Music giants crank up heat on burning CDs
EMI, Sony BMG take lead in using technology to limit number of copies

By Jon Healey and Charles Duhigg, Tribune Newspapers: Los Angeles Times
Published June 18, 2005

Music fans who copy CDs for all their pals, take note: It may be time to shed some friends.

Executives at EMI Group said this week they plan to begin rolling out CDs with technology designed to limit copying. The technology allows buyers to burn onto CDs only three full copies of a disc's songs, and the burned discs cannot be copied.

Sony BMG is heading even faster down the same road. About half the discs it releases in the United States today have the three-copy limit, and it plans to have a similar restriction on all its U.S. releases by the end of the year, said Thomas Hesse, president of the company's global digital music business.

The new CD technology still has some compatibility issues--most notably, the songs on the discs cannot be transferred directly to Apple Computer Inc.'s popular iPods. Such limitations are one reason that the two other major record companies, Universal Music Group and Warner Music Group Corp., have yet to make the switch to "secure" CDs.

Nor is the technology foolproof. Executives at EMI and Sony BMG said the point was to rein in copying by the everyday music fan, not to stop determined bootleggers.

Nevertheless, if fans do not rebel, the companies' discs are likely to chart the rest of the industry's path into secure CDs. The goal, label executives say, is to have anti-piracy technology on every track sold, whether it is encased in plastic or downloaded from an online store.

Many music executives blame digital piracy for the prolonged slump in CD sales. That piracy comes in two main forms: free downloading from Internet file-sharing networks and using CD burners to copy entire discs.

The file-sharing issue receives more headlines, but CD burning may be more prevalent. Hesse said a survey by market research firm NPD Group found that fans acquired twice as much music through burned CDs as they did through file sharing.

The labels have been selling secure CDs overseas for several years. But they have been reluctant to bring the discs to the United States until the technology was flexible enough to allow some degree of copying to computers and to blank CDs.

Before merging with Sony Music, Bertelsmann Music Group was the label most willing to experiment with secure CDs in the U.S. Its releases included two hits: Velvet Revolver's "Contraband" in 2004 and Anthony Hamilton's "Comin' From Where I'm From" in 2003.

Those CDs used technology from SunnComm International Inc. of Phoenix that blocked the discs from being copied onto a computer. Instead, the discs contained a second set of tracks in Microsoft's secure Windows Media format that could be copied onto a computer, transferred to portable players and burned onto a limited number of CDs.

The technology left several notable holes in the security, however. The burned CDs had no electronic locks to prevent them from being copied an unlimited number of times, and hackers quickly found a way to circumvent SunnComm's technology entirely to remove all the restrictions.

Since then, SunnComm and three other firms have developed a more secure approach. The new versions are designed to allow a limited number of copies that can be burned onto CDs that cannot, in turn, be copied. EMI plans to begin selling secure CDs in the U.S. in mid-July; the artists affected include 30 Seconds to Mars and OK Go.

Both EMI and Sony BMG plan to let buyers get around the CDs' restrictions so they can get tracks onto iPods. Executives said they were willing to sacrifice security in the name of playability.

Still, the technology leaves at least one analyst skeptical.

"Here you have a product with declining sales, and for the same price you want to decrease the potential value of it," said analyst Phil Leigh of Inside Digital Media.

"Basically, music companies are saying, `We're going to lock up the front door of the store now, but the back door is still remaining wide open.'"

Thou Shalt Not Steal

By THEODORE B. OLSON
March 23, 2005;

This is your lucky day. I have just invented a system that will enable every one of you to obtain access to virtually any and every home and automobile in the United States, as well as millions of private bank accounts. All you need is a computer. And it is free. I will get paid based on the advertising that pops up on your computer screen whenever you use this service. The best part of this system is that the more of you who use it, the more money I will make.

Imagine the pleasure you will derive from using other people's property and the things you will be able to acquire with their money. Absolutely free of charge. No permission necessary.

Of course, I must ask you to promise not to do anything illegal with this marvelous new tool. But, don't worry, I'm not going to do anything about it if you break your promise. In fact, I know that most of you will be using this system for unlawful purposes. Why else would you want it? But I can't control what you do. As long as you might use the system for a lawful purpose, for example to access your neighbor's house to water plants, I'm in the clear.
* * *

Sounds pretty scary doesn't it? And, of course, you know that I don't really have the system I've described. If I did, I would surely be shut down in an instant. Neither our government nor our society would tolerate a mechanism that would promote, enable and facilitate such a massive, ongoing and uncontrollable theft of property.

Well, it may be fortunate for you that my system does not exist. But the bad news for songwriters, recording artists, actors and filmmakers -- and the 5.5 million people who work in the $625 billion creative and intellectual property industry -- is that the system described above does exist today for the unlawful downloading of copyrighted music and movies.

These copyrighted products are being stolen every day as a result of so-called peer-to-peer file sharing systems that are available to any one of us free of charge as long as we have a computer. They are operated by companies who make millions of dollars in advertising revenues aimed at the systems' users. It has been estimated that tens of millions of songs and 400,000 movies are illegally copied in this manner every single day.

Later this month, in MGM Studios v. Grokster, the Supreme Court will consider the legality of these systems. The companies claim that they have no responsibility for the damage they are doing because they have willfully blinded themselves to the details of the infringement that is taking place in their systems. Yet, according to the record in this case, it is not seriously contested that the overwhelming use of the systems -- over 90% -- is for unlawful copyright infringement. Indeed, the U.S. government says that these networks were marketed specifically based on their "capacity for infringing uses in order to build a critical mass of users."

The Framers of our Constitution believed that private property rights are at the core of a free and prosperous society; and that property comes in many different forms, intellectual property as well as tangible property. In fact, the Framers considered intellectual property rights so important to the development of our culture and economy that they extended special protection to intellectual property through the copyright and patent clauses of our Constitution. For over two centuries, Congress has implemented these protections through laws designed to provide our creative citizens with a property-based incentive to transform their ideas into innovations and artistic works in order to stimulate creativity and promote the progress of science and useful arts.

As a result, the United States leads the world in creative output. American music, movies, books, software and other creative works are an extremely important component of our national economy and constitute our second leading source of exports. Approximately 6% of our gross domestic product is derived in one form or another from our creative community.

Grokster-type enterprises deprive our artists, musicians and software developers of the financial incentive and sources of capital necessary to develop original works. In the short term, this harms the creators, the investors, and those who labor in the creative vineyards. No one will pay for their products if they are available without cost. In the long run, however, it will be the public and future generations who will pay the price in the form of songs, movies and works of art that are not created if the law allows the fruits of their efforts to be stolen.

These systems also inflict immeasurable damage to our standards and morals. By enabling millions of persons, especially our children, to take property without paying for it, we are sending a potent message that it is acceptable somehow to steal music if it is done in the home with a computer rather than stuffing CDs from a store into a backpack and walking out. That is why many organizations who represent traditional values have joined in the effort to stop this systematic and widespread theft -- unified by belief in the simple and ancient principle: "Thou Shalt Not Steal."

A coalition of family groups and law enforcement organizations have also explained in friend-of-the-court briefs that many peer-to-peer networks serve as conduits for child pornography, and facilitate credit-card fraud and identity theft. Those are indirect but very real and damaging by-products of the systems designed to facilitate copyright infringement.

The purveyors of these file sharing enterprises advance the utterly absurd defense that inhibiting their unlawful enterprise will somehow stifle innovation. Not unless stopping pickpockets stifles magicians. The fact is that innovators must have legal protection if they are to innovate. The best way to stifle innovation is to allow the theft of the innovator's product. Lawful and productive creativity is severely inhibited when cheating and theft is not controlled.

The Framers' insights are not outdated in the digital era. If anything, the advent of file-trading services confirms the Framers' wisdom -- and underscores the continuing importance of a system of property rights that protects and encourages creativity and innovation.

Mr. Olson, former solicitor general, represents the Recording Industry Association of America and the Motion Picture Association of America, Inc., and filed a brief in the Grokster case on behalf of Defenders of Property Rights.

What's on the Flip Side
Of That CD? Increasingly, a DVD

By ETHAN SMITH
Staff Reporter of THE WALL STREET JOURNAL
March 21, 2005; Page B1

When Bruce Springsteen's "Devils & Dust" arrives in stores next month, it will be more than just the singer-songwriter's 19th album. It will also be a milestone for DualDisc, the music industry's first major new physical format since the introduction of the compact disc more than 20 years ago.

The album will be the biggest title to date released exclusively as a DualDisc, which plays like a CD on one side and like a DVD on the other. The discs vary in price but generally cost around $1 more than CDs.

If it catches on, the format will make relevant again the question: "What's on the flip side?" Virtually all DualDisc titles use the DVD side to offer a surround-sound mix of the album, plus 28 minutes or less of video footage. In addition to a surround-sound mix, "Devils & Dust" will carry video footage of Mr. Springsteen performing several songs from the disc and discussing them.

The surround sound mixes can be played on standard DVD players through the same "5.1 surround" systems that DVD home theaters use. Establishing DualDisc would be a victory for the music industry, which has in the past few years failed to get a foothold for new high-end formats like "Super Audio CD," or SACD, and DVD-Audio. Both formats have been hobbled by high pricing and low penetration of the hardware to play it back. DualDisc, on the other hand, doesn't require any new hardware equipment.

Since an initial handful of DualDisc titles were released last fall, the new format has seen some success, including "Still Not Gettin' Any," from the pop-punk band Simple Plan, which has sold nearly a million DualDisc copies.

Now, however, the floodgates are open. Sony BMG Music Entertainment, the joint venture between Sony Corp. and Bertelsmann AG for which Mr. Springsteen records, is leading the charge. The company has released or plans to release more than 40 DualDiscs this year, from classics like Miles Davis's "Kind of Blue" and AC/DC's "Back in Black" to new releases like Jennifer Lopez's "Rebirth."
[Double Duty]

"The CD is a fading technology that has lost some of its appeal," says Andrew Lack, the chief executive of Sony BMG and one of the most vocal proponents of DualDiscs. "We had to come up with a way to give consumers a compelling experience."

Mr. Lack says he envisions a day, possibly not too far from now, when all new music releases come out on DualDisc.

Jon Landau, Mr. Springsteen's manager, cautioned that he didn't view the release of his client's newest album on a DualDisc configuration as a broader endorsement of the format. "We had a concept we thought our fans would like" -- namely, the film of Mr. Springsteen playing, Mr. Landau says. He and Mr. Springsteen considered including the movie as a separate DVD in the same package as a CD, until Sony BMG executives explained the DualDisc concept, which he says happened to be "perfectly suited" to their current plans.

Mr. Landau says Mr. Springsteen was issuing "Devils & Dust" only as a DualDisc because the singer insisted the disc cost no more than it would as a regular CD. "So there was no reason to release a CD; it became redundant," Mr. Landau says. But, the manager added, "When [Mr. Springsteen] does his next album, there could be no DualDisc."

Vivendi Universal SA's Universal Music Group and Warner Music Group Corp. have each issued a handful of titles, while EMI Group PLC says it is currently deciding which titles to include in its first batch of DualDiscs.

Few people working in the music industry are harboring illusions that the DualDisc will fuel the kind of sales boom that the introduction of the CD did in the early 1980s, when people began replacing their old vinyl records in large quantities. "That's not where my head is," Mr. Lack says.

Paul Bishou, vice president of marketing for new formats at Universal Music Group's eLabs division, says he envisions DualDisc as "part of the product mix," along with online downloads, ringtones and other new ways to hear music, rather than as an outright replacement for the CD.

But many hope that by giving consumers a significant extra, the new format will at least serve as a bulwark against the rampant online and physical piracy that has helped decimate CD sales for the past five years. In addition, consumers have at times griped that CDs seem like a poor value proposition next to DVDs, which offer not just a movie but also bonus features.

"This is what they need to release if they want people to keep buying their products," says Joe Nardone Jr., who owns a small chain of music stores in the Philadelphia area. "This is infinitely more valuable than any download."

Also in April, Matchbox 20 singer Rob Thomas will issue his first solo album, "Something to Be," as a DualDisc-only release. The DVD side of the disc will include a 22-minute documentary about the making of the album, plus a photo gallery.

Some titles, including Ms. Lopez's most recent album, have been released simultaneously on CD and DualDisc, at slightly different prices. In those cases the DualDiscs have generally sold about half as many copies as the CDs.

The record labels have declined to discuss their wholesale pricing of DualDiscs, but retailers say that Sony BMG generally charges 50 cents more for the new discs than they do for CDs, while Warner Music charges the same amount for both. Universal doesn't include the new format in its JumpStart program, which charges significantly lower wholesale prices in exchange for certain concessions from retailers on fees music companies often pay for placement.

Manufacturing a DualDisc costs as much as 60 cents more per disc than making a CD -- nearly double the cost -- and the capacity to make them is currently limited.

There have already been some hiccups in the rollout of the new format. For one, calculating royalties on the discs is complicated by the fact that music publishers consider the stereo and surround-sound mixes of each song as separate reproductions of the songs, meaning that they should collect twice as much in royalties as they do for normal CDs -- and even more for songs that are also included in music videos. Record labels have said that is an unrealistically high price.

So far the issue hasn't been resolved on an industry-wide basis. But EMI Music Publishing and Sony BMG's recorded-music operation -- the biggest and second-biggest players in their respective fields -- reached a blanket agreement to license their catalogs for the new format. Terms of the agreement haven't been made public. The publishing industry is set to try to hammer out a broad voluntary agreement in June

Macrovision Launches Comprehensive Patent Licensing for Current and Next-Generation Optical Media Formats Used in PCs, Media Centers, Game Consoles and Digital Appliances
March 08, 2005 09:30:00 AM ET

-- The VeriBIT(TM) Family of Patents Covers Unique Digital Signature Generation, Disc Authentication, Payload Protection, and Selective Enablement and Web-Linking of Content on All Current and Next-Generation Optical Media Formats

Macrovision(R) Corporation MVSN, the world's leading supplier of content and software value management solutions, today launched a comprehensive licensing program for its VeriBIT(TM) worldwide patent family covering solutions embedded onto current and next-generation optical discs used to deliver software and multimedia content to PCs, media centers, game consoles, and network-connected digital appliances. The VeriBIT family is comprised of over 30 worldwide patent assets, many obtained from and developed since Macrovision's acquisitions of C'Dilla, Ltd., TTR Technologies, Ltd., and MidBar Tech (1998) Ltd.

The VeriBIT worldwide patent licensing program enables software/game publishers and developers, content owners, independent software vendors, PC and CE manufacturers (including consoles and digital appliances), content-protection providers and optical media manufacturers to:

(1) Offer optical disc-based digital signature generation; original-disc authentication; data payload protection using obfuscation and application fading; secure pass-through access to data on the disc; and secure, authenticated disc-to-Internet web linking;

(2) Embed these technologies onto a range of optical media including CDs, DVDs (including today's high-definition DVDs), and next-generation optical media formats; and,

(3) Use these technologies to securely deliver software, games, and standard and high-definition multimedia content to PCs, media centers, game consoles and network-connected digital appliances (e.g. satellite-based navigation systems).

Macrovision believes that comprehensive licensing of its VeriBIT worldwide patent family will accelerate adoption and development of these technologies for use among this complete range of current and next-generation optical media.

Macrovision's market-leading SafeDisc(R) Advanced copy and hack protection product is based on patents found in the VeriBIT family, and is used on over 70% of the world's top game titles and over 300 million CDs, DVDs and high-definition DVDs.

"Macrovision has developed and introduced several commercially successful optical-media based content protection and rights management solutions to the interactive software market since 2000," said Rob Ellison, product marketing director at Macrovision's Entertainment Technologies Group. "We are very pleased to offer our VeriBIT intellectual property portfolio as a comprehensive licensing program to give our publisher customers, as well as their manufacturing and distribution partners, more flexible choices in the marketplace and enable them to address new content usage models with current and next-generation optical media."

VeriBIT joins VeriTOC(TM), Macrovision's recently announced patent family covering passive music CD technologies, as a second key strategic intellectual property licensing initiative to accelerate technology adoption spanning a broader content value management ecosystem comprised of packaged media, online distribution and hardware devices.

For more information, or to inquire about obtaining a license, please visit the Macrovision VeriBIT webpage (http://www.macrovision.com/products/veribit/index.shtml).

Movie, Music Giants Try New Weapon
Against Pirates: Price

By KATE KELLY, ETHAN SMITH and PETER WONACOTT
Staff Reporters of THE WALL STREET JOURNAL
March 7, 2005; Page B1

On a freezing February afternoon in Shanghai, street peddler Cheng Meiyuan watched two women comb through his movie-disc collection, which featured pirated copies of "The Aviator" and "The Incredibles." Mr. Cheng tucked his hands into a black down coat, his head pivoting left and right in search of police. A few minutes later his customers were gone, having paid 16 yuan, or roughly $2, for two DVDs.

The 30-year-old Mr. Cheng says he doesn't know where his goods come from; when he runs out, he calls a delivery boy to bring more. He earns just pennies per sale. Now, he wonders whether a new wave of legitimately produced discs, priced just slightly higher than the fakes, will threaten his ability to make a living. For many buyers in China, he says, "the price difference [between a $1 DVD and a $3 one] is still too big."

Entertainment companies think otherwise. Rampant piracy in places like China, Russia and Mexico has prevented Hollywood studios and major record labels from tapping the full growth potential of those tantalizing markets. Now, some media companies are trying to reverse the tide by cutting prices on legitimate DVDs and CDs low enough to challenge the pirates at their own game.

The idea is to give consumers in those markets a cheap, legal alternative to pirated material. Time Warner Inc.'s Warner Bros. hopes to get a foothold in the Chinese market by setting the price of its DVD movie releases there to between $2 and $4. General Electric Co.'s NBC Universal would like to tap into Warner's Chinese distribution system and is planning a similar program in Russia. Meanwhile, the four global music companies have just launched a similar strategy in Mexico, in conjunction with government authorities, aiming to replace the pirated CDs sold by street vendors with new lines of cut-rate, legitimate CDs.

The companies are betting that, just as Apple Computer Inc. helped the U.S. music industry reclaim turf lost to Internet piracy by pricing songs for the iPod at 99 cents apiece, the movie studios and record labels can woo back consumers abroad by slashing the price of legally manufactured DVDs and CDs. Their discs are of superior quality, they say, eliminating the risk of buying substandard goods and justifying the premium they want consumers to pay.

"There is a value in legitimacy," says Bob Wright, chairman and chief executive of NBC Universal, "and now we're going to try to find out what the appetite is of the customer" for genuine, higher-quality DVDs.

Entertainment companies are pushing for much tougher law enforcement overseas. But in the meantime, selling cheaper DVDs is a bid "to create a more compelling value proposition, so that the good behavior drives out the bad," says Time Warner's chairman and CEO, Richard Parsons.

Yet any merchandise that's priced higher than a dirt-cheap pirate copy could prove a tough sell. Even $2.65, the price at which Warner Bros. plans to sell DVDs, "is still a lot of money," said an advertising executive, surnamed Chen, shopping on a bustling street in western Shanghai on a recent weekend. Legitimate movies don't offer much better quality than their pirated counterparts, he argued. And the latest movies are typically available much sooner as counterfeits -- because they often are created by pirates who sneak video cameras into U.S. movie theaters.
[China DVD]
Residents viewed illegally made discs before the material was destroyed in Chengdu, China.



The studios have a plan of attack for that problem, too. Warner Bros. plans to release more than 125 movies this year in China, including hoped-for blockbusters like "Batman Begins," around the time of its U.S. theatrical release. They will sell at two price points: $2.65 for relatively basic discs, with English and Mandarin dialogue tracks, and $3.38 for fancier versions with extra footage and language enhancements.

The DVD sales are part of the company's broader strategy in China. Current plans include an ambitious project to build 25 new multiplex theaters by 2007 and partnerships with local directors and production companies to make Chinese-language films. Studio executives also say they have discussed a content distribution deal with the government-controlled China Central Television -- a deal that would put Warner Bros. programming on China's pay-TV stations.

"We look at it and see a market with an enormous amount of potential for a lot of the businesses we're in," says Barry Meyer, chairman and CEO of Warner Bros. Companies like NBC Universal, which is exploring a deal to distribute its own DVDs at cheaper prices through a partnership Warner Bros. recently developed with China Audio Video -- the government entity that oversees disc content and retail sales -- hope to follow suit.

But if the music industry's experience offers any guidance, the film studios are in for a long, hard slog.

Years of antipiracy efforts have done little to reduce the rate of music theft in many markets around the world. In two dozen countries, primarily in Latin America and Asia, at least half of all CDs sold are pirated, according to the International Federation of the Phonographic Industry, a trade organization.

In China, according to IFPI estimates, 90% of all CDs sold are pirated, while in Russia and Ukraine the rate is well over 70%. The music industry's problems are compounded by the relative simplicity of copying a CD as opposed to a DVD.

In Mexico, what was once the eighth-largest music market in the world has been decimated by a piracy rate that has climbed to more than 60%. A legitimate CD usually costs about 130 pesos, or $12, while pirated titles go for as little as 90 cents to $1.35. Now the four global music companies are hoping to turn at least some street-corner pirate vendors into legitimate merchants. The month-old experiment -- limited for now to the city of Guadalajara -- includes releases from Vivendi Universal SA's Universal Music Group, EMI Group PLC, Sony Corp. and Bertelsmann AG's Sony BMG Music Entertainment and Warner Music Group.

The CDs being released for the program, some of which carry labels identifying the discs as specially made for street markets, include compilations of hits from various decades, as well as collections of songs by popular artists such as Luis Miguel. The discs, which include minimal artwork and packaging, cost around $4.50. To find cheap ways to sell current hits, the music companies are working on budget-priced singles.

The program, which aims to augment, rather than supplant, older tactics such as raids against pirate manufacturers, is being coordinated by the IFPI. Raúl Vázquez, IFPI's regional director for Latin America, says that while it is too early to declare the program a success, it appears to be more successful than past antipiracy efforts in Mexico. "Most of the programs have been enforcement-driven," says Mr. Vázquez. "Go in with the police, try to clean up the markets, make sure you hit 'em again. That only gives you temporary relief."

The moves in Mexico follow similar strategies by global music companies in other troubled markets. Since 1998, Universal and others have offered low-priced versions of some music titles in Russia. Last year in Germany, BMG made albums by five local acts available in both cut-rate and higher-priced, "enhanced" configurations. BMG, now part of Sony BMG Music Entertainment, is said to be considering whether to continue the program. A Sony BMG spokesman declined to elaborate.

Some executives concede that a price war against pirates may be folly. Fabio Alvarez, managing director of Universal Music Mexico, says that no matter how deeply his company slashes prices, "it's never going to compete with the prices of the pirates."

That helps explain why some in the industry believe their best solution to piracy-ravaged markets, paradoxically, lies in pricier, enhanced editions of albums, with extras that pirates cannot duplicate. EMI, for instance, says it has done well with a deluxe package for the Mexican band Intocable. The band's most recent album, "X," was released as a double CD, with a photo album and a video. The company says the album has sold about 40,000 copies in its first three weeks in stores in the U.S. Sales figures from Mexico aren't yet available.

Macrovision Corporation Reports Record Revenues and Pro Forma Earnings for Fourth Quarter 2004
February 28, 2005 4:34:00 PM ET


Macrovision Corporation MVSN announced today that fourth quarter 2004 net revenues were a record $59.6 million, compared with $39.9 million in the fourth quarter of 2003, an increase of 49%. Pro forma earnings (before amortization of intangibles from acquisitions, non-cash deferred compensation expense, impairment gains and losses on investments, adjustments for changes to our tax rate, and in-process research and development write-offs) were $16.1 million, or 48% higher than last year's fourth quarter. Pro forma diluted earnings per share for the quarter were $0.31, or 41% higher than the comparable pro forma earnings per share in the fourth quarter a year ago.

Net income for the fourth quarter of 2004 was $15.8 million. Diluted earnings per share for the quarter were $0.31.

Cash and cash equivalents, short-term investments and long-term marketable securities were $254.5 million as of December 31, 2004.

"We are very pleased with our fourth quarter results," said Bill Krepick, President and CEO at Macrovision. "Our revenues benefited from continued strong performance in our software value management business, and our DVD and pay-per-view (PPV) copy protection businesses. As we look forward to 2005, we are pleased with the progress we are making with our emerging products. We have seen strong growth in our prospect pipeline for our Update Service product for software publishers; we signed a major record label and a second movie studio to our Hawkeye peer-to-peer file sharing service, and our Ripguard DVD antipiracy product was applied to a major European DVD title release. Looking ahead, we are confirming our FY2005 guidance for revenues to be between $220 and $230 million, with pro forma EPS in the $1.03-$1.06 range, and GAAP earnings per share in the range of $0.90-$0.93. GAAP earnings do not reflect stock option expenses under accounting rules which are effective July 1, 2005, the impact of which is currently being estimated. For Q1 2005, we are estimating that our revenues will be in the range of $49-$51 million and our pro forma EPS will be in the range of $0.17-$0.18. This forecast takes into account the fact that we have a number of new products that we expect will slowly gain traction as the year progresses and will culminate in a strong Q4, which will reflect historical seasonality in both of our business units. These projections include the impact of the InstallShield(R) acquisition for the full year."

Restatement of 2003 Effective Tax Rate

In the course of preparing our 2004 financial statements, we became aware of an understatement of approximately $2.8 million of tax expense for the fourth quarter of 2003. The understatement resulted from a clerical error related to U.S. taxation on income earned outside the U.S. and is not expected to have a current cash impact on the Company. We plan to restate our previously issued financial statements for the fourth quarter and fiscal year 2003 to reflect the correction. Further details of this restatement are available in the related Form 8-K we filed today, which may be accessed through our website at www.macrovision.com. The adjustment remains subject to ongoing review and we expect to file our corrected financial statements covering the affected period(s) within the next few weeks.

We continue to use pro forma reconciliation condensed consolidated statements of income in the presentation of financial results and earnings guidance. Management believes that this presentation may be more meaningful in analyzing the results of operations and income generation, as non-cash, non-operating or non-recurring items (such as amortization of intangibles from acquisitions, amortization of deferred stock-based compensation, impairment gains and losses on investments, adjustments for changes to our tax rate, and in-process research and development write-offs) are excluded from the pro forma earnings calculation. This presentation may be considered more indicative of our ongoing operational performance. The tables below present the differences between pro forma earnings and net income on an absolute and per share basis.

Immediately following the Q4 2004 earnings release, Macrovision will hold an investor conference call on February 28, 2005, from 5:00 p.m. to 6:00 p.m. ET. Investors and analysts interested in participating in the conference are welcome to call 800-218-0713 (or international +1 303-262-2075) and reference the Macrovision call.

Warner Bros. Plan Targets
DVD Piracy in China

Faced with the growing concern of DVD piracy, one of Hollywood's biggest movie studios is taking steps to fight the sale of illegally manufactured home videos in China.

In the coming months, Time Warner Inc.'s Warner Bros. Entertainment plans to release dozens of its films on DVD to retailers in China -- at deeply discounted prices. The studio's hope: that cheap and legitimate DVDs will compete effectively enough with their bootlegged counterparts to offset the losses the company has weathered from piracy.

Warner's move is among the most-aggressive step taken by a U.S. studio to hasten a legitimate DVD market in China. And it is emblematic of an industry-wide problem that has grown in recent years with the popularity of DVDs. The discs have been a savior for Hollywood, generating profit margins of 50% or more and providing a welcome bulwark to the hardships of the often-unpredictable movie business. But they are also far easier to copy than their predecessor -- the video cassette -- and have therefore made way for piracy.

In China piracy has been rampant. Although the Motion Picture Association of America and U.S. regulators are trying to crack down on bootleggers, legal inquiries may not be able to root out the problem. So, Warner is trying to change already entrenched consumer habits by competing with bootleggers on price.

This year, Warner plans to release more than 125 movies on DVD in China at below-market prices. Some will be bare-bones versions of the films that will be sold in China around the time of their U.S. theatrical release and priced at $2.65. Others, which will contain additional features such as more language selections, interviews with actors and behind-the-scenes footage will be priced at $3.38.

Those prices are higher than those on China's pirated DVD market, where the discs typically sell for $1 to $2. But Warner executives are betting that consumers will pay a premium for their DVDs, which contain the special features and will be of higher quality than the bootlegs.

"It's pretty daunting going into that market to release a legitimate product," says Warner Bros. chairman and chief executive Barry Meyer. "But we really think if we can get in there, we can be a part of the solution and not the problem."

Expecting "a blanket" with a few DVDs displayed on the street, Mr. Meyer was struck by the sophistication of the piracy business during a trip to Shanghai last fall, when he visited a bootleg shop. "Just about every single new movie that was in theaters was on the rack in China -- and looked like a legitimate product," he recalls.

In the months that followed, Warner executives hammered out an agreement with China Audio Video, the government entity that oversees retail and video-content licensing, to sell more DVD titles in legitimate shops. Those talks culminated recently in the deal to distribute more than 100 Warner titles.

Although a handful of Warner titles were released on DVD last November, including "Troy" and "The Last Samurai," the studio's sale of DVDs in China has been relatively small

Macrovision Launches Comprehensive Licensing Program for Worldwide Patent Family Covering Passive Music CD Technologies
February 23, 2005 09:01:00 AM ET

The VeriTOC(TM) Family of Patents Covers "Shift Key-Immune" Protection, Authentication, Fingerprinting and Selective Enablement of Music CDs

Macrovision(R) Corporation MVSN, the world's leading supplier of content and software value management solutions, today launched a comprehensive licensing program for its VeriTOC(TM) worldwide patent family for music CDs. The VeriTOC family is comprised of 23 worldwide patents, many obtained from and developed after Macrovision's acquisitions of MidBar Tech (1998) Ltd. and TTR Technologies, Ltd.

The term "passive" refers to the fact that these technologies are embedded in the optical media, and do not involve installed software on an end-user's PC to produce their desired effect.

Licensing the VeriTOC worldwide patent family allows content owners, independent software vendors, content-protection providers and optical media manufacturers to (1) offer music CD fingerprinting; original-disc authentication; personal computer "shift key-immune" music content protection; and secure pass-through access to original CD content, and (2) embed these technologies onto the optical media of music CDs. Macrovision believes that comprehensive licensing of its VeriTOC worldwide patent family will accelerate adoption and development of these music CD technologies.

Macrovision's market-leading CDS-300(TM) CD content protection product employs technologies derived from patents found in the VeriTOC family, which have been applied to over 450 million commercially released CDs.

"Macrovision is committed to providing its customers with products and solutions consistently supported by a solid intellectual property foundation, as evidenced by our extensive portfolio of patented content protection and digital rights management technologies," said Steve Weinstein, executive vice president and general manager of Macrovision's Entertainment Technologies Group. "By offering licensing programs for these underlying patents, we intend to give our customers flexible choice in the marketplace."

For more information, or to inquire about obtaining a license, please visit the Macrovision VeriTOC webpage (http://www.macrovision.com/products/veritoc/index.shtml).

New Technology Claims to Block Methods for Making Unauthorized Copies of DVDs

LOS ANGELES (AP) -- A new technology from Macrovision Corp. claims to block virtually all known methods for making unauthorized copies of DVDs.

The company's RipGuard DVD, launched this week, is designed to thwart cracking programs that get around the encryption system used in standard DVDs.
Macrovision also claims a related system to be used with RipGuard can foil attempts to make analog copies of DVDs. Such copies are made by connecting a video recorder to a DVD player's video and audio output jacks, a method that previous DVD copy protection software has failed to prevent fully.

Attempts to copy-protect DVDs and CDs have often been plagued by hardware compatibility problems or are easily thwarted using something as simple as a black marker or by holding down the "shift" key while accessing the content.

DVDs fitted with the new Macrovision technology do not require new software or hardware to be played and should be compatible with nearly all existing DVD players and DVD computer drives, the company says.

Whether Macrovision's new technology works as well as the company promises remains to be seen, said Michael Gartenberg, an analyst with Jupiter Research in New York.

"The question is partially how well it works, how compatible it is, and how difficult it will be for somebody to find a way around it, if that's even possible," Gartenberg said. "The more secure you make something like this, the greater risk you run of incompatibility."

RipGuard DVD is World's First Rip Control Product to Feature THX Verified Status
February 15, 2005 09:02:00 AM ET

RipGuard DVD(TM) is THX Verified to Provide Consumers with a Seamless and Transparent Audio and Video Experience

Macrovision(R) Corporation MVSN, the world's leading supplier of content and software value management solutions, today announced that RipGuard DVD(TM), its digital rip-control solution for DVD Video, has been awarded THX(TM) Verified product status by the industry-respected labs at THX Ltd., ensuring the audio and video quality of the original content.

"THX works with our partners and licensees to develop technologies that support the industry-accepted quality standards established by THX," stated Sheau Ng, chief technical officer of THX. "THX Digital Works performed compatibility and performance quality testing of RipGuard DVD titles, which revealed no degradation of the digital audio and video when compared with the original material."

"Macrovision is committed to creating products that are good for both our studio customers, and their consumers," said Steve Weinstein, executive vice president and general manager of Macrovision's Entertainment Technologies Group. "We believe that the best way to fight piracy is to create compelling consumer value. In developing RipGuard DVD, we turned to THX as a noted industry expert to ensure that RipGuard DVD delivers the ultimate consumer experience, while protecting the digital content of the video producers."

RipGuard DVD can be combined with Macrovision's analog copy protection technology to deliver the world's first comprehensive DVD protection solution, addressing both major piracy threats faced by video content copyright owners -- the analog and digital holes. RipGuard DVD plugs the "digital hole" created by PC-based DeCSS ripper software, which allow millions of average consumers to make unauthorized perfect digital copies of copyrighted DVDs in mere minutes. These copies can be burned to inexpensive recordable DVDs or uploaded onto the peer-to-peer (P2P) networks. P2P downloads and the "rent, rip, return" of DVDs are an ongoing source of billions of dollars in annual revenue losses for the studios.

About THX

THX Ltd. is the leading provider of technologies, certification programs and quality assurance standards for the entertainment industry. As consumers seek entertainment experiences with greater sensation and sensory immersion, using precision science to invent new technologies has become paramount. THX is continually enhancing these consumer experiences by enabling the creation, delivery and presentation of digital content through more efficient, more powerful, and more enjoyable methods. With structured certification programs and innovative technology development, THX is embedding the science of sensation in diverse entertainment venues and influential products. Today, the world's premier commercial cinemas, post-production studios and home entertainment products incorporate THX technologies and have achieved the coveted THX Certification. The company is headquartered in San Rafael, California. Its Digital Works office, offering DVD mastering and post-production services, is based in Burbank. For more information about THX, visit www.thx.com.

MI Cuts Full-Year Sales, Profit Outlook
By JANE WARDELL, AP Business Writer
LONDON - EMI Group PLC, one of the world's largest music companies, warned Monday that its full-year sales and profits will be below expectations because of the delayed release of two key albums and market weakness in the fourth quarter. Its shares fell 16 percent.

EMI, which owns several record labels including Virgin and Capitol, said the latest offerings from the bands Coldplay and Gorillaz — both expected to be big sellers — will be released in the first half of the next financial year. The albums had been due to hit the shelves before the end of the current fiscal year in March.

The company added that reorders — the demand from shops for its previously released titles — was lower than expected in January, leaving forecasts for annual sales from its music division between 8 percent and 9 percent lower than a year earlier.

It said it expected the trend for sales, particularly in reorders, to remain weak during February and March.

"We generated good initial sales from our second-half major releases, but given recent reorder levels and the revised timing of these two major albums, we will now not maintain market share for the full financial year," Chairman Alain Levy said.

EMI said annual pretax profits would be about 138 million pounds ($258.40 million), substantially lower than analyst expectations of around 163 million pounds ($305.26 million) and down from the previous year's pretax profit of 163.4 million pounds.

Shares in EMI slumped to 237 pence ($4.43) on the London Stock Exchange.

"The net result of this statement is a downward profits revision and a big disappointment following recent upbeat comments from the management team," said Paul Kavanagh, an analyst with stockbrokers Killik & Co.

"It would be natural to believe that next year will be better, although the current trading numbers will provide some degree of caution," he added.

EMI did not give a reason for postponing the release of the Coldplay and Gorillaz albums, but Levy said that that creating and marketing new products was "not an exact science and cannot always coincide with our reporting periods."

"Whilst this rescheduling and recent softness is disappointing, it does not change my views of the improving health of the global recorded music industry," he added.

The company said its music publishing arm, which holds the rights to more than 1 million musical compositions, continued to perform well.

It added that savings from its restructuring — the merger of record labels and the outsourcing of manufacturing operations in the United States and Europe — are running ahead of schedule.

The company now expects to deliver 35 million pounds ($65.53 million) of improvements in this financial year — 10 million pounds ($18.72 million) more than first thought. The remaining 15 million pounds ($28.08 million) of anticipated savings will be realized in the next financial year, the company said.

A New Rival for iTunes Napster Launches Service
That Makes Music Portable;
Monthly Fee vs. 99-Cent Songs

By NICK WINGFIELD
Staff Reporter of THE WALL STREET JOURNAL
February 3, 2005

Apple Computer proved people will pay 99 cents on the Internet to buy songs one-by-one and own them. Now, a rival company is about to find out how many are willing to pay a flat fee to rent music -- if they can take it with them.

Napster Inc. Thursday officially introduced Napster To Go, a service that is the musical equivalent of a smorgasbord, charging subscribers about $15 a month for access to all the music they care to listen to. Subscription music services like these have been around the Net for years: You pay a fee for the ability to listen to the songs you want, although you can't make permanent copies. However, these services have lagged behind Apple's popular iTunes and similar sites because they have been more restrictive -- for instance, preventing users from transferring songs into increasingly popular portable players.

Napster To Go adds that critical element: portability. Previous subscription services (including Napster's) restricted users to listening only on their PCs for a simple reason: lack of software that could prevent subscribers from storing permanent copies of their rented songs on portable players, then canceling their subscriptions. Last year, Microsoft Corp. introduced a new version of its copy-protection software that allows subscription services to transfer music to mobile devices, while at the same time preventing subscribers from making permanent copies.

Other companies are planning to follow with similar services, including RealNetworks Inc. and Virgin Group Ltd.'s Virgin Digital; Trans World Entertainment Corp.'s FYE.com recently launched its own $15-a-month portable subscription service through a relationship with MusicNet. If successful, the new options for buying and renting music online could challenge Apple's approach to selling music, which has garnered it upward of 70% of the music-download market.

Of course, the biggest competition for Napster is free pirated music, not 99-cent songs. Despite the rise of commercial online music retailers, music piracy remains rampant on the Internet through free file-sharing programs.

Indeed, it appears Internet piracy is bigger than ever by some measures. Average monthly users of all file-sharing programs grew 35% to 7.6 million in December from 5.6 million a year earlier, according to research firm BigChampagne LLC. While the strong growth of iTunes has raised high hopes within the industry about the promise of online music, the total Internet music market is still only 1% to 2% of the global music business.
[tunes]
A key advance: The new service lets users load 'rented' songs, by artists like Joss Stone, into their portable music players.



The recording industry counters that lawsuits aimed at big song-swappers and other efforts to combat piracy are showing some signs of success. A recent report from the International Federation of the Phonographic Industry said the number of users on FastTrack, a popular file-sharing system used by Kazaa and other programs that let users share music freely over the Net, fell to 2.3 million last month from 3.2 million a year before. However, the report also pointed out that use of other file-sharing programs was increasing.

Napster Inc. itself carries the brand name of the now-defunct file-sharing service that helped spur online music piracy years ago. Formerly known as Roxio Inc., Napster is now banking heavily on the new subscription service to help its unprofitable music business show profits.

New services like Napster To Go may face considerable obstacles with buyers. First they have to explain to consumers how the new services work -- no easy task because most consumers are used to buying, not subscribing to, music.

Also, the service is initially compatible with only a few music players, including devices from Samsung, iRiver and others that have incorporated Microsoft copy-protection technology; more products are expected in coming months. Napster To Go doesn't work with Apple's iPod, the most popular player, because Apple doesn't support Microsoft's music technologies.

Napster is kicking off a $30 million print and broadcast advertising campaign with a television commercial during this weekend's Super Bowl. The central theme of the campaign, called "Do the Math," is to argue that it theoretically could cost as much as $10,000 to fully load up some models of Apple's iPod with 99-cent songs, if purchased one by one. Putting the same number of songs on a portable music player through Napster To Go costs $15 a month, the ads say.

In an interview, Apple's chief executive, Steve Jobs, said he doesn't believe there's a meaningful market willing to pay $180 a year to subscribe to music that users don't permanently own. "When you rent stuff, in the end you're left with nothing," Mr. Jobs said.

Advocates of services like Napster To Go say subscription music businesses have a better chance of luring users from piracy in the long run than sites like iTunes. That is because members of subscription services can listen to the entire Rolling Stones or Eminem canons without worrying about running up a huge tab, an experience that comes closer to the free-for-all of file-sharing than do sites like iTunes. (These days, almost all major artists are available on all the commercial-download sites, though there is one glaring omission: The Beatles.)

In the new Napster service, subscribers will be able to download music onto their PCs, then transfer it to their portable music devices, as they do with iTunes. Users will be able to fill their music players up with as many songs as the players will hold -- but it is necessary to plug the devices into their PCs at least once every 30 days, so Napster can verify over the Internet that users are still paid-up members. Stop paying the monthly fee, and the songs become unplayable.

For now, the appeal of subscription services appears to be small. In an Internet poll late last year of more than 300 owners of portable music players, research firm Parks Associates asked how many would be willing to pay $10 a month for a music service that included portability. A mere 8% said they would be likely users.

The music industry itself hasn't decided how enthusiastic it is about portable subscription services, with some executives worrying that subscriptions will cannibalize CD purchases by heavy spenders. Some Internet industry executives say music companies are demanding high licensing fees from companies that want to support portable players, potentially forcing the cost of such services to $20 or more a month.

Macrovision Corporation Announces Analyst Day; Provides FY 2005 Guidance and Q4 2004 Earnings Release Date
January 31, 2005 4:30:00 PM ET
Macrovision Corporation MVSN announced today that it is holding its first ever Analyst Day at The Four Seasons Hotel in New York City on February 1, 2005 from 12:45 p.m.-4:30 p.m. ET. The Analyst Day will showcase various executives from each of the Company's two divisions, who will discuss market opportunities and provide strategic and tactical business roadmaps. In addition, the executives will demonstrate various Company products and analyze key market trends impacting the Company's business lines.
The Analyst Day meeting can be accessed via webinar on February 1, 2005 starting at 12:45 p.m. ET. The webinar can be accessed online at www.placeware.com/cc/macrovision/join -- enter Meeting ID "MVSN-0201", followed by Meeting Key "5QRHC6" to attend and view the webinar presentation. For audio dial-in, please call 1-800-240-2430 (Domestic) or +1 303-275-2170 (International). For web technical support during the live webinar session, please call 1-800-893-8779 or (International callers at +1 971-544-3222) or by sending an email to: eventsup@microsoft.com. Approximately 1-2 hours after the live webinar, the on-demand recorded webinar replay will be available until Febrary 8, 2005 on Macrovision's website at www.macrovision.com.
Fiscal Year 2005 Guidance
The Company also announced today guidance for FY 2005. Revenues for FY 2005 are estimated to be between $220 million and $230 million, with pro forma diluted earnings per share in the $1.03-$1.06 range, and GAAP earnings per share in the range of $0.90-$0.93. GAAP earnings do not reflect stock option expenses under accounting rules which are effective July 1, 2005, the impact of which is currently being estimated, and pro forma earnings exclude amortization of intangibles from acquisitions.
Compared with the Company's latest FY2004 guidance, the 2005 targets represent an expected 30% increase in revenues and an 17% increase in pro forma earnings per share based on the midpoints of the 2004 and 2005 guidance ranges.
The Company estimates that its cash position at the start of the year is approximately $252.5 million in cash, cash equivalents, short term investments and long term marketable securities.
Bill Krepick, Macrovision's CEO said, "In FY 2005, we expect to see our software technologies business and entertainment technologies business approach a 50/50 split in revenues, with the faster growth in our software business resulting in some slight margin compression. We expect that our business will be back end loaded in Q4 as is typical of both the software business and our entertainment technologies business. In addition to continued expansion of our software business, we are looking forward to growing our revenues for our two new technologies: Hawkeye peer-to-peer file sharing management and control and RipGuard, our digital anti-ripper product."
Q4 Earnings Release Date Announced
The Company also announced that it will be releasing Q4 2004 earnings and Q1 2005 guidance on February 28, 2005 at 4:30 p.m. ET, followed by an earnings conference call on the same day at 5:00 p.m.-6:00 p.m. ET. The timing for the Q4 release is in line with prior years' fourth quarter earnings releases reflecting the fact that many replicator reports are not received until 45-60 days after year-end, and the Company waits for these reports to minimize revenue estimations in its DVD copy protection business.
Pro Forma Earnings
Macrovision provides pro forma earnings and pro forma earnings per share data as additional information for its operating results. These measures are not in accordance with, or an alternative for, accounting principles generally accepted in the United States and may be different from pro forma measures used by other companies. Macrovision believes that presentation of pro forma earnings and pro forma earnings per share provides useful information regarding certain additional financial and business trends relating to its results of operations. In addition, management uses these measures for reviewing the financial results of Macrovision and for budget planning purposes.

Consumer-Electronics Firms Join To Develop Antipiracy Software

By DON CLARK
Staff Reporter of THE WALL STREET JOURNAL
January 19, 2005; Page D5

Some of the biggest consumer-electronics companies are jointly developing new technology to control how consumers use digital content in the home.

The companies -- Sony Corp., Samsung Electronics Co., Philips Electronics NV and Matsushita Electric Industrial Co., maker of Panasonic-brand products -- today are announcing what they are calling the Marlin Joint Development Association. The group, which includes a Silicon Valley company called Intertrust Technologies Corp., plans to develop standard specifications for software that can prevent digital movies and music from being improperly copied. It also intends to enforce rules about how such content can be played and shared.

Fears of piracy have discouraged content owners from allowing some high-definition video and other digital programming from being distributed in the home. Makers of devices such as digital recorders and DVD players, meanwhile, are worried about adopting incompatible antipiracy technologies, which could mean a protected movie or song might play on one gadget but not another.

Such technology is known by the acronym DRM, for digital rights management. Microsoft Corp. has been trying to get hardware makers to use its proprietary DRM software. Other companies, such as Apple Computer Inc., have developed such technology for their own products. A confusing array of joint DRM projects have also popped up, addressing specific problems such as video on a new-generation of disks that are expected to succeed DVDs.

What makes Marlin different, backers say, is mainly that it is emanating from some of the biggest brands in consumer electronics. "The CE industry has been pretty quiet," said Talal Shamoon, Intertrust's chief executive. Now, they are "detonating their DRM," he said.

But Michael McGuire, an analyst at Gartner Inc., noted that the new effort has yet to show it will win support from content holders, such as movie studios. The proliferation of DRM efforts also could confuse consumers. "If I'm a user, I'm wondering, is this going to make things more complicated for me?" Mr. McGuire said.

Some of Marlin's current members also are likely to consider multiple DRM options. Sony, for example, said it is too early to say whether it will favor Marlin over its proprietary DRM technologies. "We are actively evaluating opportunities to use Marlin," said Mack Araki, a Sony spokesman. But "I can't comment on specific plans today."

Marlin comes on the heels of an earlier joint effort, called the Coral Consortium, that had some common members with Marlin. Coral, however, was designed to let different DRM programs work together, rather than establish a specific piece of software as a standard for hardware companies to adopt, Mr. Shamoon said. Both efforts were partly based on technology developed by Intertrust, a company that was jointly purchased in 2003 by Sony, Philips and other investors.

Success of earlier such efforts has been mixed. While DRM systems usually make piracy more difficult, hackers have successfully cracked some high-profile protection schemes, including FairPlay, the copy-protection software Apple uses for music it sells through its iTunes Music Store.

Actor to Hollywood: Think
Direct-to-Home Movies

By SARAH MCBRIDE
Staff Reporter of THE WALL STREET JOURNAL
January 18, 2005; Page B4

You've heard of movies that go directly to DVDs. Now, get ready for directly to homes.

Actor Morgan Freeman and his movie company, Revelations Entertainment, have teamed up with Intel Corp. to try to push Hollywood into broader distribution for movies.

Revelations and Intel have set up a home in Santa Monica, Calif., intended to demonstrate to industry executives how movies could be piped directly to TV sets, possibly bypassing theaters altogether. Intel is involved with hopes of selling more high-end chips that go in the entertainment computers and portable players that facilitate digital home distribution, as well as setting industry standards on digital distribution.

Most studios follow the established pattern of theatrical release, followed by pay TV, DVD release and then television. But Mr. Freeman says that movies would do better if they could go right into homes, say via secure Internet transmission, and then onto TV screens via home networks that link computers, TV sets, stereo systems and the like.

The two companies say that many piracy-fearing Hollywood executives don't realize online distribution is far more secure than DVD technology.

But Mr. Freeman says he thinks theater owners will get over their initial fears.

"We're not pushing this technology -- the technology is pushing us," he says of online distribution, alluding to the growing problem with illegal movie downloading.

"If we don't do it, we're going to wind up like the music industry," he adds.

Record companies blame years of declining sales, which only recently have started to pick up, on online piracy.

Others have tried experimenting with distribution. Late last year, "Noel," a moving starring Penelope Cruz and Susan Sarandon, came out on disposable DVD at the same time that it was slated for theaters.

But theater owners balked at putting it on their screens, upset that they were losing possible ticket buyers to the disposable DVD. In the end, it went into just a handful of theaters, and disappeared quickly.

Releasing directly to television or DVD is generally Hollywood shorthand for a movie so bad it couldn't get theatrical distribution. But Mr. Freeman and his partners at Intel argue that doesn't apply to the Internet, which users perceive as cool.

Record Industry Loses Download-ID Ruling

ASSOCIATED PRESS
January 5, 2005; Page D2

WASHINGTON -- A second U.S. appeals court ruled that the recording industry can't force Internet providers to identify music downloaders under a disputed copyright law.

The 2-1 ruling yesterday by the U.S. Circuit Court of Appeals for the Eighth Circuit in St. Louis affirms another appeals court's decision in Washington in December 2003. Both courts ruled against efforts by the Recording Industry Association of America, the trade organization for the largest labels, to compel Internet providers to identify customers accused of illegally distributing songs via the Internet.

In the Missouri case, judges said Charter Communications Inc., a major Internet provider, wasn't responsible for 93 of its customers' allegedly trading 100,000 copyright music files across the Internet and shouldn't have been compelled to identify them under the 1988 Digital Millennium Copyright Act.

The RIAA said it will keep suing people it accuses of illegally sharing music. "Our enforcement efforts won't miss a beat," spokesman Jonathan Lamy said.

Macrovision Leverages World Leadership in Software Protection Technologies to Enhance Its Best-Selling Music CD Content Protection Solution
January 05, 2005 2:00:00 PM ET



Software Protection Technology Deployed on over 300 Million PCs Expanded to Protect Content on Billions of CD Music Tracks

Macrovision Corporation MVSN, the global market leader in content protection and digital rights management (DRM) technologies, has evolved its market-leading, patented SafeDisc(R) software protection technology, in use on hundreds of millions of PCs, for use in CDS(TM), the world's most widely adopted music CD content protection solution. Music labels can, for the first time, deploy a software-based content protection solution with confidence to hundreds of millions of consumers in the U.S. and beyond.

The increasing threats posed by Peer-to-Peer downloading and other forms of digital piracy require complex software solutions and services. Today's announcement signals a confirmation by Macrovision that it has translated years of experience designing market-leading software solutions for the world's top Software and Games Publishers into cutting-edge digital software solutions for the music entertainment industry.

"It was natural to build on a proven technology in use on over 300 million PCs to deliver the only product Music Labels can deploy having such an extensive history of performance and compatibility on consumer PCs worldwide," said Steve Weinstein, executive vice president and general manager of Macrovision's Entertainment Technologies Group. "Macrovision is a Microsoft Certified Partner, with a tested worldwide support network already familiar with providing excellent service for desktop deployments. When it comes to software on a consumer's PC, our customers understand the value of stability, compatibility and support."

CDS is among the first CD Content Protection products in the market to be certified by Microsoft Corporation as a "Designed for Microsoft(R) Windows(R) XP" solution. For more information, refer to the Microsoft Windows Catalog http://www.microsoft.com/windows/catalog/default.aspx?subID=22&xslt= search&qu=macrovision&scope=2&btnSearch=Go. (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.)

Macrovision continues to demonstrate its deep working relationship with Microsoft through its ongoing participation in Microsoft's Visual Studio Industry Partner Program, the Microsoft Management Alliance, the Windows Embedded Program, and Windows Mobile Solutions Partner Program.

About CDS

CDS has shipped on over 400 million music CDs worldwide, protecting over 4 billion music tracks. Over 22 major and independent music labels worldwide and 20 resellers have utilized the CDS technology on over 4,000 albums since 2002. The SafeDisc technology has shipped on over 300 million CD/DVD-ROMs, protecting over 3,300 PC game titles and over 3,500 software titles.

The latest version of CDS-300 is pro-consumer and pro-content owner. It features the best CD rip protection on the market while giving consumers one click capability for music portability (DRM copies) and backup flexibility (Controlled Burn CD copies). CDS-300 is transparent across CD, DVD and PC audio systems, and provides the same high standards for CD audio quality adopted by worldwide manufacturers and preserves 100% of the audio fidelity (16-bit/44.1 kHz).

CDS-300 is compatible with Microsoft's Windows Media(R) DRM solutions and is designed to support other third-party DRM vendors. For more information about CDS-300 features and benefits, visit www.macrovision.com/products/cds/cds300. For a list of compatible portable devices, visit www.microsoft.com/cooldevices.

Sales of U.S. Music Albums
Spin Slightly Faster

By ETHAN SMITH
Staff Reporter of THE WALL STREET JOURNAL
December 31, 2004; Page A8

Sounding a mildly positive note for the record industry, sales of U.S. music albums appear poised to rise this year for the first annual gain in four years.

The margin, however, is likely to be so slim that the music industry won't be to able declare a definitive victory against the many forces that have long bedeviled it, including piracy, a long creative drought and competing entertainment media.

Sales of albums through the week ended Sunday reached 665.5 million units, according to Nielsen SoundScan, up 1.4% from the same point in 2003. The industry has one more week of sales left before getting a final tally for the year.

Any sales increase is important, but the final number still will represent a disappointing slide from the 7% to 8% gains that the industry saw through the first nine months of the year.

Fourth Quarter Weakens

For every week of the fourth quarter -- by far the heaviest music-buying season of the year -- album sales have been down compared with the comparable week in 2003.

As a result, the margin for the year has been slipping as much as 0.5 percentage point a week. People in the music industry have been divided over the reason for the slide, but most agree that a weak slate of releases has failed to produce many albums with long-term buzz.


One of the few exceptions to that rule was R&B singer Usher, whose "Confessions" ended the year steaming toward sales of eight million units, and was poised to become the top-selling album of the year. Other top sellers are likely to include Norah Jones's "Feels Like Home," Eminem's "Encore" and Tim McGraw's "Live Like You Were Dying."

Sales of digital downloads grew at a torrid pace during the year, fueled by a surge in popularity of portable devices such as Apple Computer Inc.'s iPod, which are often sold with gift cards good toward $20 in downloads.

For the week ended Sunday, download sales of individual songs exceeded five million, according to Nielsen SoundScan, easily beating the previous record, set two weeks earlier, of nearly four million. Digital track sales are likely to exceed 131 million for the year, compared with 19.2 million in 2003.

Despite the high rate of growth in digital track sales, however, it will be a matter of years before they begin to represent a significant percentage of overall music sales, say people in the industry. In the meantime, global music companies are looking for other ways to make money, such as licensing their catalogs for uses including cellphone ring tones.

Similarly, retailers are looking beyond the compact disc. Mass merchandisers like Wal-Mart Stores Inc. and Target Corp. have long emphasized DVDs over CDs, and now even specialty-music retailers say they are doing the same, to their benefit.

Switching to DVDs

Mike Dreese, chief executive of the Boston area's 25-store Newbury Comics Inc. chain, says that DVD sales have skyrocketed, even as December music sales slid 5% from a year earlier. As a result, Mr. Dreese said his sales for the month were up 15%.

Although Newbury describes itself as a music specialist, Mr. Dreese said the chain's flagship store now stocks many more DVD titles than CDs. He predicted that by a year from now, DVDs -- which already make up 27% of the chain's sales -- will represent a greater percentage of his business than CDs, which are currently 41% of sales.

With a booming business developing in DVD sets of television series, Mr. Dreese says for agile retailers able to focus on the video discs, the current environment "is like the third or fourth year of the CD era," when consumers looking to replace old vinyl collections fueled a boom in music sales.

Music companies have tried to capitalize on the DVD boom, although for the moment, they can't keep pace with movie and television-program sales. Not one of the top 40-selling DVD titles, according to Nielsen VideoScan, is a music title.

EMI, Sony BMG
Set License Accord
For Music Catalogs

By ETHAN SMITH
Staff Reporters of THE WALL STREET JOURNAL
December 20, 2004; Page B5

In a step that promises to foster the growth of a variety of new delivery formats, EMI Music Publishing announced a blanket agreement with Sony BMG Music Entertainment to license a sizable roster of music for use as ring tones and other new media.

In order for a song to be used in a new medium, the song's publisher and the record label both must give their permission. Without blanket agreements, obtaining permissions can create long and costly delays on the rollout of a song across these new platforms, as the parties negotiate terms.

The deal announced Friday applies to ring tones; to so-called DualDiscs, which play like a CD on one side and like a DVD on the other; and to a variety of new video-distribution formats.

For standard CDs and the like , there are already mechanisms in place to ease the path of music from copyright owners to consumers. EMI Publishing , a unit of EMI Group PLC, is the world's largest music publisher with more than a million songs in its catalog. Sony BMG, which is jointly owned by Sony Corp. and Bertelsmann AG, is the world's second-largest recorded-music company.

The agreement is the first such deal between a major music publisher and a major recorded-music company owned by separate corporate parents. It applies to compositions that are in EMI's catalog and distributed by Sony BMG labels, including Columbia Records and Arista Records. Music by artists including Alicia Keys and Good Charlotte falls under the agreement.

Still, with four global music companies, each with its own publishing and recording side, the vast majority of songs are still without blanket licensing agreements in place.

People in the industry predicted that the size of the two players in the deal announced Friday would be an incentive for other music companies to make such agreements.

Making the Most
Of Season's Big Gift:
Our iPod User's Guide
December 15, 2004;

By all accounts, millions of people will buy or receive Apple Computer's iPod digital-music players this holiday season. The gadgets are beautifully designed and simple to operate, which is one reason they're so popular, even after three years on the market and despite a rising number of competitors.

But new iPod owners still have lots of questions. So, with the help of my assistant, Katie Boehret, I've put together this beginner's guide to the iPod. Even if you've had an iPod or iPod mini for awhile, this guide might teach you something new, such as how to transfer songs from your iPod back to a computer, or how to play songs on your iPod that were purchased from online stores other than Apple's.


Do you need an Apple Computer to use an iPod?

No. The iPod is designed to work with either Windows or Macintosh computers.

What is the relationship between the iPod and iTunes?

Apple's iTunes is a software program that is intended to be used on a computer in conjunction with the iPod. It locates and organizes all the music on a computer. Confusingly, Apple has also given the name iTunes to its online music store, where it sells songs that can be played in the iTunes software or on the iPod.

How do I transfer music onto my iPod?

You first have to collect music files on your computer, and then move them to the iPod. The iTunes software organizes all the music on your PC or Mac into a library. Whenever you plug an iPod into your computer -- either directly, or via a dock that holds the iPod and connects to the computer -- iTunes will automatically send the music in its library to the iPod. Alternatively, you can set the iPod to receive songs manually; this will let you choose which songs transfer onto the iPod, in case you don't want the entire library to transfer over.

Where do I get the music to load onto my iPod?

Your iPod's music can come from three sources. You can copy, or "rip," tracks from the CDs that you already own. To do that, you just insert a CD in your computer, and it shows up in a window in iTunes. Make sure you're online when you do this, because the software consults an Internet database to identify the album, artist and tracks. Then, you click on the "Import" button in the top right corner of the iTunes window to copy your CD onto your computer as song files. These songs become part of the iTunes library, and can be transferred to your iPod.

If you already have songs on your computer that are in a format the iPod can play, such as MP3 or AAC, iTunes can import these songs into its library and transfer them to the iPod. Finally, you can purchase songs on Apple's iTunes Music Store for 99 cents each. They are downloaded to your computer as soon as you buy them, and can be found in iTunes by clicking on "Purchased Music."

WHERE TO FIND MORE ANSWERS



• iPoding www.ipoding.com

• iPod Lounge www.ipodlounge.com

• iPod Hacks www.ipodhacks.com

• Apple's iPod site www.apple.com/ipod




Can my iPod play songs I buy from other online stores?

Not directly. Most online stores, including Apple's, use special copy-protected variants of standard music formats. The only one of these copy-protected formats the iPod can play is the one used by Apple's iTunes store. Songs that are sold from other music stores, like Musicmatch or Napster, are in a different copy-protected format.

But if you do have some songs from an incompatible store, there is a workaround that can get them onto your iPod. First, using the software that works with the other store -- like Windows Media Player or Musicmatch -- copy, or "burn," the songs in question to a standard audio CD. Then, take the CD, re-insert it into your computer, and launch iTunes. Use iTunes to copy, or "rip," the songs into MP3 files. These files are then incorporated into the iTunes library.

Can I use songs I buy on the iTunes store on more than one computer or iPod?

Yes. A song bought on the iTunes store can be used on an unlimited number of iPods, and on as many as five different computers.

How do I create playlists on my iPod?

In most cases, you first create your playlist in iTunes, then transfer it to your iPod. Clicking on a small "+" icon at the bottom left of the iTunes screen lets you create a new playlist, or special list of songs, from your library of music. After naming this list (i.e. Valentine's Day Mix), you can add songs to it by simply selecting song titles from your library and dragging them into the appropriate playlist. Any song can appear in more than one playlist.

You can also create "Smart Playlists," which automatically gather up songs that meet certain criteria you specify, such as the decade they were released, or the genre they fall into.

These playlists automatically transfer over to your iPod the next time you connect the iPod to your computer.

You can create a temporary playlist directly on your iPod by selecting a song and holding down the iPod's center button until the song title flashes. That adds the song to a special playlist simply titled "On the Go."

How do I create a music CD from the songs on my iPod?

You do this directly from iTunes and your computer, not the iPod itself. In iTunes, first create or select a playlist of the songs you want on your CD. Then insert a blank CD into your Mac or PC. Next, click on the "Burn Disc" button in the upper right corner of the window. The iTunes software will create a music CD that can be played on any standard home, portable or car CD player.

How many times can I burn the same playlists?

If the playlists consist of noncopy-protected songs, there's no limit. If they include songs you purchased from the iTunes store, you can burn the same exact playlist onto a CD up to seven times.

How many iPods can I use with my computer?

You can use an unlimited number of iPods with any one computer.

How many computers can I use with my iPod?

There is no official limit on the number of computers that you can use with your iPod. However, each time you plug your iPod into a different Windows or Mac computer, the songs on the iPod will be overwritten by whatever songs are in the iTunes library on the new computer.

Can I transfer music from the iPod to a computer?

Out of the box, the iPod is designed only for one-way music transfers -- from the computer to the iPod. However, there are numerous third-party programs available online -- some are free, others charge a small fee -- that will allow you to copy the songs on your iPod onto a PC or Mac. You can locate these programs on iPod-oriented Web sites such as iPoding (www.ipoding.com) or iPod Lounge (www.ipodlounge.com) or iPod Hacks (www.ipodhacks.com).

Can I use my iPod with my home stereo?

Yes. Apple and other companies sell cords that allow you to connect your iPod or iPod dock directly to your stereo.

Can I use my iPod in the car?

If you have a car with an accessible audio-in jack, you're in luck because you can just use a standard audio cable to plug your iPod into this port.

Alternatively, if your car has a cassette deck, you can buy a cassette adapter from any electronics store, hook it into your iPod, plug it into the car's tape deck and go to town.

But many new cars don't have cassette tape slots, so an FM transmitter may be the best way to go. These devices plug into your iPod and transmit the iPod's music to an unused station setting on your car's FM radio.

Does the iPod do anything other than play music?

Every iPod contains little-known features that can display your contacts, calendar and notes, transferred from your PC or Mac. The iPod also contains a few simple games, and you can buy extra software that adds additional functions and data to an iPod.

One iPod model, the new iPod Photo, can also hold pictures transferred from your computer, and display them on its color screen, or on a TV set, using an included cable. You can also use any leftover space on your iPod's internal hard disk to store regular computer files of any type.

Music Downloads for Phone Arrive

By ETHAN SMITH
Staff Reporter of THE WALL STREET JOURNAL
December 15, 2004; Page D4

In a move that promises to boost the convergence of mobile phones and music, Melodeo Inc. announced a world-wide licensing deal with Warner Music Group to sell full-track wireless downloads for specially configured cellphones.

The agreement brings together in a big way two of the music business' favorite trends: digital track sales, which have been available mainly via personal computers; and wireless music sales, which have been limited to tinny, brief and high-priced ring tones.

The downloads will first be available in Spain, to the roughly 20 million customers of Telefonica Moviles SA, the nation's main mobile-phone carrier. The company expects next year to roll out its service throughout the rest of Europe and to a number of U.S. carriers.

Music companies and wireless-phone services have struck local deals to sell music in various markets around the world. But Melodeo is the first to obtain licenses on a global basis. The company said it is in talks to add to its offerings the catalogs of the other three music majors -- EMI Group PLC, Vivendi Universal SA's Universal Music Group, and Sony Corp. and Bertelsmann AG's Sony BMG Music Entertainment.

A recorded-music executive who expects his company soon to begin offering its catalog via Melodeo called the company "the leader in the space." The executive said the global nature of the deals the company is able to strike "makes it much easier to do mobile commerce."

The music industry has long had high hopes for full-song sales to mobile phones, because those devices are ubiquitous and users are accustomed to paying for services associated with them. On the Internet, consumers have had to be coaxed away from free peer-to-peer services and on to legitimate ones. Furthermore, the music companies will see a bigger slice of revenue from the new type of downloads than they do from ring tones.

In Spain, the songs will sell for €1.50 ($2.89) each. Download times for a full song range from under 30 seconds to several minutes, depending on how advanced the network is. Users will need advanced phones. The fastest download speeds are available only to customers of phone companies that maintain so-called 3G networks. These superfast connections are in place only on a limited basis in Europe and Asia and won't be available in the U.S. for some time.

Users will need specially configured phones, with stereo headset jacks and extra memory, to take advantage of the service. A handful of such phones are available now, such as the Nokia 6620. Various handset manufacturers are expected to roll out several such models by the end of 2005.

For now, users won't be able to import their existing music collections to their music-player phones.

Other portable digital players like Apple Computer Inc.'s iPod let users move content from CDs and computers on to them.

New TiVo to feature more advertising
Associated Press
Posted Monday, December 13, 2004
SAN JOSE, Calif. - Digital video recording pioneer TiVo Inc. has long promised "TV Your Way."

But the company's plans for pop-up ads and restrictions on copying have sparked worries that the service may be eroding consumer control in favor of Hollywood and advertiser interests. Is it becoming TiVo - their way?

"Consumers are very distrustful of technologies that seize yet another opportunity to offer up advertising," said Mike Godwin, legal director of Public Knowledge, a public interest group. Whether the fears are founded or not, he said, "it feels like TiVo is taking away some of the prerogatives and flexibility that TiVo TV watchers have become accustomed to."

TiVo officials say that starting in March users will begin to see static images, such as a company logo, appear on their television screens as they fast-forward through commercials. The billboard-like ads - which will last about four seconds for a fast-forwarded 30-second spot - may offer giveaways or links to other ads.

For some ads, viewers could choose to provide advertisers with their contact data so they can get more direct marketing.

A pop-up recording "tag" is also planned: a "thumbs-up" icon would appear during TV show promotions and allow users to instantly place those programs in their recording queue.

TiVo officials contend that the new features will not be any more intrusive than the "thumbs-up" icons that already appear during some commercials and shows. But to some customers, the impending advertising changes smack of betrayal from the innovators whose hard drive-based gizmo lets TV viewers record programs, fast-forward through ads and pause at will.

"It's crossing the line," said Darren McClung. The 24-year-old Kansas City, Mo., systems administrator says he didn't mind as much when TiVo introduced ads in its main menu area, giving users the option of watching them.

But with ads set to appear over the very commercials he's trying to skip, "they've moved from unintrusive to intrusive advertising, and that's troublesome," he said.

Some skeptics also worry that TiVo's planned use of Macrovision Corp.'s new copy-protection scheme signals more boundaries on what shows they can or cannot record - even as TiVo prepares to unveil a new service later this year, called TiVoToGo, that will let users record shows onto DVDs or transfer them to computers.

Macrovision has developed a feature that will allow content providers - the people who produce television shows - to place restrictions on how long a digital video recorder such as TiVo can save certain kinds of programming. For instance, movies could disappear after seven days.

TiVo officials say the new restrictions will apply only to pay-per-view and video-on-demand programs. If Macrovision expands the feature to any other content, the deal is off, said Brodie Keast, executive vice president of service business at TiVo.

"We believe the consumer should be in control of entertainment - either free over-the-air or paid broadcasts - and this doesn't change that in any way," Keast said. "But reaching this kind of compromise allows us to innovate freely."

Industry watchers say TiVo has no choice but to make peace with networks, cable and advertisers.

"TiVo has to become more advertising-friendly because, at the end of the day, TV runs on advertising dollars and companies that are part of that food chain have to acknowledge that," said Tim Maleeny, director of strategy at Publicis & Hal Riney, a San Francisco-based advertising firm.

Josh Bernoff, analyst at Forrester Research, said, "Any product that's part of a cable and satellite world has to obey some of the restrictions that go with it."

The restrictions are tightening.

For instance, HBO says it plans to introduce in June a copy-protection technology that will restrict viewers to only one digital copy of its regular shows - and no copies of its on-demand programs.

As it is, TiVo is fighting an onslaught of competitors, including cable operators, who now offer digital video recorder-equipped set-top boxes of their own. The Alviso-based company has yet to post a profit.

Last month TiVo reported a net loss of $26.4 million, or 33 cents per share, on revenue of $38.3 million for the third quarter ended Oct. 31. Its subscriber base has more than doubled from a year ago to about 2.3 million, but roughly 61 percent of subscribers come through satellite operator DirecTV, which is expected to offer a competing DVR soon.

That is expected to help boost the number of U.S. households with DVRs well beyond the 6.5 million that currently have them.

For its part, TiVo tries to balance between customers' desires and Hollywood's demands.

Hollywood studios sued TiVo's rival, DVR pioneer ReplayTV, over its automatic commercial-skipping recording feature - a function TiVo and other DVR makers could have adopted but didn't. ReplayTV's rebel stance bankrupted its former owner. New owners have removed the ad-skipping feature.

TiVo has worked for years with advertisers, trying to find new ways to market to an increasingly fleeting television audience. As part of its delicate dealings with Hollywood, TiVo sells data on the viewing patterns of its users, such as when they choose to watch instant replays or when they fast-forward.

TiVo executives acknowledge that they're walking a fine line with their new advertising strategy.

"Those who feel that they've been 'sold out,' I can understand that," Bob Poniatowsky, a TiVo product marketing manager, wrote recently in an online posting on the TiVo Community Forum. But "that's simply not the case here."

Advertisers - and TiVo- will have to tread cautiously nonetheless, said Maleeny, the advertising strategist. Consumers already encounter hundreds of ads a day all around them - from billboards to newspapers to the Internet.

"It's easy in this environment," Maleeny said, "to suddenly cross a line from being inviting and intriguing to being intrusive and obnoxious."

And if it does not come out the next week, it will come out the week after next, and if it does not come out the week after next, it will come out the following week...please spare me.

MVSN Downgraded from Outperform to Sector Perform by Pacific Crest.

Studios Strike
HD-DVD Deals
For Holiday 2005

By SARAH MCBRIDE and PHRED DVORAK
Staff Reporters of THE WALL STREET JOURNAL
November 29, 2004; Page B1

With holiday shoppers gobbling up millions of popular DVDs over the weekend, Toshiba Corp. and three major movie studios are expected Monday to announce plans to make new high-definition DVDs available by Christmas 2005.

According to people familiar with the matter, the studios -- including Viacom Inc.'s Paramount, General Electric Co.'s Universal Studios, and Time Warner Inc.'s Warner Bros. -- are planning to release up to two dozen titles each in time for next year's holiday season in the so-called HD-DVD format that is backed by a group of Toshiba-led partners.

The move shows that Hollywood is getting serious about moving ahead with the "next generation" DVD format, which it so far has been reluctant to embrace. The new discs promise super-sharp resolution and bonus interaction features when played on high-definition televisions and via new high-definition DVD players. But the discs are especially appealing to the studios because they use super-secure copy protection that makes them less vulnerable to piracy than today's easily copied standard DVDs.

Today's announcement gives the Toshiba group a leg up, for the time being, in a burgeoning format war over the next-generation of DVDs. Sony Corp. has spearheaded a rival technology called Blu-ray, which it is pushing hard in part because its technology for the current generation of DVDs mostly lost out to Toshiba's -- with very little Sony technology winding up in today's standard DVDs. And in the early 1980s, its Betamax technology for videocasettes lost out to Victor Co. of Japan Ltd.'s VHS format.

Hoping to avoid another failure, Sony has been aggressively lining up partners for its Blu-ray format. At this point, the earliest that movies could be issued in the Blu-ray format would be 2006. Still, Blu-ray has far more manufacturers and consumer-electronics partners on board than the Toshiba group. And Blu-ray discs can hold far more material than HD DVD, allowing studios that distribute TV shows, for example, to pack more episodes on a single disc, or to throw in more bonus features.

Despite today's announcement by Toshiba, Blu-ray remains a strong contender. Firmly in its camp: Sony's powerhouse Columbia Pictures, along with the studio it is in the process of acquiring, Metro-Goldwyn-Mayer Inc. And the deals Toshiba is making with studios aren't exclusive -- the same studios could also make software deals with Blu-ray.

All studios are anxious to avoid another Betamax/VHS-style format war, however, because they don't want to confuse consumers by releasing their movies in many similar-looking disc formats -- or annoy them if the format they choose is off the market in a couple of years. Studio executives say it would be best if one technology scored a clear win over the other or if the two camps could compromise so both new versions could play on the same player.

Although millions of Americans have yet to buy even a standard DVD player, Hollywood has been plotting the next generation of DVD for years. Until recently, studios figured they should delay the next generation for as long as they could, maximizing sales in the current format. But the studios have been speeding up their plans lately as sales of standard DVD players have tapered off. Amid signs that piracy is cutting into sales far more than predicted, the studios also reason that they should move more quickly toward the new technology because of its superior antipiracy features.

Thus, the studios want to get started making next-generation DVD a hot product for next Christmas and beyond. Such efforts are typically slow to bulid; the first year DVD players came out, only 300,000 players sold; studios anticipate a similarly slow pickup for next-generation DVD.

To get things going next year, the studios plan to offer what they expect will be top-selling new releases. That means special-effects packed movies aimed toward affluent men, perhaps films like Paramount's Steven Spielberg-directed "War of the Worlds," Universal's "Doom," and Warner Bros.' "Batman Begins." Those are expected out next summer, in plenty of time to get on DVD by the holidays.

A holiday rollout is key, studios say, because that's the time when people are most likely to drop the big bucks needed to switch over to the new format. By next Christmas, an HD-DVD player should cost around $1,000. To work properly, it needs a pricey high-definition TV. By Christmas 2006, the prices are expected to drop to $500 for a player.

The next-generation players also are expected to play current DVDs; players ready in the U.S. market by the end of 2005 could include Blu-ray players from Sony; Blu-ray DVD drives for computers from Hewlett-Packard Co.; HD-DVD players from Toshiba; and HD-DVD drives from NEC Corp. as well as a joint venture of Toshiba and Samsung Electronics Co.

Both Sony, Toshiba, and their respective allies are also furiously working to win over companies that make the players – and particularly businesses that etch and stamp the discs themselves. Both sides claim they have lined up the parts – such as lasers, drives and lenses – that they need to make players next year. Indeed, major DVD-drive maker Sanyo Electric Co. was showing both Blu-ray- and HD-DVD-compatible parts at a recent Tokyo-area electronics show.

More technology companies, however, are hedging their bets as Blu-Ray and HD DVD duke it out. Samsung Electronics, a member of the Blu-ray camp, may make HD-DVD players next year, people familiar with the situation said. Microsoft Corp. is providing its video compression technology to both HD-DVD and Blu-ray formats. And disc makers are already readying production lines on the assumption that they will have to make both formats.

Proving that the discs can be manufactured easily and cheaply will also be extremely important to Hollywood, as they start taking a hard look at bottom lines for the new business. If Hollywood is going to order up large numbers of high-definition discs in time for next Christmas, the disc makers have to start buying new equipment and running trials in the next few months.

Toshiba's HD DVDs are very similar to existing DVDs, and could use much of the same equipment to make them. That means it's quicker and cheaper, for now, to make HD DVDs than Blu-Ray discs." It's all a matter of [disc-making] infrastructure," says Kanji Katsuura, chief technical officer at Memory-Tech Corp., a Japanese disc maker that's supporting the Toshiba-led effort. "If the infrastructure is in place, Hollywood won't be able to ignore it."

For the past few months, Memory-Tech and Toshiba have been promoting a manufacturing line that can make both DVDs and HD-DVD discs, changing between the two in only five minutes. The companies argue that such dual-purpose equipment will make it easier for disc makers to invest in a brand-new technology, especially when nobody can predict how fast high-definition discs will actually catch on. When HD DVD demand picks up, the dual-purpose machines can press high-definition discs; until then, they can be used to make DVDs, which are still seeing strong demand.

"If you're going to add new DVD lines anyway, why not add ones that can make HD DVD discs too?" says Mr. Katsuura.

Sony, on the other hand, has been trying to land orders for Blu-ray-specific manufacturing machines from big disc pressers or equipment makers. It's trying to sell disc makers a special machine it developed to etch the data on a master disc used for stamping -- though it hasn't clinched a sale yet.

And this week, Sony is expected to announce an agreement to work on Blu-ray disc-making equipment with Germany's Singulus Technologies AG, one of the world's biggest manufacturers of machines that produce CDs and DVDs. The two companies are planning to have prototype Blu-ray production lines ready by the middle of 2005 -- meaning mass production of Blu-Ray discs could start around early 2006.

This DVD will self-destruct in 48 hours

Shades of 'Mission Impossible'; the new disk is part of a unique market strategy for an independent movie called 'Noel.'

By Jerry Cobb

"Noel," billed as a heartwarming holiday film about hope and miracles, is hoping for a miracle. The independent movie is using a novel distribution strategy in an effort to broaden its exposure.

After opening in a limited number of theaters this past weekend, "Noel" will be available on Amazon.com (AMZN, news, msgs) on Wednesday for $4.99 on a disposable DVD that self-destructs 48 hours after it's removed from a sealed package like something out of the old "Mission Impossible" TV show. The DVD uses a technology that makes it unusable after the two-day exposure to air.

"Noel" also will air on cable channel TNT for one night only, the Sunday after Thanksgiving. It's called a "trimultaneous" release strategy, and it's the brainchild of WebMD founder Jeff Arnold and his current tech venture, The Convex Group.Banks and insurers
check your credit.
So should you.

"We said, 'how are we ever going to compete with a 'Polar Express' or these other big holiday movies,' so we said, 'doing it in a unique way like this might help us cut through the clutter,'" Arnold says.

The three-pronged release of "Noel" also is designed to cut marketing costs at a time when Hollywood studios are spending an average of more than $35 million to promote a movie.

"What's interesting about the technology is that it allows people, like potentially a Starbucks (SBUX, news, msgs) or others, to get in the movie distribution business," says Arnold.

MVSN technology not copy protecting Spiderman 2 DVD 26.00: Piper Jaffray notes that the "Spider-Man 2" DVD, to be released Nov 30, is not copy protected with Macrovision's (MVSN) technology. The firm has obtained what it believes is a genuine retail copy. Sony/Columbia TriStar is a studio that protects DVDs with Macrovision's technology on a selective basis. The firm believes the Street was anticipating that a few major titles would not be protected in Q4 based on recent mgmt comments. Earlier this month, the firm's tests indicated that the "Shrek 2" DVD was not copy protected by Macrovision, while "Harry Potter (Azkaban)" was unexpectedly protected. The firm believes the SPiderman 2 news was already priced into estimates.

EMI Posts Loss, but Outlook
Is Upbeat for Music Industry

Big Gains in Digital Sales
Create Optimism as Decline
In Total Revenue Slows

LONDON -- EMI Group PLC, one of the world's "big four" music companies, reported a net loss for its fiscal first half amid lower sales, but the company is confident about recovery prospects for the global music market.

The London company, which operates record labels including Virgin and Capitol, said sales of digital music more than quadrupled in the first half of its fiscal year. Total music sales continued to fall during the period, but the rate of decline slowed markedly.

EMI Chairman Eric Nicoli said the industrywide 1.3% decline in music sales during the six months represents a "significant improvement" on the 9.6% decline seen in the same period of the previous year. He added that the digital-music market continues to expand rapidly, and "we remain confident that digital represents a key driver for future industry growth."

The upbeat outlook sent EMI's shares higher Friday, as the shares rose 15%, or 31.25 pence (57.76 U.S. cents or 44.56 European cents), to 239.75 pence.

EMI did report weaker results for the period. Its net loss for the six months ended Sept. 30 was £400,000, or about €570,370 ($740,740), compared with a year-earlier net profit of £9.2 million. Sales fell 11% to £851 million from £960.3 million. Adjusted for currency fluctuations, sales were down 5.4%.

EMI said the second half has started well, with a "very successful" October and November boosted by greatest-hits albums from Robbie Williams, Tina Turner and yet another live outing from the Rolling Stones. EMI Music sales for those two months are "well ahead" of last year, the company said.

Digital-music sales of £12.2 million in the first half now represent more than 2% of EMI's total. In a note, brokerage house Bridgewell Securities said it expects digital revenue to reach 25% of the total in three to five years, and said EMI is well exposed to Internet and mobile distribution channels.

On a conference call, Mr. Nicoli said, "We've seen a multiplication of [digital] business for the last four years, but most of the platforms and devices have only just been released."

Mr. Nicoli added that industry campaigns to warn consumers away from illegal digital Internet sites are showing signs of success. "They are having a significant educational and deterrent effect," he said.

EMI also said it remains on track to deliver its promised cost savings of £50 million, split between this financial year and next. EMI in March announced a large restructuring of its labels and artist roster.

Simplifying a burning CD issue

By Patrick Kampert
Tribune staff reporter
Published November 21, 2004

A CD-burning system called Mix and Burn is being tested in some Best Buy stores in the Chicago area. If you don't own a computer that burns CDs, don't have the time or interest to go the iPod/MP3 route--or are simply clueless but curious about the process--this might be for you.

The Q section's CD Patrol visited the Best Buy in Bloomingdale and put the Mix and Burn system to the test. Here are some observations:

The good

It's easy. If you're not techno-savvy (more like "heck-no-savvy") on CD-burning at home, the touch-screen system makes it easy to release your inner deejay.

You can make a mix that no radio station would touch. What station would pair the Ramones with something from "The Sound of Music"? Music lovers can choose from 170,000 tracks.

Compilations are still cool. Years after K-Tel and Ronco made mixes guilty pleasures, "Now 17," the latest edition of "Now That's What I Call Music," debuted two weeks ago at No. 1 on the Billboard charts (400,000 copies).

A mix tape made at home wears out quicker than a CD. Plus, you don't have to write down all the song titles yourself with Mix and Burn.

You can name your own disc too. Like: "Proof I'm (Not) a Music Expert" or "Music Too Good for MTV."

The not-so-good

As Tom Petty sang, "The waiting is the hardest part." You'll have to be patient for a month or two until the company finalizes licensing from Sony (Dylan, Springsteen, et al.) and EMI (Beatles, Beach Boys, etc.).

Mix and Burn is still working the kinks out (but, yes, they do have Kinks songs). On my first visit, the ma-chine crashed and couldn't burn my CD. I came back the next day and the disc was waiting for me. But on a subsequent visit, the disc was burned in five minutes.

"Browse Genres" is a fun search feature, but it has its flaws. In the Genre mode, groups like The Chief-tains or The Eagles pop up under "T" instead of "C" and "E." Mix and Burn says it's working on it.

Advice

Come with a plan. Meaning, a sheet of notebook paper with your song choices. A plan will save you a lot of time, and many people I saw were indeed prepared. I came with a vague notion about "Fun '60s Songs." Once at the store, this morphed into " '60s One-Hit Wonders" and then to a mish-mash called "Experiments in Sound." (Because of the Sony and EMI thing.)

The forecast

Mix and Burn's pilot program has it ahead of the competition, but other companies, including Starbucks, are hot on its heels in bringing CD-burning to Chicago.

Expect CD-burning systems to pop up next summer at every chain store and every record shop you can think of. For a rundown of cost and what's here and what's coming, see (below).

Burn, baby, burn

Custom CDs for non-Pod people

The CD isn't dead yet.

Despite dire predictions that down-loading spells doom for the medium, it hasn't happened. Now, a number of companies are betting that people will want the thousands of choices that an iPod or MP3 player gives them without having to be computer-literate (or wait and wait for a download). That's why a slew of CD-burning devices is on the way to stores near you.

"It all happens much more quickly than at iTunes, and much more intuitively because it's a touch screen," said Phil Leigh, senior analyst for Inside Digital Media in Tampa, Fla. "And all the CD burning is done there on the premises."

It's not the first time that letting customers make their own compilations--a modern version of the old mix tape--has been attempted. Blockbuster Video tried it in the early '90s, and so did Target a few years later. But the technology has improved and, more important, the record companies are cooperating this time. (They were skittish about piracy before.)

First out of the gate is Starbucks with its Hear Music media bar.

"Starbucks gets a huge rush of customers in the morning, but they've got to leave the store open all day," Leigh said. "So what can they do to bring in customers and make them linger?"

But don't be surprised if the machines also start showing up at places such as Circuit City, Barnes and Noble and record stores.

The innovators haven't settled pricing. But one of them, Mix and Burn, is testing machines at Best Buy stores in Bloomingdale and Orland Park, and price there is $6.99 for five tracks; 99 cents for each additional song. A CD holds 80 minutes of music, so you'll pay about $20 per disc if you use all the space.

Multitasking for music, movies and games

What: TouchStand machines

Where: Indie music stores and airports

When: First quarter of 2005

The low-down: Besides allowing consumers to burn CDs, TouchStand's machine will let them buy music, movies and games. The firm has a kiosk in the Dr. Wax record store at 5225 S. Harper Ave. in Hyde Park, but it's not fully operational yet--Dr. Wax uses it as a listening center for customers. TouchStand CEO Michael Fitts expects to add CD burning and digital downloading to its machines early next year. Its AltiTunes' connection will allow busy travelers to burn CDs or buy MP3s at airports as well. (Fitts says a Chicago shop is on the way.)

A chain-store purchase, a custom experience

What: Mix and Burn kiosks

Where: Chain stores across the U.S.

When: Testing in some stores now, including Best Buy in Bloomingdale and Orland Park.

The low-down: In addition to a pilot program with Best Buy, the Minneapolis-based Mix and Burn has tests going at Newbury Comics, F.Y.E./Coconuts record stores and other chains. Mix and Burn chief operating officer Bob French says the company consulted with several major retailers before it even wrote its programming code. With plans to set up at other record and book stores, Mix and Burn looks poised to be No. 2 to Starbucks.

Mix a CD while they mix your grande latte

What: Hear Music media bar

Where: Starbucks stores

When: Mid-2005

The low-down: Starbucks savored its success selling CDs from Hear Music, its combination coffee shop/record store in Santa Monica,Calif. So, with partner Hewlett-Packard, it created the Hear Music media bar: CD-burning stations that are being added inside a number of Starbucks sites in Seattle and Austin, Texas. Music has been a part of Starbucks almost since the beginning. The recent platinum success of Ray Charles' final album, a collabo-ration between the coffee giant and the Concord jazz label, shows it knows its audience very well--260,000 copies were sold at Starbucks.

More titles in less space

What: Virtual Music computers

Where: Record stores

When: First quarter of 2005

The low-down: London-based Virtual Music will let you make your own CD compilation, but that's not its primary focus. Its mission is to let music stores operate without a lot of physical space. Want a CD of your favorite band that the store doesn't carry or is out of stock on? Virtual Music will burn you the whole CD--and print the CD cover too, says Virtual Music exec Ross O'Brien. If the music industry is interested, that could even extend to out-of-print albums, he said.

Music Industry Fears
Bad Tidings in Slowing CD Sales

By ETHAN SMITH
Staff Reporter of THE WALL STREET JOURNAL
November 19, 2004; Page B1

Rapper Eminem dazzled the music industry when his new album, "Encore," released last Friday, sold 711,000 copies. Those sales, tallied by Nielsen SoundScan, are considered impressive for a full week. Eminem moved the total in just the first three days.

Music executives have been cheered by signs, in the Eminem release and elsewhere, that their industry's demise has been overstated. In almost every week of the first nine months of 2004, U.S. music sales outpaced those for the year-earlier week. After three years of sales declines, a recovery finally seemed to be at hand.

But as the music industry heads into the crucial holiday shopping season, some executives are worried that the bottom is falling out of their nascent recovery. For the past nine weeks running, weekly music sales have lagged behind sales for the year-ago week, sometimes by as much as 20%. Even Eminem's strong showing couldn't pull total sales last week ahead of the 2003 tally. To date, album sales for 2004 are running ahead of last year by slightly more than 5% -- marking a significant loss of steam compared with August, when album sales were ahead 8.8%.

The fourth quarter is more crucial than ever this year for global music companies. EMI Group PLC, Warner Music Group, Vivendi Universal SA's Universal Music Group and Sony Corp. and Bertelsmann AG's Sony BMG Music Entertainment are watching to see if the tactics they deployed to pull them out of a long tailspin are having any effect. During the past year, they have sued people who they allege are trading online in pirated copies of their offerings, as well as cut prices and trimmed staff trying to stay profitable.

Eminem's album, on Universal's Interscope label, is just the first in a crush of high-wattage artists releasing albums during the fourth quarter, when the music industry rings up as much as 40% of its annual retail sales. Among the big acts with albums just out or coming soon are U2, whose "How to Dismantle an Atomic Bomb" arrives next week; rapper Ludacris; country-pop singer Shania Twain and Gwen Stefani, formerly of the pop-rock band No Doubt and now a solo artist.


Even long-gone acts, such as Nirvana and the Beatles, have boxed sets in the pipeline, thanks to music company marketing departments and their endless ability to recycle old material. Similarly, rapper Jay-Z, who less than a year ago announced his retirement from making new albums, is planning on Nov. 30 to release "Collision Course," a CD-DVD combination on which he performs live backed by the band Linkin Park.

Now, the hope is that Eminem and the others can set the industry back on course. It may be a long shot. For one thing, there is the threat of piracy. Eminem's album was rushed into stores to pre-empt content that had been leaked online. Other artists have been forced to do the same: R&B trio Destiny's Child and rapper Snoop Dogg also had their discs pushed into stores ahead of schedule by their labels -- a phenomenon retailers say can upend a carefully planned release-date strategy.

As a result, "you haven't had that huge event launch day for some of the larger releases," says Dave Alder, chief marketing officer at Virgin Entertainment Group U.S., which operates Virgin Megastores for Virgin Group Ltd. It isn't clear whether there will be more release-date scrambles to come. Interscope has sent copies of the new U2 album to radio stations early, but for now it hasn't announced plans to move the retail release up from Tuesday.

The real trouble is in the vast middle part of the album chart. The top 10 albums last week actually have sold more than the top 10 albums in the same week a year ago, points out Geoff Mayfield, director of charts at Billboard magazine. It is the next 190 entries in the Billboard 200 album chart that are lagging behind. Earlier in the year, that trend was flipped: The top 10 albums were faring relatively poorly while overall sales were strong, driving a broad recovery.

"I can't put my finger on what happened to the middle of the business," says Joe Nardone Jr., who owns and operates an 11-store chain, Gallery of Sound, in Pennsylvania. Mr. Nardone theorizes that lackluster chart toppers from earlier in the year -- including acts such as Ryan Cabrera, LL Cool J, Good Charlotte, Sum 41 and Jill Scott -- now constitute the lackluster middle. "They never started out great, and they've stayed at some mediocre level," Mr. Nardone says. Acts that earlier in the year seemed ready to break out, such as Los Lonely Boys, a Texas blues-rock trio, have had second singles that failed to get significant play on radio stations, leading to stalled album sales.

Others see mixed signals in expectations of strong sales for videogames and digital music players. Music companies stand to benefit from strong sales of music players, as people who get the devices as gifts spend money to load them with content. But probable hit DVDs, including the most recent Harry Potter film and "Seinfeld" TV episodes, and videogames such as "Grand Theft Auto San Andreas," may hurt music sales, as customers are distracted from music.

Nonetheless, there still are some optimists. "We're expecting a good quarter," says John Sullivan, executive vice president and chief financial officer of Trans World Entertainment Corp., which operates the FYE, Coconuts and Wherehouse music chains in the Northeast. "When the year's over, I think we'll beat 2003."

Heavier-than-usual discounting is a factor, too. Many mass merchants have dropped prices on a growing list of new releases to $9.99 and $8.99, fueling unit sales for the top 10 but potentially cutting profitability. Virgin and other specialty chains have struggled to compete. Virgin's Mr. Alder says his stores are offering shoppers who spend $50 a booklet of coupons valued at $1,000 in discounts at Virgin stores and related outlets, such as Virgin Atlantic Airways.

Billboard's Mr. Mayfield predicts that 2004 sales will end up ahead of last year's, but only by a margin of two to three percentage points. "While that's not as good as the 8%, we were ahead in the middle of the year, being ahead at all is still something to celebrate after three years of declines," he adds.

Looks like some panic sets in at MVSN camp

William Blair & Company Initiates Coverage of Macrovision Corporation With Outperform Rating
November 19, 2004 11:24:00 AM ET


CHICAGO, Nov. 19 /PRNewswire/ -- William Blair & Company today announced that it initiated research coverage of Macrovision Corporation MVSN ($26.26), the industry leader for copy protection, digital rights management, and software licensing technologies designed to deter casual pirating and to control electronically the use of digital content and software, with an Outperform rating and company profile of Aggressive Growth.

Analyst David Farina and Associate Analyst Ralph Schackart estimated that the company, which an estimated 65% share of the DVD market, 90% of the digital set-top-box market, and 70%-plus share of the software electronic licensing market, would generate pro forma earnings per share of $0.88 in 2004 and $1.01 in 2005.

"We believe the current macro environment is favorable for the company's copy protection and digital rights business, given that U.S. businesses lose $250 billion per year as a result of piracy, worldwide piracy rates are increasing, and the Internet is an unpluggable content-distribution hole," Farina said. "In our opinion, these fundamental macro conditions paint a compelling picture for Macrovision's de facto industry-standard technologies, which are highly proprietary and recurring in nature."

"We believe Macrovision has one of the world's most dominant copy- protection patent portfolios," Schackart added. "Its portfolio includes more than 164 domestic and 864 international patents -- issued or pending -- covering copy-protection technologies, video scrambling, and audio scrambling. In addition, Macrovision's portfolio includes patents that prevent unauthorized parties from developing processes or devices that could be used to circumvent copy protection. This comprehensive patent portfolio, coupled with the company's willingness to enforce its patents (Macrovision has never lost an enforcement case), makes Macrovision an extremely proprietary software company."

William Blair & Company, L.L.C. ( http://www.williamblair.com ) is a Chicago-based investment firm, founded in 1935, offering investment banking, asset management, equity research, institutional and private brokerage, and private capital to individual, institutional, and issuing clients. We place a high value on the enduring nature of our client relationships, the quality of our products and services, and the continuity and integrity of our people. William Blair & Company has offices in Chicago, Hartford, London, San Francisco, Tokyo, Vaduz, and Zurich.

William Blair & Company, L.L.C. has received compensation for investment banking services from the company within the past 12 months, or expects to receive or intends to seek compensation for investment banking services in the next 3 months.

William Blair & Company, L.L.C. is a market maker in the security of this company and may have a long or short position.

For important disclosure information regarding the firm's rating system, valuation methods and potential conflicts of interest, please visit: http://www.williamblair.com/pages/eqresearch_home.asp?uid=757

Additional information is available upon request.

William Blair & Company, L.L.C. is a member of the National Association of Securities Dealers, CRD number 1252.

Could this be a preemptive response to the upcoming SCMI annoncements that would involve major label?

Macrovision Increases Market Leadership with 4 Billion Protected Music Tracks; New Technology Enhancements Enable Universal Playability and Controlled CD Burning
November 18, 2004 09:01:00 AM ET


Macrovision Corporation MVSN, the global market leader in content protection and digital rights management ("DRM") technologies, announced today that its CDS(TM) technology, the most widely adopted music CD content protection solution, has shipped on over 400 million music CDs worldwide, protecting over 4 billion music tracks. Over 22 major and independent music labels worldwide and 20 resellers have utilized the CDS technology on over 4,000 titles since 2002. Macrovision also introduced significant technological advances in its new CDS-300 platform that dramatically enhances consumer flexibility while transparently maintaining maximum protection for labels and artists.

Unauthorized CD ripping on PCs leads directly to exponential distribution and downloading on the Peer-to-Peer ("P2P") networks and illegal file-sharing continues to be the major threat to world music sales. With over 700 million unauthorized music files moving between PCs at any given time, worldwide music sales are down 7 percent in 2003, and 14 percent in three years, according to the International Federation of the Phonographic Industry. Macrovision addresses this growing threat by delivering solutions that massively decrease supply of unauthorized files (CD ripping) and inhibit access (peer-to-peer file sharing downloads) by combining CDS-300's rip control with an effective P2P Anti-Piracy service.

The new CDS-300 is pro consumer and pro content owner. It features the best CD rip protection on the market while giving consumers one click capability for music portability (DRM copies) and backup flexibility (Controlled Burn CD copies). CDS-300 is transparent across CD, DVD and PC audio systems, and provides the same high standards for CD audio quality adopted by worldwide manufacturers and preserves 100% of the audio fidelity (16-bit/44.1 kHz).

"The key to a successful CD media management solution is a transparent consumer experience with effective content protection. Macrovision has architected the new version of CDS-300 to better serve both the music content owners and their consumers," said Steve Weinstein, executive vice president and general manager of Macrovision's Entertainment Technologies Group. "For the past 18 years, Macrovision has worked in partnership with the leading content companies and consumer electronics and PC manufacturers to develop and deploy technologies that provide an optimum balance between compatibility and effectiveness. CDS-300 is built with the same commitment to deliver solutions to meet our customers' evolving business demand, and it is backed by our global customer support resources."

CDS-300 is compatible with Microsoft's Windows Media(R) DRM solutions and is designed to support other third-party DRM vendors. For more information about CDS-300 features and benefits, visit www.macrovision.com/products/cds/cds300. For a list of compatible portable devices, visit www.microsoft.com/cooldevices.

Universal Licenses
Songs to Provider
Of Online Content

By ETHAN SMITH and SARAH MCBRIDE
Staff Reporters of THE WALL STREET JOURNAL
November 15, 2004; Page B4

Raising the prospect of paid peer-to-peer file-sharing services in the near future, Vivendi Universal SA's Universal Music Group has signed a deal to license its catalog of 150,000 songs to a company that plans to provide content to such services and to filter out illicit copies of songs.

The company, Snocap Inc., is a new venture founded by Shawn Fanning, who earlier gained notoriety as the inventer of Napster, the first peer-to-peer service on which users began exchanging free, illegal copies of songs five years ago.

An announcement is expected during the first week in December, and the first service using Snocap is likely to make its debut around the first of the year, although the plans aren't yet definite.

It is unclear exactly how a Snocap-powered peer-to-peer service would work, although people close to the deal say that one possibility is that the service would allow users to share a low-quality copy of a licensed song for free, and would grant them access to a higher-quality version only after they paid a fee.

Snocap could also provide shopping cart and search services. Essentially, the company would function similarly to the way MusicNet does for traditional online music stores. That company provides back-end services for a number of online music stores, including those of Time Warner Inc.'s AOL and Virgin Group Ltd.

Universal won't allow the licensed copies of its music to appear on any peer-to-peer service that doesn't use a technology like the one from Snocap to filter out illicit copies. That means that the technology is unlikely to make its debut on one of the major existing peer-to-peer networks, such as Kazaa, Morpheus or Limewire, which have been reluctant to filter their content.

Instead, content provided through Snocap is likely to appear on an entirely new service, such as one known as Mashboxx, or another like Israel-based iMesh.com Inc., which has promised to stop distributing illegitimate content.

The other three global music companies, Warner Music Group, EMI Group PLC, and Sony Corp. and Bertelsmann AG's Sony BMG Music Entertainment, all have expressed interest in finding ways to license legitimate copies of their offerings to peer-to-peer networks. So far, though, none has struck a deal like that reached by Universal.

MVSN -5.9% Piper says Shrek 2 not copy protected with co's technology

I hope you are right, I am with Schwab too...

Q: Peter,

I would appreciate any projections for Q4. volume of CD´s protected by Media Max. This would be a big help in ascertaining the strength of MediaMax and the acceptance by the industry

Thanks in advance,

Chris (10/18/2004 1:05:07 PM)

A: Hi Chris,

As a result of the company´s decision to accelerate the commercial release of MediaMax Ver. 5, (and bypassing Version 4 altogether), we have experienced unexpected interest from potential new and existing customers.

Because of this, we made a decision to hold off SunnComm projections for the 4th Quarter until we could get a more accurate handle on how the Q4/04 and Q1/05 figures would be impacted by our decision to accelerate MediaMax Ver.5.

Since the company is under no legal obligation to make projections, I made a decision that accurate projections are more important than timely ones.

I apologize for asking for this adjustment, but I believe this decision is consistent with the best interests of the Company, and I apologize if this decision is inconvenient. I look forward to getting back to delivering regular voluntary projections next quarter.

Suffice is to say that SunnComm´s MediaMax remains the largest supplier of copy management technology in the North America and we intend to retain that honor through the end of the year.

Also, please keep in mind that our exclusive sales arm, QuietTiger, is a fully reporting company and will continue to report sales data derived from SunnComm´s MediaMax product.

Thanks for your patience.

Peter





Q: Hi. I´m just wondering when we will receive our QTIG shares. I´ve had my stock for over a year now and have been in this through all the ups and downs. I have faith in the company. Good Luck!!!

Rishi (10/18/2004 9:56:06 AM)

A: Hello Rishi,

If your SunnComm shares reside with your broker, then the first quarterly payment of QT shares should be automatically placed in your account no later than the next week. In fact, many shareholders have already received the QT dividend. If, after next week, you require help, please don´t hesitate to call Kimberly Faulkner at 602-267-3800.

Thanks for writing.

Peter

'Noel,' in Theaters
And Self-Erasing Discs

By SARAH MCBRIDE
Staff Reporter of THE WALL STREET JOURNAL
October 18, 2004; Page B1

When a movie goes direct to DVD or TV, it's often Hollywood shorthand for a film so bad it can't get onto the big screen. But in a few weeks, the DVD release of a new holiday movie starring Penelope Cruz and Susan Sarandon will be part of an experiment that may provide clues about how movies will be distributed in the future.

Nov. 12 marks the release date for producer Howard Rosenman's new independent film "Noel" on about 100 movie-theater screens throughout the country. But around the same time, it also will be available on disposable DVDs sold on Amazon.com. Later, on the Sunday after Thanksgiving, "Noel" will air on Time Warner Inc.'s TNT cable channel.

The DVD release comes with a hitch: The $4.99 disc will be coated with a chemical that makes the movie unplayable 48 hours after the package has been opened.

The point of the self-destructing discs? Producers of "Noel" hope they will help whip up preliminary buzz for the film, while preserving sales of a permanent DVD that will be released later.

Walt Disney Co. is using the same technology, known as Flexplay, on a trial basis in certain markets around the country, offering disposable versions of already-released movies for consumers who don't want the hassle of returning a rental DVD.


Cover of the disposable DVD 'Noel,' being released the same month in theaters and on cable TV.


The multipronged release strategy for "Noel" is a small-scale test of a big idea that most of the Hollywood studios are mulling. Hoping to minimize piracy and maximize revenue, the studios are contemplating ways to release movies to theaters and homes simultaneously, perhaps at different price points. Several studios have actively pondered such a strategy, though no one has yet tried an experiment. And many players in the Hollywood ecosystem, such as theater owners, are worried about such an approach.

Such a move is a far cry from the traditional setup, in which studios try to squeeze as much money as they can from theatrical releases before sending a movie to other revenue-generating "windows." Videotape and DVD comes next in line, then pay-per-view television, premium TV channels and, finally, network TV. Moviemakers have long assumed that if a film goes to DVD right away, nobody would bother going to theaters to catch it.

That logic is shifting, especially as the industry confronts a rise in bootleg DVDs and illicit online movie trading. "We are looking at ways to get content into the home much sooner," says Mitch Singer, executive vice president for the digital policy group at Sony Pictures Entertainment, a unit of Japan's Sony Corp. "When we figure out a way to get content into the home securely, we'll consider new business models."

Selling a movie into the home on a pay-per-view basis around the same time it hits theaters is the most likely first change, once studios find a piracy-proof way to do it. The idea is to appeal to those who like to see new movies but can't make it to the theaters -- say, parents with young children. To maximize revenue and avoid cannibalizing box-office sales, studios would likely sell such movies at a high price -- perhaps the cost of six to eight adult movie tickets. But at that price, the movie would need to deliver the value of a big Hollywood blockbuster like "Spider-Man," not a modest independent film such as "Noel."

However studios expand distribution, they must tread delicately so they don't anger theater owners, who are already annoyed over how quickly DVDs come out. A few years ago, videos and DVDs weren't available for six months after a movie's theatrical release; now, it's closer to four.

"Obviously, at some point a shortened video and DVD market impacts theater admissions," says John Fithian, president of the National Association of Theater Owners. "I get lots of calls from concerned members."

Not surprisingly, "Noel" will be distributed to a limited number of movie screens around the country via a company called Slowhand Cinema Releasing. Some theater owners, however, are already upset about its simultaneous airing on TNT, as well as the disposable DVD release, say people close to the project.

Mr. Rosenman (of "Buffy the Vampire Slayer" fame) says the more places he releases his movie, the more sales he can generate, across all platforms. He acknowledges the film is "schmaltzy" and may not appeal to critics. So to get families to pour into theaters -- as he thinks they will -- he needs to cut through all of the holiday movie clutter. Says he: "How is my little movie going to chug along and break through?"

Starting next month, the disposable DVD version of "Noel" will be featured on Amazon.com Inc.'s home page. And moviegoers at 500 Regal theaters around the country will get a chance for a sneak preview: Minidiscs featuring a short clip of the movie will come free with the purchase of any large drink.

"It's going to feel like 'Noel' is everywhere," says Jeffrey Arnold, chairman and chief executive officer of the Atlanta-based Convex Group, which owns the North American distribution rights to the movie. Convex also owns Flexplay, the company that makes the disposable DVDs, as well as LidRock, the company that makes the mini compact discs and places them inside the transparent lids on soft-drink cups.

The move is a gamble for Convex, which hopes to convince studios to release their Oscar screeners onto Flexplay discs next year. Screeners are movies sent to members of the Academy of Motion Picture Arts and Sciences so they can vote on awards, and Flexplay's disposable DVDs could help cut the piracy that has been traced to the screeners in the past.

If the "Noel" release is successful, it could advance Flexplay's standing in Hollywood, but it could also ruffle enough feathers to kill any Oscar deal.

Music Industry Asks Supreme Court
To Overturn File-Sharing Ruling

By SARAH MCBRIDE
Staff Reporter of THE WALL STREET JOURNAL
October 11, 2004; Page B6

LOS ANGELES -- The entertainment industry asked the Supreme Court Friday to overturn a lower-court ruling that lets creators of Internet file-sharing software stay in operation.

The request aims to thwart a decision that threatens to make it much harder for the industry to fight illicit online trading of music and movies.

The Ninth Circuit Court of Appeals in August said peer-to-peer services were legal because their software can be used for legal purposes. The judge found the services can't be responsible if users find illegal purposes for the software, such as illegally trading copyrighted material. Analysts say the vast majority of material traded through such services is illegal.

The courts have shut down some file-sharing services, such as Napster and Aimster, because they maintained central directories of available material. The Napster name now belongs to a legitimate music service sanctioned by the industry, although the original company is defunct.

Newer file-sharing services, such as Grokster, a defendant in the current case, allow users' computers to talk directly with one another. That means the services don't have the ability to block access to suspect files.

"The Ninth Circuit has immunized Grokster and StreamCast from copyright liability for millions of acts of copyright infringement that occur on their services every day," the lawyers for the entertainment industry said in their writ.

StreamCast called the appeal a "doomed effort" and said it would continue to develop peer-to-peer technology.

How many new shares company authorized to be issued?
I think the number of authorized shares stands at 450 mln...
Total number of shares almost doubled since I got in.
Possibly they are issuing new shares right now to keep business going/expanding? This is very troublesome to me, but
they had an uphill battle to begin with. Hopefully their new Media Max release will speed up industry wide acceptance which up to now has been very slow. With planned MVSN product release maybe record labels are waiting to compare?
Lot of questions...not many answers.