Valley´s Macrovision poised to cash in with software
By Mike Langberg
Mercury News
As the record industry loses its shirt from rampant piracy of music on the Internet, one Silicon Valley company is poised to cash in: Macrovision, best known as the sole provider of copy protection for Hollywood movies on videotape and DVD.
But Macrovision is facing a tough audition, somewhat like an aging crooner going up against a fresh young face from "American Idol."
Headquartered on De La Cruz Boulevard in Santa Clara, a few hundred yards from the northern edge of Mineta San Jose International Airport, Macrovision has been in business 20 years and has built an effective monopoly in its core business of providing software to prevent home copying of movies.
Stopping music piracy is an even bigger opportunity, worth $100 million a year according to some analysts -- hugely significant for a company with revenue of $102 million in 2002.
Copy protection for music CDs is technically daunting, however, and Macrovision could be a step behind its upstart competitor, SunnComm of Phoenix.
The good news is that copy protection for music is almost certain to become a real business within the next few months.
After endless dithering about how to confront massive online music sharing, the industry´s Big Five -- BMG, EMI, Sony, Universal and Warner Bros. -- are finally getting serious about buying products that will make it impossible to post newly released songs on swapping services such as Kazaa, Grokster and Morpheus.
"Over the past year, there´s been increasing interest at each of the labels," said William A. Krepick, Macrovision´s president and chief executive officer.
The Big Five are already using Macrovision copy protection on some music CDs sold in Europe and Asia, but the conditions are considered too restrictive for copy-loving U.S. consumers.
Macrovision is now putting the final touches on a new product called CDS-300 that could -- if the record industry doesn´t go overboard -- prevent piracy while still giving consumers the freedom they want.
Extending its domination to music could be crucial for Macrovision, because the Hollywood studios are pressuring the company to lower its licensing fees for movies, now 5 cents a DVD. Krepick doesn´t dispute predictions by outside analysts that Macrovision might have to accept only 3 to 4 cents a DVD, but said the company will benefit from increasing production of DVD movies and the need for Hollywood to buy additional protection against newly emerging forms of home movie copying.
Macrovision also has a thriving business protecting computer software and managing license deals for corporate software vendors, but music stands apart as the company´s only potential big score.
There are concerns, however, with CDS-300´s "playability" -- making sure the copy-protection software on the CD doesn´t block playback in some CD players or computers -- and compatibility. Macrovision´s CDS-300, for example, isn´t yet compatible with Apple Computer´s Macintosh.
SunnComm´s rival product, MediaMax CD-3, offers superior playability, according to some outside analysts, and is already Mac compatible.
Peter H. Jacobs, president and chief executive officer, added that he´s been working with the Big Five longer than Macrovision.
"If you´re in early with respect to what they´re thinking . . . you have a better chance of being the company with the right technology," Jacobs said.
The possibility that SunnComm could grab the top spot in music copy protection has certainly excited investors.
SunnComm trades in the pink sheets, the notoriously volatile minor league of stock markets, and the company doesn´t file financial reports.
But that hasn´t stopped SunnComm from surging more than 13-fold this year, to 40 cents a share from 3 cents. Macrovision has gained only 27 percent in the same period, to $20.30 from $16.04.
There are no independent researchers providing public comparisons of CDS-300 and MediaMax CD-3, so it´s too soon to proclaim a winner.
But the wait might not be much longer, with the Big Five apparently poised to start placing orders with either or both Macrovision and SunnComm this summer. The first copy-protected music CDs could arrive in U.S. stores later this year or early next year.
It would be foolish to discount Macrovision´s chances, given its strong position in protecting movies, but it would also be unfair to dismiss SunnComm just because it´s a start-up with no track record. Silicon Valley, after all, was built by start-ups. |
