RED HERRING ON TTRE
" The beautiful thing about the security industry is that copyright protection.."
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Red Herring rates Macrovision and OpenTV. BY DAN BRIODY
Macrovision
Nasdaq: MVSN
NASDAQ
The anti Napster.
The guilt most people feel when recording copyrighted material in the Age of Napster is microscopic at best. That's why there's Macrovision, a maker of technologies that protect copyrighted DVDs, VHS tapes, and pay per view movies from illegal reproduction. The average consumer is not likely to have a true appreciation for the work of Macrovision, but movie houses can't get enough of it. And when there's no one else selling something, the profit margins tend to be impressive Macrovision's gross margin in its June quarter was 97 percent.
It's the kind of story technology investors love to hear: Macrovision has a competitive stranglehold on a market with near limitless growth potential. Not only does the company have a 90 percent share of the VHS tape to tape, DVD to tape, and pay per view to tape markets, last year it acquired a U.K. company called C-dilla to enter the market for protecting CD-ROM and Internet downloadable software. And this past summer, Macrovision picked up electronic licensing supplier Globetrotter to be at the forefront of software protection. Remarkably, Macrovision faces precious little competition, with only InterTrust Technologies (Nasdaq: ITRU) and Preview Systems (Nasdaq: PRVW) offering contention in digital rights management and electronic licensing markets, respectively.
The beautiful thing about the security industry is that copyright protection, particularly for software, is a business that must constantly regenerate itself. The sooner some hacker breaks the code and starts offering material on the Internet, the sooner Macrovision can release its next invention. As it turns out, Napster is one of the best things that could've ever happened to Macrovision, spreading fear and lining up customers at Macrovision's door. "It's not a matter of if, it is a matter of when these things will get cracked," says Michael Kim, an analyst at Sutro & Co. "If you put it out there, someone will crack it."
An example of Macrovision's, ahem, vision, is its move into the realm of audio CDs. It's a market that's long been considered a lost cause. But the riches to be had if an effective solution can be found are monstrous. Working with TTR Technologies, (Nasdaq: TTRE) based in Israel, a hotbed of security technology, Macrovision is already testing its
products on "golden ears"studio professionals trained to hear imperfections. Like many of its product lines, there's currently no serious competition in the audio CD protection business.
Over the summer the stock price ran up on optimism about the CD audio protection product, jumping from $35 in
April to a high of $108 in late August, before retreating to $96 in mid September. At those levels, the company's market capitalization was an impressive $3.9 billion. Expensive? Of course the stock traded for almost 200 times estimated 2000 earnings of $0.55 per share and sported a price to sales ratio of 81 times trailing 12 month revenue of $48 million. But while the price is high, Macrovision is really the only game in town. And the security game is one that investors might find well worth playing.
p # 280 RED HERRING  NOVEMBER 13, 2000 |
