popular groups get paid more than less popular groups. That's the way a market works, but it doesn't require that you lock up the content in DRM -- you just let the content flow and you monitor and you pay on the basis of that.
Waagner: [On an Internet chat group, someone] posted the math of [proposing], if they just did a compulsory license across 105 million households -- if it was $5 a month, it would basically equal the equivalent of what the record companies sell, without any cost of physical goods or distribution, and it would just be pure profit that could then come into the industry and be spread out to the artists. [That's] with everything [on P2P] being tracked, not via the big DRM system but with just a data tracking system.
Would the record industry ever go for that?
Lessig: No. [Laughter]
Does the average consumer understand that the legislation that will govern all these new technologies is being created right now?
Waagner: I don't really see the general public being aware of it at all. I think people hear "copyright" and they hear "legislation" and they just turn off. . . .
Lessig: We have produced a generation of criminals and the response of the recording industry or Jack Valenti [head of the Motion Picture Association of America] is, "Let's just increase the penalties to teach them not to be criminals," and my response is, "Yeah, it's terrible that we've produced a generation of criminals. Let's find a way to make it so that they're not criminals, mainly by changing the law." . . .
This set of laws was written for a totally different time, for a totally different technology, and every time in the past, when technology has changed, the law has updated to take account for new technology -- until the Internet. Now the Internet comes along and they reinforce the old method of distribution and old business model because they're extraordinarily powerful lobbyists.
Waagner: It's penalizing a kid's curiosity about music. I think the opportunity to find music, and not at the expense of going and buying import records at $20 a pop to discover that you don't like 70 percent of them is probably a lot healthier for the industry as a whole. But then parents are caught in this paradigm of, "Oh, my God, is my kid breaking the law in his room?" I always kind of joke [that parents are thinking], "Oh, thank God, I thought he was surfing porn, but he's only stealing music!"
And the parental reaction to these RIAA lawsuits seems to be, "OK, you're grounded, but you don't deserve to go to jail or be fined $5,000."
Lessig: In [my] book that's coming out ["Free Culture"], I tell the story of one of these kids, one of the four [college] students sued by the RIAA.
Jesse Jordan, who's at Rensselaer Polytechnic Institute, built a search engine -- kind of like a Google device, that sat on the RPI network and scoured the RPI network for all files in the public directories. [The program] put together a list of a million files; three-quarters of those files had nothing to do with music. He was not selling access, he was not making any money, he was just tinkering with technology on the network that he was at school with.
[The RIAA] came in and said he was guilty of willful copyright infringement, they filed a lawsuit against him which claimed damages of between $10 million and $15 million. [The RIAA then offered to settle for $12,000.]
So, he's faced with this your-money-or-your-life option, and what does he do? What any rational person would do, turned over all his money.
Now, the point is, they then used this as evidence of how they're advancing the great morality of defending the record companies, but I think that is deeply immoral, what they did. This is scapegoat-ism against the weak. They don't go suing Google or Yahoo, they pick the weakest people to set a precedent.
And innovation itself is stifled in this atmosphere.
Lessig: Our tradition forever, especially in music, or even outside music, has been [that] creators have been able to build upon the culture around them and that came before them. All of Disney's great work is built upon stuff that was in the public domain.
But what we've done under the law is eliminate the possibility of the public domain. Copyrights don't expire anymore. The average copyright term when Disney produced his work was 30 years. The average term now is 100 years.
What about P2P or content sharing in general -- it's not just music on those networks anymore, it's TV shows and movies. Is this discussion moot because it's too late to control any of that?
Waagner: I don't know. If people are given an opportunity to abide by the rules. . . . I don't think anyone would feel infringed upon if their cable bill went up $5 a month and they felt that they could legally go online and watch movies and listen to music. I think that would be a solution that would create revenue.
I really think that the longer the media companies fight to try to contain it, and fight with the people that they ultimately need to support them, I think it's a can't-win situation.
Lessig: I agree. There will always be kids who are able to get access to whatever content they want. If you think the objective is, "How are we going to stop that?" you're never going to stop that.
But I think the real problem is that the war against alternative ways of producing and distributing content means that nobody can go into a business that builds upon these alternative ways. You can't stop the kids, but you can stop the investors and you can stop the businesses. And you'll only get something amazing and new if businesses are allowed to innovate and build on top of these alternatives.
Waagner: I made the comment once that [the RIAA battles are] kind of like the railroad industry trying to shoot down airplanes. They're just so freaked out by the competition that they'll do anything -- they don't care if what they're doing is moral or right. Not that they ever have, but [now] it's just an "at all costs" battle.
What about the concept of fair use -- that there are uses that the consumer is entitled to that the content industry does not -- or did not -- control? For instance, if I want to buy a book, give it to my mom, burn it -- nobody can tell me not to. There were a lot of "uses" of media that consumers had all to themselves.
Lessig: One of the reasons this is a problem is because we didn't really depend on fair use in the past, for the reasons you said. When you bought a book, and you read the book, that was not a "fair use" of the book -- [that use] just wasn't regulated by copyright law, because copyright law regulates copies. And when you read a book, you don't make a copy.
But when you do the same thing on the Internet, all of these things are now regulated by copyright law, because everything you do on the Internet produces a copy. So now people say, "Now we have to invoke fair use to protect people's rights." But the point is, fair use never protected their rights in the past -- you didn't need to protect those rights, because it was unregulated behavior.
Well, I'm a lawyer. Let me tell you, fair use is useless. Fair use means the right to hire a lawyer. We are extremely expensive. So for the ordinary creator or the ordinary person who wants to depend upon the right to create, the idea that you have the right to hire someone who's going to charge you $300 an hour to defend your rights is useless.
The point is, fair use has become such a complicated, lawyer-based system for protecting freedom that it no longer protects freedom.
What would you say to an up-and-coming band today. Should they not even sign up with a major label? Should they distribute their own music on the Internet?
Waagner: I wouldn't tell a band that I worked with at this point to sign to a major label ever, but I don't think I have since 1987. I don't really think that what you get out of it is really worth what goes into it and the headaches; there are so many variables.
I operate under the assumption, I always have, that unless you've sold 100,000 records independently, there's no point in signing to a major. Because you have about a six-week window where people will pay attention to you at the label, and if you haven't sold 100,000 records in that period, it's a pretty good chance no one's ever going to pay attention to you again.
So the idea is that a band gives away music, so that when they tour, they sell out bigger places, and when they do release a record in stores, maybe they sell 50,000 copies and make some money from it.
Waagner: Yeah, exactly. The Internet provides you the opportunity to do what record companies don't, which is artist development. It gives you the opportunity to spend a couple of years honing your craft.
Do you agree, professor Lessig -- that if someone makes a movie, an album, whatever, they should just put it out there?
Lessig: The whole point about music is that people want to listen to the same song again and again and again. And they want to listen to more of your songs. So getting your stuff out there is not cannibalizing your market, it's a way of building your market. That's what the musicians are increasingly seeing, and that's why you're seeing so much more stuff being made available freely.
But it doesn't follow that the same will be true for all forms of content. Most movies are not films that people want to see 30 times. So I understand why the MPAA is really worried that if their first-run movies get out there and people can watch them for free, [the movie companies] are not going to be able to pay for them. I think you gotta think about that problem differently.
So should content be free? And if not, why?
Lessig: I think artists should be allowed to decide what the rules are under which their content is made available in a good copyright system.
Sometimes that means their content is made available under compulsory license, which means they get paid but not a price that they set, sometimes they'll give it away. Sometimes their copyright expires, at least that's what was supposed to happen. And copyrights that expire [go into] the public domain.
Waagner: I agree 100 percent. I think that ultimately the reason why most artists make music is for it to be heard and to find an audience. The hardest thing for them to do is reach the audience, either because of geographical limitations or financial limitations or what have you, and I think that [the Internet] is the great enabler. From that standpoint, they should be able to kind of do whatever they want.
- - -
Online extras: Lawrence Lessig's Web site: lessig.org; Free copies of "Free Culture": www.free-culture.org/freecontent/; Wilco's Web site: www.wilcoworld.net; Creative Commons: www.creativecommons.org.
Download definitions
The Grey Album: DJ Danger Mouse's heady mixture of The Beatles' "White Album" and Jay-Z's "The Black Album," an illegal creation that has become a cause celebre among online advocates of changes in copyright law.
P2P: Online peer-to-peer networks that are used to share music and other content for free.
Kazaa: A peer-to-peer network.
Napster: Formerly an illegal P2P network, now a site for legal music downloads and streams.
MP3: A digital format that is commonly used to download songs.
iTunes: Apple's legal download site.
iPod: Apple's music player.
RIAA: The Recording Industry Association of America, the main lobbying arm of the large multinational music companies.
Stream: Music that's available for listening but can't be permanently downloaded.
Gilberto Gil: A Brazilian musician and political activist, in 2003, was appointed Brazil's Minister of Culture.
Creative Commons: A foundation that offers musicians, artists and creators alternative methods of licensing copyrighted works.
Digital rights management: Software that controls how many times and in what ways downloaded content can be used.
Public domain: When a creative work's copyright expires, it is freely available to all in the public domain.
QUIET TIGER INC Last: 0.14 Change: +0.01 Volume:427,540 HIgh: 0.15
It looks to me like the only reason for this STEH/QTIG arrangement is to enable management (same for both companies) to issue more shares of QTIG to raise more funds/business capital since they exhausted the limit on issuing STEH shares thus diluting STEH/QTIG float even further. I do expect number of QTIG shares outstanding to increase substantially in the near future bringing PPS lower.
These are only my speculations at this point. I hope they will justify this by releasing a blockbuster product that would start making money for this combination of both companies otherwise this
situation and PPS will continue to deteriorate.
OLD post re QTIG shares
http://www.investorshub.com/boards/read_msg.asp?message_id=2530816
Thank you stehvestor. This would be great.
Could you elaborate on sources for this information?
How long ago was it?
Was there a mentioning of any date and for what product release?
Any additional info?
Maybe when they fix the Shif key problem and come up with better and improved release of Media Max that will actually work?
Music companies singing praises of piracy-resistant formats
DVD-audio
By David Sharos
Special to the Tribune
Published March 19, 2004
Record companies wish there were a hundred more artists like Norah Jones who can sell 1 million copies of an album shortly after it is released.
In February, Blue Note Records released Jones' new album, "Feels Like Home," and watched as cash registers sang.
But Jones' success on the heels of her debut, the multiple-Grammy-Award-winning "Come Away With Me," is rare in the music industry these days, where sales have slipped four straight years.
Compelling new artists like Jones, who can attract teens and their Baby Boomer parents, are few. And combined with the rampant spread of pirated music on the Internet, record companies are struggling to boost sales.
"The record industry needs to become competitive again," said Sony executive David Kawakami. "Sales figures have slumped, and we've needed something to create new interest in buying records."
Industry executives hope they have two new somethings to spark sales.
Major labels have begun to slowly roll out new types of music discs they call high-resolution digital audio to entice buyers with near auditory perfection.
One format, superaudio compact discs, contains layers of data, which may include a regular CD of an album plus a second layer that can be read only by a special SACD player. An SACD can be played on many regular CD players as well but will sound richer on a SACD player.
The other format, DVD-audio, is built on the same platform as a movie video and includes extra goodies like read-along song lyrics, biographies, music videos and other special features. They are also recorded to take advantage of multiple-speaker systems, such as surround sound, that are popular in home theater setups.
Prices for the new discs range from $12 to $25, depending on the format. Many SACDs, for instance, cost the same as regular CDs by the same artist.
Beyond the audio enhancements, the real key to the new products is that neither can be fully downloaded, which puts a stop to illegal peer-to-peer file sharing.
"These technologies represent a new and better audio format," said Chris Gillespie, an independent recording engineer in Chicago. "At this point, however, neither is capable of being copied with full resolution, so downloading isn't an issue."
Kawakami said developing a better product is a more effective strategy to combat piracy. The music industry's decision to sue individuals for illegal file sharing is "a Prohibition-like measure that doesn't address the real problem."
"Suing your customers is not the right approach," he said. "After 20 years of delivering yeoman's service, the CD is no longer competitive. The music industry needs to replace it with something that offers more value."
As head of Sony's SACD project in the U.S., Kawakami started working on the recording techniques that became the core technology of SACDs in 1994. Players and discs began appearing around 2000.
Sales of SACDs and the needed hardware have been slow to catch on with consumers, but Kawakami said interest is beginning to take hold.
"At the Consumer Electronics Show in Las Vegas in January, we counted 118 SACD-compatible players from 26 manufacturers," he said. "Today, there are over 1,900 SACD titles available, and the disc-replication industry is adding more manufacturing lines to keep up with demand."
By the end of 2003, an estimated 21 million SACDs had been pressed. But determining how many have sold is elusive, because SACD sales are not counted separately from CD sales. More than 600 million CDs were sold last year.
Some titles have enjoyed huge sales.
Capitol Records released Pink Floyd's "Dark Side of the Moon" on SACD last year and has shipped close to a million copies.
Columbia rolled out 15 classic Bob Dylan titles last summer, together with a box set collecting them all. Those Dylan titles have shipped more than 700,000 units.
Kawakami said these sales figures prove that SACD is providing enough benefits to compete with free or low-cost downloads.
DVD-A titles, such as reissues of Fleetwood Mac's "Rumors" and the Eagles' "Hotel California," have sold more than 20,000 copies each.
But while those numbers are encouraging, they also point to a clear problem: The artists selling well in the new formats are not found on today's Top 40 list. Rather, titles from the Police, Rolling Stones, Doors and Pink Floyd reflect the Baby Boomers' life soundtrack.
"We know that Baby Boomers are the only group whose album purchasing is actually on the rise," Kawakami said. "This is a logical place for the major labels to concentrate their interest. Being able to go back into a classic artist's catalog and mine it is critical to the health of the industry."
Marc Finer, director of Communication Research Inc., a marketing group that specializes in developing strategies to support the launch of digital entertainment products and services, believes the Baby Boomer marketing approach is a sound one.
"The back-catalog approach is the way to build a consumer base now and for the future," he said. "We know that Baby Boomers are the backbone of the market, while kids today use their PCs for entertainment. But some day, those kids will become more affluent and want better sound. And when they do, these formats will be there."
Finer and Kawakami also note that once back-catalog sales are established, more current artists will see their releases coming out in one of the high-resolution formats.
A&M/Universal did just that in the fall when it released Sting's "Sacred Love," which to date has sold more than a million copies in regular CD and SACD formats combined. Both were released simultaneously.
Pete Howard, editor of Ice magazine, a California-based CD publication, sees the new high-resolution digital audio options as part of the chain that included moving from records to cassettes and on to CDs.
"People will buy another version of an album they loved years ago if they're convinced it's better," Howard said. "If there is a dramatic new format, Baby Boomers that have the money don't mind spending $25 for something they can hear over and over, if it's one of their favorites."
Cost, Howard said, may be a factor to wider acceptance, "because $10 seems to be the psychological barrier. Once prices go over that, acceptance drops."
Alan Light, the former editor of Spin magazine who recently launched a new magazine, Tracks, said music aficionados are willing to pay the price.
"Overall, I see DVD-audio and SACDs as something for the audiophile buyer, who will purchase them as long as there are sonic improvements, and you're not asking for a paradigm shift," he said.
"With audiophiles, you're not interested in a download of a compressed MP3 file. You'll buy the best."
Major retail chains like Tower Records have established shelf space to display the new discs.
David Merrick, who manages Tower's Schaumburg store, said sales to Baby Boomers are increasing slightly each month, but growth of the new formats is being stunted by price and compatibility.
"Many of these titles cost twice as much, and another problem is that people still want to buy stuff they can put in their cars," Merrick said. "Until this music is portable, it won't sell through."
I doubt very much that these sales were related to any competitive treat. The fact is that MVSN has very littlte to no competition in their current markets of dominance - DVD, PPV, and Videogames protection. If anything, this would be a wishfull thinking on your part. These may be sales that automatically kick in when bid/ask reaches certain price. The MVSN stock fell due to concerns on growth going forward. IMO until we actually see a credible product from STEH that actually works in terms of CD copy (and/or copy of the copy) protection, MVSN has little to worry about. As I voiced this in the past, credible and working product will drive the price of STEH in future. If you look into its past share price went up only on anticipation of a working product and then fallen back down when this was not the case.
The fact that the outstanding shares number became gigantic and now we have to share half of the revenue with QTIG does not help either and concerns me a great deal. I just hope they will be able to counter my concerns with a credible product in the next release of Media Max that would actually work.
This would be the best news we could have and this is why I bought this stock in the first place.
Form 10-K for MACROVISION CORP (EXCERPTS)
Music Technology
In November 2002, we acquired the assets and operations of Midbar Tech (1998) Ltd. ("Midbar"), a leading supplier of copy protection solutions for the music industry, for approximately $17.8 million in cash and related acquisition costs. In addition, we have agreed to additional contingent consideration up to $8.0 million based on a percentage of revenues from sales of our music technology products through December 31, 2004. In connection with the purchase, we recorded goodwill of $6.9 million and identifiable intangibles of $4.9 million in 2002. In 2003, we recorded additional goodwill of approximately $1.2 million, which represents contingent consideration payments we are required to make to Midbar shareholders, as noted above, based on sales of our music technology products through December 31, 2003.
In connection with the acquisition of Midbar, we recorded a charge of $6.0 million for in-process research and development ("IPRD") in the fourth quarter of 2002. At the acquisition date, Midbar's major in-process project was the development of CDS-300, BurnProtect, and BurnShield. This technology had not yet reached technological feasibility. The technological feasibility of the in-process products is established when the enterprise has completed all planning, designing, coding and testing activities that are necessary to establish that the product can be produced to meet its design specifications. We obtained an independent appraiser's valuation to determine the amounts allocated to purchased technology and in-process research and development. The valuation analysis utilized the Income Approach based on discounted future cash flows. This approach took into consideration earnings remaining after deducting from cash flows related to the in-process technology the market rates of return on contributory assets including assembled workforce, customer accounts and existing technology. The adjusted cash flows were then discounted to present value at appropriate rates determined by analysis of the risks associated with each of the identified intangible assets. The weighted average discount rate used for IPRD was approximately 35%. The resulting net cash flows to which the discount rate was applied are based on management's estimates of revenues, operating expenses, and income taxes from such acquired technology.
In May 2003, we acquired the patents and other assets of TTR for $5.1 million in cash and the surrender of 1,880,937 shares of TTR common stock that we originally purchased in January 2000. We recorded a realized gain of $395,000 for the excess of the market value of such TTR stock on the closing date of the acquisition over the adjusted cost basis of such stock. Our copy protection products in this area are used by customers for copy protection, authentication, and rights management for music CDs.
Revenues from our music technology products were 3.6% and 0.4% of our net revenues in 2003 and 2002, respectively. Currently, substantially all of our music technology revenue is from international territories. Additional product features, currently under development, may be required for the product to be accepted in the United States. We believe that revenues from our music technology products will increase in absolute terms and as a percentage of our total revenues as more customers adopt our technology.
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Royalty Revenues
Royalty revenue from the replication of videocassettes, DVDs, and CDs is recognized when realized or realizable and earned. We rely on royalty reports from our customers and third parties as our basis for revenue recognition. In our DVD, videocassette, and PC games product lines, we have established significant experience with certain customers to reasonably estimate current period volume for purposes of making an accurate revenue accrual. Accordingly, royalty revenue from these customers is recognized as earned. Revenue from our PPV and music technology products is recognized only as reported, due to the timing of receipt of reports in PPV, and the embryonic stage and volume volatility of the market for our music technology products. Advanced royalty fees attributable to minimum copy quantities or shared revenues are deferred until earned. In the case of agreements with minimum guaranteed royalty payments with no specified volume, revenue is recognized on a straight-line basis over the life of the agreement.
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Net Revenues. Our net revenues for 2003 increased 25.5% to $128.3 million from $102.3 million in 2002. This increase is primarily driven by increased revenues in the video technology, ESLM and music technology product lines. Video's DVD copy protection revenues increased $17.4 million or 37.9% to $63.4 million in 2003 from $46.0 million in 2002, due to the continued strong growth of the DVD format and continued high penetration among Hollywood studio customers. This increase in DVD revenues was partially offset by continuing decreases in videocassette copy protection revenues. Our DVD copy protection revenues in 2002 were also reduced by a $2.3 million refund resulting from a customer's self-reporting errors detected in 2002, which revenue was previously recognized upon cash receipt. During 2003, the increase in DVD copy protection revenues included approximately $917,000 in revenue as a partial resolution of this customer reporting claim. Revenues from videocassette copy protection decreased $1.7 million or 22.2% to $5.9 million in 2003 from $7.6 million in 2002, reflecting the continuing trend of Hollywood studios to discontinue copy protecting or more selectively copy protect their VHS releases. Digital PPV copy protection revenues increased $942,000 or 8.6% to $11.9 million in 2003 from $11.0 million in 2002, due to slightly increased demand for digital set-top boxes and hard drive recorders and an increase in usage fees. The increase in our music technology revenue is from products resulting from our acquisition of Midbar assets in November 2002 and from the increased market acceptance of our CDS-100 and CDS-200 products by the music labels. Revenues from ESLM increased $6. 9 million or 25.5% to $33.7 million in 2003 from $26.9 million in 2002, primarily due to an increase in licensing and maintenance volume. Revenues from our PC games technology product line decreased $2.3 million or 29.7% to $5.4 million in 2003 from $7.7 million in 2002 due to decreasing volumes and per unit pricing received from a number of customers. Revenues from CSLM increased $749,000 or 30.3% due to the increased market acceptance of our CSLM technology by major software vendors.
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In August 2003, we acquired intellectual property and other assets, including patents and software that can be used to track and manage content in the peer-to-peer file sharing space. We paid $720,000 in cash, $80,000 of acquisition costs and an additional payment of $80,000 will be due on the first anniversary of the closing date for a total purchase price of $880,000. In addition, we have agreed to a maximum payment of $140,000 if certain milestones are achieved by May 28, 2004. The purchase price was allocated to in-process research and development, core technology and employment agreements. The in-process research and development of $624,000 was expensed in 2003, and the balance of the purchase price has been allocated among the other intangible assets and is being amortized on a straight-line basis over two to six years based on the expected useful lives of the intangibles. Research and Development. Research and development expenses increased by $5.3 million or 44.9% to $17.2 million in 2003 from $11.9 million in 2002. The increase is primarily due to increased research and development activities for our video technology, music technology and ESLM product lines. Research and development expenses increased as a percentage of net revenues to 13.4% in 2003 from 11.6% in 2002. We expect research and development expenses to increase in absolute terms and as a percentage of revenues over the prior year periods as a result of expected increases in research and development activity as we develop new technologies in our entertainment and software technologies groups.
Selling and Marketing. Selling and marketing expenses increased by $6.3 million or 30.3% to $27.0 million in 2003 from $20.7 million in 2002. This increase was primarily due to increased business development activities for our enterprise licensing and music technology product lines and increased commission costs associated with higher revenue levels. Selling and marketing expenses increased as a percentage of net revenues to 21.0% in 2003 from 20.3% in 2002. Selling and marketing expenses are expected to increase in absolute terms as we continue to expand our efforts in selling and marketing our ESLM, music technology, PC Games and other digital rights management products. We expect our selling and marketing expenses to increase in absolute terms and as a percentage of revenues over the prior year periods as we continue to invest in additional sales personnel for our ESLM products.
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Net Revenues. Our net revenues for 2002 increased 3.5% to $102.3 million in 2002 from $98.8 million in 2001. This moderate increase is primarily driven by increased revenues in the video technology and ESLM product lines. Video's DVD copy protection revenues increased $8.4 million or 22.3% to $46.0 million in 2002 from $37.6 million in 2001, due to the continued strong growth of the DVD format and continued high penetration among Hollywood studio customers. This increase in DVD revenues was substantially offset by continuing decreases in videocassette and PPV copy protection revenues. Revenues from videocassette copy protection decreased $3.9 million or 33.9% to $7.6 million in 2002 from $11.5 million in 2001, reflecting the trend of Hollywood studios to discontinue copy protecting or more selectively copy protect their VHS releases. Digital PPV copy protection revenues decreased $2.2 million or 16.9% to $11.0 million in 2002 from $13.2 million in 2001 due to the continuing slow demand for digital set-top boxes. Revenues from ESLM increased $1.3 million or 4.9% to $26.9 million in 2002 from $25.6 million in 2001 primarily due to increased market penetration despite the difficult economic environment for enterprise software. Increases in CSLM and music technology product lines were offset by the decrease in PC Games Technology and Other revenue. Our DVD copy protection revenues in 2002 were also reduced by a $2.3 million refund resulting from a customer's self-reporting errors detected in 2002. Revenue from this customer was previously recognized only upon cash receipt.
License Revenues. Our license revenues for 2002 increased modestly by 2.5% compared to 2001 primarily due to increases in our revenues derived by our Entertainment Technologies Group in the DVD copy protection area. This was offset by decreases in our
copy protection revenues for videocassettes and PPV solutions. We also had an increase in license revenues from our music technology product line, which started in 2002.
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Our operating results have fluctuated in the past, and are expected to continue to fluctuate in the future, on an annual and quarterly basis as a result of a number of factors. Such factors include the timing of release of popular titles on videocassettes or DVDs or by digital PPV transmission, the timing of release of popular computer games on CD-ROM, the timing of a small number of our electronic license management high-value perpetual licenses during any period, the degree of acceptance of our copy protection technologies by major motion picture studios and computer game publishers, the mix of products sold and technologies licensed, any change in product or license pricing, the seasonality of revenues, changes in our operating expenses, personnel changes, the development of our direct and indirect distribution channels, foreign currency exchange rates and general economic conditions. We may choose to reduce royalties and fees or increase spending in response to competition or new technologies or elect to pursue new market opportunities. Because a high percentage of our operating expenses are fixed, a small variation in the timing of recognition of revenues can cause significant variations in operating results from period to period.
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You can read the whole thing at: http://biz.yahoo.com/e/040312/mvsn10-k.html
Guerrilla remix stirs trouble
Reuters
Sunday, March 14, 2004
NEW YORK -- Illegal and hugely popular remixes of hip hop legend Jay-Z's work have put the genre at the center of a murky battle over U.S. copyright law, experts said on Friday.
In recent months, last year's "The Black Album" by Jay-Z has prompted a slew of unauthorized remixes, meshing the rap with the music of the Beatles, Metallica and even instrumentalist Kenny G.
The remixes, described by their creators as "experiments" and acts of "civil disobedience," have drawn the ire of the music industry, which says its copyrights have been infringed.
At the center of the battle between the established music business and DJs using authorized "samples" of music to create their work is "The Grey Album" -- an innovative mix of Jay-Z's "Black Album" with the Fab Four's "White Album."
The mix prompted EMI to secure a cease and desist order against the man behind "The Grey Album," a little-known DJ called Danger Mouse.
But if EMI was hoping to squash distribution of the few thousand copies of "The Grey Album" in circulation, its actions instead made the recording the surprise hit of the year.
Owners of myriad file sharing sites recently held "Grey Tuesday," when more than 100,000 people downloaded the illegal album.
"To the extent that these (remixes) are recognizable songs or music, it is unquestionably copyright infringement," said Randy Lipsitz, a partner and intellectual property lawyer at New York-based law firm Kramer Levin.
But with many of the remixes featuring tiny snippets and heavily reworked samples from other albums, it's hard to link the music to its forbears.
Sampling advocates maintain they should be allowed use clips of music to make new art because the law allows for use of copyrighted material for criticism, parody and certain other uses like education -- called "fair use."
But not everybody agrees.
"The fair use' expression has been thrown around a great deal to justify behavior that courts have frowned on," said Judith Saffer, vice-president of the American Intellectual Property Law Association.
Producer Brian Burton, aka Danger Mouse, said, "every lick and snare and drum" backing Jay-Z's lyrics on his remix album was drawn from the Beatles but many listeners would hardly be able to tell where Jay-Z begins and the Beatles end.
"If it's not recognizable, who cares?" said Lipsitz.
Thank you bleuduece.
This is all STEH will be getting...
ROYALTY. Licensee shall pay a royalty to SunnComm equal to sixty percent (60%) of any and all gross licensing revenue earned by Licensee with respect to the SunnComm Products until Licensee exceeds Three Million Six Hundred Thousand Dollars ($3,600,000) in annual gross licensing revenue. Thereafter, Licensee shall pay SunnComm a royalty equal to fifty percent (50%) of any and all gross licensing revenue earned by Licensee with respect to the SunnComm Products.
Ok, It is 100 times more, sorry for my mistake...
This underlines my point regarding this huge share float even more. 300 mln + 86 mln QTIG = 386 mln shares outstanding for STEH shareholders. It is high probability that management is
not done yet and may issue more shares in QTIG. Either way
this is huge number of shares in regard to company
valuation. At 50 cents a share it would be valued at 200 mln??
How much revenue company must generate to be valued at that level?
I am a Long shareholder (number of shares in a 7 figures)and I do hope for it to do well in a future, but I do no have my blinders on and I am concern with this rather large float and lack of news on "new and improved" product releases.
With all these "positive" vibes one thing that I am concern about is a gigantic float at 320 mln shares plus 86 mln QTIG shares for a total of approximately 426 mln shares.
With this float at 0.50cents this company would be valued at
213 mln dollars. This is ten times more than its current and more realistiv value at 2.2 mln. To achieve 213 mln valuation they would have to have a stable cash flow, sizable profits, market share, credible product (that really prevents CD copies) etc. This share float increased substantially since company was at these levels due to some speculation of credible copy prevetion software that was due to be released by the company. IMO at the very least of the above, they will need to come up with this product as new Media Max release, everything else will follow if the product is indeed credible and does what it suppose to do. Anyone knows when new and improved Media Max software will be released? Peter??
I have invested in this stock assuming that STEH sooner or later will have an effective technology to prevent CDs and
DVDs from copying thus protecting rights of the artists and generating handsome profits in a wide open market for CD copy protection. IMO Until this happens share price is not going to move up despite any moves by the company to "arrange" their business model. I hope next release of Media MAX will be at least an improvement over what they have come up with so far. This is what I am hoping for, not worrying if this is 2 cent or 3 cent dividen"D" per quarter...
So far we have heard very little from the management on the upcoming Media Max release, but in my opinion this is a major factor that will drive PPS in a future.
This may have to be recalculated since QTIG shares dropped
somewhat (0.02) during this short period of time...
STEH shareholders will have to hold STEH share for minimum of 1 year to receive full divident of QTIG shares. It does not say how many QTIG shares shareholders will receive for how many STEH shares.
It is should be possible to calculate -
There are 320 mln STEH outstanding shares that are eligible to receive 86 mln QTIG shares every 3 month, which means
86/4 = 21.5 mln QTIG shares per quarter.
21.5mln distributed for 320 mln shares of STEH outstanding is
21.5mln/320mln = 0.0671875 QTIG shares distribution per quarter for each STEH share.
Current price of QTIG is 0.140, this means that actual divident in terms of today's share value is 0.140/0.0671.
This approximately equals to 0.023 cents per each STEH share per each quarter or 0.08 cents for a whole year based on STEH shares outstanding and current QTIG shares price. APPROXIMATELY!
I hope I did my calculations more or less properly, but if anyone have calculated this differently please correct me.
This might be comparing apples and oranges, but to take it further, STEH will be paying 30% of "future" revenues to QTIG
for 0.08 cent divident (for a full year).
Looking at these numbers, I am not too excited unless QTIG
share price would improve substantially or there is more divident per share thru additional revenues which at this
time not realistic based on assumption that this comany
is still in the "start up" stage and requires a lot of funding
for development and business purposes. It looks like QTIG
as a "front" company should provide glimps at the revenue figures as a reporting company and will provide management with a "wiggle room" in terms of accounting as it relates to STEH/QTIG financial arangement.
STEH shareholders will have to hold STEH share for minimum of 1 year to receive full divident of QTIG shares. It does not say how many QTIG shares shareholders will receive for how many STEH shares.
It is should be possible to calculate -
There are 320 mln STEH outstanding shares that are eligible to receive 86 mln QTIG shares every 3 month, which means
86/4 = 21.5 mln QTIG shares per quarter.
21.5mln distributed for 320 mln shares of STEH outstanding is
21.5mln/320mln = 0.0671875 QTIG shares distribution per quarter for each STEH share.
Current price of QTIG is 0.140, this means that actual divident in terms of today's share value is 0.140/0.0671.
This approximately equals to 0.023 cents per each STEH share per each quarter or 0.08 cents for a whole year based on STEH shares outstanding and current QTIG shares price. APPROXIMATELY!
I hope I did my calculations more or less properly, but if anyone have calculated this differently please correct me.
This might be comparing apples and oranges, but to take it further, STEH will be paying 30% of "future" revenues to QTIG
for 0.08 cent divident (for a full year).
Looking at these numbers, I am not too excited unless QTIG
share price would improve substantially or there is more divident per share thru additional revenues which at this
time not realistic based on assumption that this comany
is still in the "start up" stage and requires a lot of funding
for development and business purposes. It looks like QTIG
as a "front" company should provide glimps at the revenue figures as a reporting company and will provide management with a "wiggle room" in terms of accounting as it relates to STEH/QTIG financial arangement.
IMO shares were issued to raise company capital to continue operations and for business purposes (I hope). Anytime company
issues shares no matter what market it is, it is done to raise money either for company beneficial owners or for business operations. In this case it has not been explained where this money would go. Either way it does increases liquidity.
Hopefully since QTIG is a reporting company, management will explain some of this sooner or later, hopefully sooner.
All these share manipulation of late are worrysome and have not benefited PPS here for STEH. I am still waiting for filing, additional major contracts, revenue report, new technology (media max, etc) releases.... am I missing anything?