DANIEL STEIN - TTR TECHNOLOGIES INC (NAS:TTRE)
CEO Interview
Sector: Security Software & Services
Daniel C. Stein, Chief Executive Officer
Danny was President of Javu Technologies from 2000-2001. Javu licenses
software and services to corporations and online-rich media service
providers that store, manage, deliver or repurpose video assets. Prior
to joining Javu, Stein was President, Chief Operating Officer and
Director of the Wedding List Company from 1999-2000, an Internet company
with retail outlets specializing in the wedding gift and registry
business Martha Stewart/Omnimedia in Spring 2001. In 1994 Stein co-
founded Burly Bear Network, a company providing cable programming and
online services to college students (http://www.burlybear.com). From
inception to 1999, Burly Bear became the largest college cable
television network and online service serving 8 million households
throughout the country. Burly Bear was sold in 1997 to Lorne Michaels,
owner of Broadway Video and creator and producer of Saturday Night Live.
Danny graduated from Cornell University in 1992 with a degree in
finance.
Samuel Brill, Chief Operating Officer & Director
Prior to joining TTR in November 2001, Sam spent four years as a senior
financial analyst at JDS Capital Management in New York. He was involved
with the day-to-day operations of the firm and structured a number of
public and private financings. Sam's research at JDS focused on various
companies with strong intellectual property in digital media, software,
wireless, Internet security and Digital Rights Management. Prior to
joining JDS, Sam founded a successful private service company in the
food industry.
TWST: Perhaps we can just begin with a brief historical sketch and then
just bring us up-to-date with who and where the company is today?
Mr. Brill: The TTR Technologies was established in 1994 focusing on
copy protection solutions for CD-RO
Ms. The company went public in 1997. We took these resources and
developments from the CD-ROM copy protection business and moved it into
audio CD copy protection. We have vast engineering skills coming from
the ranks of Israeli security and our R&D facility, which is based in
Israel, takes advantage of those resources. Currently, we are focusing
on the audio CD copy protection business. We have a partnership with
Macrovision to develop the best music protection technology, SAFEAUDIO,
and sell it to the music industry. We developed the original technology
behind SAFEAUDIO and Macrovision focuses on the sales and marketing
effort.
TWST: Where does SAFEAUDIO stand as we speak?
Mr. Brill: The SAFEAUDIO product is being evaluated by all the major
labels.
TWST: Are you able to comment on any feedback or results from the
testing?
Mr. Brill: They've done a number of internal tests and I think that the
labels at this point are just trying to feel comfortable with the idea
of putting copy protection out there with all the outside question marks
about the legality and consumer issues about copy protection. I think
Danny could speak more on these topics.
Mr. Stein: I think that right now, the labels are treading very
carefully around the copy protection issues. It's a honeycomb of
complexity with respect to the legislative actions being organized in
Washington, the rights of the consumers who pay for the music and the
rights of the copyright holders. When you put all those elements into a
cauldron, it becomes extremely complicated. And I think the labels are
taking the right approach, which is slow and steady, and taking a
comprehensive view on what to do and how to satisfy all the
constituents, while recognizing that there is a fundamental paradigm
shift in the economics of the music industry.
TWST: Is there a time frame by when you would expect some of these
legislative issues to essentially be resolved?
Mr. Stein: We believe that the time frame is now. The sub-committee of
the House has been meeting and in fact met last week and continues to
meet Congressman Berman from California and others are attacking this
issue aggressively. They have very knowledgeable staffs that understand
the technology approaches, the legal ramifications, the consumer issues
and I think this is a 'here and now' strategy and not one for the
future. So an indirect answer to your question is that I think that the
various parties would like to get this resolved as soon as practicable.
Mr. Brill: Furthermore, the main issue is the consumer, and as long as
the copy protection solution can give the consumers a similar user
experience that they are used to, then many of these issues just go by
the wayside. What's being fought about is, does the user really get the
same experience that they used to? Having just a stopgap copy protection
solution method where you don't allow a consumer to make any personal
copies and or prevent them from playing a CD on certain devices does
raise a lot of issues. I believe that a copy protection solution that
allows the consumer to get that same experience that they had in the
past, resolves many of these outstanding issues .
TWST: And that is what SAFEAUDIO brings to the table?
Mr. Brill: TTR is building a number of technologies around the
SAFEAUDIO product that will allow the consumer to have that same
experience that they have always enjoyed.
TWST: Copy protection in the music industry has been quite a topical and
debated issue for sometime now. Can you comment on what this means in
terms of market size for your solutions and the potential and drivers
going forward?
Mr. Brill: The music industry is loosing roughly $4.2 billion a year to
piracy and clearly a percentage of that can be brought back into the
fray if we had an effective copy protection solution. There are roughly
4to 4.5 billion discs that are produced annually by the music industry.
So the market size is based on what we charge on a per disc basis for
the use of our technologies and the numbers that are out there today are
anywhere from 3 cents for the most basic solution going up to as much as
10 cents depending on how valuable the additional solutions are.
TWST: What does the competitive landscape currently look like?
Mr. Stein: The largest player in this environment is clearly
Macrovision and that's why we partnered with them. When I say
Macrovision, I include us in their fold because we are partners in the
music protection technology domain. There are some other competitors.
There is a small company in Israel that deals with one component piece.
But there are really no big companies that are in this space because it
requires a very sophisticated technology approach with tremendous amount
of R&D resources. We are ahead of the market curve right now and we feel
that we put ourselves into position A, to take advantage of the
burgeoning market, which we obviously believe to be significant. I think
you will probably end up seeing competitors in the future with more
resources.
TWST: Will you be able to keep ahead of the pace?
Mr. Brill: We are constantly adding to our technology and our
intellectual property portfolio, which will help insulate us in the
future. And right now, we are ahead of the game, so any new competitors
would be at a disadvantage at this point. We have 2.5 years of building
this technology under our belts, and there is a lot of catching up to
do.
TWST: Can you tell us about the recent restructuring of the corporate
organization at TTR, what that entailed and what the underlying
rationale was?
Mr. Stein: Most importantly, we moved the non-R&D activities -- the
corporate headquarters -- from Kfar Sava, Israel to New York because we
felt that we wanted to be closer to our customers and certainly having a
more significant presence in the United States is, we believe, a more
effective approach. The founder of the company has taken the role of
running R&D. He is a brilliant guy who has a tremendous depth of
experience in copy protection. He is obviously a visionary when it
comes to these types of things, particularly with the audio CD copy
protection because he saw this years and years ago. He felt in order to
realize his vision that he needed to bring in experienced managers in
New York that could effect his vision and that led to my joining TTR and
certainly to Sam's joining TTR and a re-alignment of what activities are
covered in the United States and what activities are covered in Israel.
Those activities that are covered in Israel remain inside the R&D fold
where we have some of the best scientists inside of the audio CD copy
protection domain and in optical media we think in the entire world.
They reside in Israel.
TWST: What will be some of the key initiatives you hope to make over the
next couple of years? What is your evaluation of where the company is
today and then what needs to be done to take the company forward?
Mr. Stein: We are expanding our presence here in New York within our
customer community and also in Los Angeles and London. We have a lot of
work to do on that front. We have expanded our outreach to a variety of
important lawmakers and to important trade groups in Washington that we
think will play pivotal roles in determining the outcome of this debate.
And we intend to concentrate on trying to create, both in terms of
technology and cost effectiveness, the most effective solution for our
customers, which is the music industry.
TWST: Do those same legislative issues in Washington carry over to the
UK or is the debate less complex?
Mr. Brill: It's really the same issue across the world. It's about the
consumer getting that same user experience they have always been
accustomed to and have always enjoyed. If you can bring that same
experience to the consumer there is no issue. Right now the legislative
issues in the United States are a little more prevalent than they are in
Europe. However, the consumer backlash in Europe has been pretty
pronounced and clearly a stumbling block, but the underlying issue is
the consumer experience, the consumer getting the same value
propositions that the music labels have always presented to them. And
as long as we can replicate that in a secure manner, these issues all go
by the wayside.
TWST: How should investors gauge your progress looking again over a 12
to 24 month time frame? Is there any guidance perhaps that you can
provide?
Mr. Stein: The most significant guidance is to look for the
establishment of commercial deals within the music industry. We are in
effect a function of when they decide the time is right to create this
type of solution. Right now, they are facing again a trifecta of
complexity with respect to the copyright owners, the consumer and the
lobbyists/lawmakers. When they decide what to do (whether it be through
government intervention or market force --we believe it will be through
market force), which we believe will be in the near future, then we are
going to be the solution that they pick because right now we are at the
forefront both in terms of the effectiveness and playability and
usability of the technology.
TWST: Is there anything that keeps you awake at night?
Mr. Stein: Well it's our job to be paranoid; that goes without saying.
We try to control the things that we know we have a grip on such as what
happens in our own laboratory and how we can impact our customers in the
music business. We try to be helpful to lawmakers when they ask our
opinion. We try to be helpful to consumer activists when they ask our
opinion. Those are the things that we can control. The other things like
what's going on outside our window right now that we can't control, we
just try to respond to as effectively as possible.
TWST: What's been the response from the investment community? What are
some of the questions they are putting to you?
Mr. Brill: This is a way for many investors to have a pure play on the
audio copy protection market. Macrovision is a complex company that
focuses on many different areas and we focus right now on audio copy
protection. This is the way for investors to own a pure play in that
market. The questions that we face are really about what is audio copy
protection, how big is the market, why is your copy protection solution
better than the rest.
TWST: Why is your solution better?
Mr. Brill: Simply put, SafeAudio has a number of significant
competitive advantages that puts it at the forefront, when the major
labels make a copy protection decision. SafeAudio is the only copy
protection solution that offers Multi-level security so the labels can
use one or more protection options to meet their different needs. We
have six different options to choose from and they can mix and match a
number of each to realize their different desired specifications and
requirements for each label. Each label has different goals in terms of
what they want from their copy protection solution and this flexibility
allows them to mix and match as they see fit to meet their individual
criteria. Furthermore, our manufacturing process is by far the most
robust. There is no additional hardware required for mastering. We are
integrated as part of the encoder machines and therefore as part of the
replication process and we don't slowdown the mastering process, which,
if you need additional hardware, is always an issue. We believe that we
have built a solid foundation for the SafeAudio product and are well
positioned to meet the record labels' demands.
TWST: How strong is the balance sheet?
Mr. Brill: At the end of Q1, we had about $4 million in cash on the
balance sheet and no debt. We believe that gets us out four more
quarters, which should be enough time for us to realize some revenues
from the SAFEAUDIO product.
TWST: Is there a longer term vision that we haven't talked about? Can
you foresee using your technology base to expand into different areas,
different markets?
Mr. Brill: The core that we are focusing on right now is music
protection technology. As we start to generate cash flow from these
products, we plan on reinvesting this cash flow into other areas of copy
protection and security.
TWST: When you have a chance to sit down with investors, what are the
three or four compelling reasons you give for them to consider
purchasing the stock?
Mr. Brill: The audio copy protection arena is at the forefront right
now. The music industry continues to lose a tremendous amount of money
on an annual basis -- in excess of $4 billion a year -- and we have the
solution that can help close that gap to help them regain some of those
lost revenues. There is a clear need for a solution and the music
industry is looking for the one that covers the whole audio copy
protection space, including the ability to offer the same user
experience as non-copy protected music to the consumer. Therefore, we
are not just creating a product that is protecting the content, but also
allowing the consumer to enjoy music the same way they always have in
the past.
TWST: Is there anything we may have missed?
Mr. Stein: Just to reiterate what Sam was saying about this being a
huge marketplace, we believe. We think we have the best technology and
the best sales and marketing, field installation, support, etc. for the
customers. There is a business problem; there is a desire to do by the
business people, the lawyers, the politicians and that ultimately the
recording industry will create a consumer offering that will make it
very easy for consumers to pay for music that has all the attributes
that they have come to expect like transportability, fair use, etc. and
we believe that we are going to be at the crossroads of that solution.
TWST: Thank you.
Daniel C. Stein
Chief Executive Officer
Samuel Brill
Chief Operating Officer
TTR Technologies, Inc.
575 Lexington Avenue
New York, NY 10022
Phone: (212) 527-7599
Fax: (212) 527-7508
ttrtech.com
THE WALL STREET TRANSCRIPT
published 07/01/2002 |
