For DD: Company Profile
TTR Technologies is a leading designer of anti-piracy software. TTR Technologies' proprietary product, Discguard, embeds CD-ROM discs with a secure and non-reproducible digital signature that cannot be duplicated onto unauthorized copies of the CD-ROM disc. Counterfeited CD-ROM discs lack the Discguard signature, which is necessary for operating the software. In addition to promoting sales by discouraging piracy, Discguard has the advantage of being transparent to the end user. We believe that the company has a strong product and excellent earnings growth potential.
Market Overview:
Every day, millions of computers around the world run illegal copies of popular business applications, computer games, and other software. The 1999 Global Software Piracy Report published by the Business Software Alliance estimates that total 1998 worldwide losses from piracy of business software exceeded $11 billion. This number represents 38% of the business software applications loaded on PCs worldwide. In other words, more than one in three business software applications installed worldwide in 1998 was a pirated copy. This number does not include the more than $3 billion in losses in entertainment software as estimated by the Interactive Digital Software Association. Together, these numbers translate into an average of $27 thousand dollars in losses to software publishers in the time it takes to read this paragraph!
Recent developments, particularly the decreasing prices of CD/R recorders and media, compound this problem. Whereas in the past, the high cost of CD recording equipment provided a check on the growth of software piracy, CD/R drives are now commonly available for less than $200. Recordable CD discs, called CD-R discs, sell in bulk for less than $1. As these prices continue to drop, it is expected that the incidence of piracy will grow. In addition to the potentially growing number of small-scale pirates attracted by the ease of creating multiple copies with a CD/R, many popular applications are illegally replicated in mass quantities by a growing number of pirate CD replication plants. These large-scale pirates often operate in developing countries in Asia and South America, where copyright laws are not effectively enforced.
TTR Technologies' DiscGuard product represents an anti-piracy system that effectively combats piracy by introducing two changes into the software package:
1. On DiscGuard-protected CD-ROM discs, the main executable files necessary to operate the program are encrypted.
2. The special Discguard digital signature is inscribed onto a pressed CD-ROM, and mapped into a software decryption key. The digital signature is not reproducible by either counterfeiting (re-mastering) or disc burning, which prevents unauthorized copies from accessing the encrypted main executable files.
When an authorized CD-ROM disc is used, the digital signature decrypts the main executable files and the application runs. Discguard is transparent to the end user, which means that the user is not even aware that the product is protected. When an unauthorized copy is used, however, no decryption occurs because the signature is missing. Consequently, the application does not run. Instead (at the option of the software manufacturer) either a message, a limited demo, a link to an e-commerce web site, or a presentation is launched. In this way, Discguard transforms every illegal copy into a marketing tool and revenue generator.
The following numerical example illustrates the cost effectiveness of the Discguard anti-piracy technology. The approximate cost to the software manufacturer to use the Discguard anti-piracy system is twenty cents per CD-ROM disc. Consider a business application that provides its software designer $25 in profits per copy with an installed base of one hundred copies. According to the 1999 Global Software Piracy Report, on average only sixty of the one hundred copies represent legitimate sales. If the software manufacturer used the Discguard anti-piracy system to prevent pirated copies from operating, the remaining forty end users with unauthorized copies would access only a limited demo when running their copies of the application. Projecting that as few as five percent of the end users with the non-operative pirated copies subsequently purchase legal copies of the software, the use of the Discguard anti-piracy system allows the software developer to realize two additional sale which amounts to amounts to a $50 increase in revenue. As the cost of employing the Discguard protection costs only twelve dollars (at twenty cents per disc), using Discguard is cost effective for software publishers.
Further demonstrating the growth potential of the Discguard anti-piracy system are two recent news releases: first, NSTL, a leading standards and testing lab for software, announced that the Discguard system is currently compatible with all the CD-ROM drives tested in their labs just over a year ago. Second, the DiscGuard technology was officially recommended by the China Software Industry Association (CSIA) to its more than 2000 members as an ideal technological solution to the worldwide problem of digital piracy in July of 1999. TTR Technologies has already signed contracts to protect sixty software titles in the United States, Europe, and Israel.
There are other reasons to be optimistic over the growth potential of TTR Technologies. The digital signature technology used in the Discguard system is potentially applicable to other data storage media, including DVD discs and audio CD discs. As many computer experts predict that DVD discs will replace CD-ROM discs as the premier data storage system in the coming years, the availability of an anti-piracy technology for this new media will provide TTR Technologies an early foothold in the emerging anti-piracy market for DVD discs.
In addition, the technology used in Discguard may prove to be applicable to audio CD discs as well. The music industry's concerns about the potential piracy problems associated with the MP3 music format have been well documented. The current attempts of MP3 manufacturers and the recording industry to combat the piracy threat, such as SDMI ("Secure Digital Music Initiative") focuses on a hardware solution; SDMI represents a joint effort to establish guidelines for Internet music formats and devices by the end of the year. The SDMI format fails to satisfactorily resolve the problem because the large installed base of more than one hundred million CD drives and CD players will continue to permit unauthorized copying. However, the digital signature anti-piracy technology utilized by Discguard is not dependent upon new hardware standards. Consequently, the possibility that the technology in Discguard may prove applicable to audio CD discs greatly enhances the earnings growth potential of TTR Technologies. For this reason, we strongly recommend TTR Technologies as an investment. |
