I am going to knock this company somewhat, but be forewarned that I am an ex-employee; and when I left the company I had received a reprimand for allowing some encryption technology to be exported that was
in technical violation of federal law. So I have an ax to grind.
Anyway, this company is overstaffed by about 50%, they have eight Vice Presidents, of which only three generate 95% of the revenue. These VPs and their staffs consume over two million per year in expenses, which comes directly of the profit. Three administrations, previous and current, were responsible for overstaffing. Remember, Macrovision has very little to manufacture and only two technical staff is required to maintain their VHS copy protection technology.
This company missed the DVX standard, playing no roll in developing the standard, yet the current president was the executive directly responsible for formulating their DVD strategy with respect to copy protection. Now the company is having to spend close to 4 million to gain technology licenses and patents that allow it to create the equivalent of a DVX standard for copy protected deployment of video disk in special venues.
Their deal flow is very slow. Normally a company with cash, looking for related investment opportunities could identify an opportunity, create the proposed business model, and evaluate it against their core strengths in about 6 weeks. This company takes 6 months, to do the same. The problem relates to the eight vice presidents. I found that I could dispose of a business opportunity fairly quickly by going to the CEO, but I did notice that I always received a pedantic lecture on barrier to entry when I talked to him. I finally concluded that the CEO was so used to dealing with naive VPs.
This company values patents above all else, yet none of their business managers (aside from VHS copy protection) understood the patents system, or how to search for patents related to a particular business model. As a result, patent searches went through the patent attorney, who (aside from VHS copy protection) had to perform patent searches against business models that he was not familiar with. This made it nearly impossible to correctly evaluate the roll of patents with respect to a particular business opportunity (again the exception being VHS copy protection).
Normally for a company like Macrovision, searching for new business consists of understanding the core strengths and beliefs of the company, then removing one of the core competancies and evaluating new business opportunities with this extra degree of freedom. Their core strengths are: Strong reliance on patent protection, understanding of the consumer electronics distribution system, very close relationships with Hollywood and understanding of the content delivery channels, strong competence in traditional broadcast technology, and close participation in the DVD industry. At one time or another, the company has dropped one of these competencies and played a different business model to some extent. Their most successful effort resulted in a business with a gross margin of 60% and total market size of 1 million. This with a business providing secure video for police surveillance. They have never done better, and certainly have never approached the 93% margins of VHS copy protection. |
