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November 16, 2000

Ten Fast Facts: Loudeye

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Loudeye

WHO:
A publicly held Internet media infrastructure company founded in 1997 by Martin Tobias

WHAT:
Converts traditional audio and video content to digital formats for the Web

WHERE:
Seattle


Fast Fact #1: Tobias is the company's Minister of Order and Reason.

Comment: Or you can call him chairman and CEO. Either way, he's still running the company. Allowing employees to choose whimsical alternative titles is a way to make sure people don't take themselves too seriously, says Tobias. "We're more like a third world banana republic than IBM," he says. Tobias chose his title because "order and reason is something small startups sometimes lack." Other titles include Minister of Enlightenment (VP of Marketing), Minister of Daily Bread (Chief Operating Officer) and minister of Cat Herding (VP of Development).

Martin Tobias
Tobias


Fast Fact #2: Filming a motorcycle documentary inspired Tobias to launch his company.

Comment: "Biker Dreams" is an independent movie Tobias made in 1996. It's about a trip he and his wife took on their Harley to the annual Sturgis Rally in South Dakota. Looking for a way to promote the film to a diverse audience, they decided to create a Web page featuring video trailers and behind-the-scenes footage. The experience demonstrated to Tobias the business potential for putting audio/video content on the Web. "It's the same size dream Bill Gates had when he [predicted] a PC on everyone's desk," says Tobias.


Fast Fact #3: "Biker Dreams" is available at Amazon.com.

Comment: When Tobias first heard Amazon was selling the video, he logged on, saw the cover photo of him and his wife riding into the sunset and proudly ordered several copies. His mother did, too. Unfortunately, Tobias is not the only person who ever made a movie entitled "Biker Dreams" and it was another film -- an adult flick --- that mistakenly arrived on his doorstep.


Fast Fact #4: Loudeye is looking for more room.

Comment: The company has grown from 110 employees to 350 in the last year. Currently spread across three Seattle locations totaling 85,000 square feet, Loudeye has released a request for proposals seeking a 150,000-square-foot space somewhere in the city. Wherever Loudeye ends up, there better be plenty of electrical outlets. "Our biggest problem is we need lots and lots of power," says Tobias. "We have something like two or three computers per person.

  


Fast Fact #5: Loudeye originally was known as Encoding.com.

Comment: The company changed its name last December as a prelude to its IPO three months later. The name was conceived by Terry Heckler and Associates, the firm that helped name Starbucks, Onvia.com and Encarta, says Tobias. He says the company was looking for a hip name that reflected its expansion into helping clients manage audio/video content, not just encode it. "The thing that sealed it was the Nasdaq ticker LOUD was still available," he says. Loudeye stock opened at $16, peaked at $44 and now trades below $10.


Fast Fact #6: Tobias is a former Microsoft executive.

Comment: "My last title there was so big it wouldn't fit on my business card," he says. Tobias was in charge of electronic software product distribution, which meant he had to figure ways to sell software off of the Internet instead of off the shelf. He says that job involved many of the same issues he currently faces dealing with online audio and video content -- including how to make sure content providers get fair value for their products.


Fast Fact #7: Loudeye's has alliances with Real Networks and Microsoft.

Comment: Those firms produce the media player software necessary to see and hear the audio and video content converted by Loudeye. Most of Loudeye's customers are entertainment and media companies such as Disney, Sony and AtomFilms. Since its founding, Loudeye has encoded 6 million music files and 1 million minutes of video -- the equivalent of 10,000 feature-length films, says Tobias.


Fast Fact #8: Napster has proven how large the appetite for online entertainment can be. 

Comment: Although Napster's business model may be illegal, "it's grown a 38-million person audience in under 12 months," says an impressed Tobias. In a way, that's been good for Loudeye, which entered the market for online audio and video content before most people recognized there even was one. Now, Napster has shown music companies that they can't ignore the Internet and must find ways to satisfy the public's online appetite while still making money. "Napster has forced the hand of the music industry much sooner than they would have liked," says Tobias. Next, predicts Tobias, some other catalyst -- as yet unknown -- will create a similar thirst for video.


Fast Fact #9: Loudeye's biggest competitors are also potential customers.

Comments: That's because basic software for encoding audio and video is readily available and many companies try to do it themselves. However, it's harder than people think, says Tobias, noting his company has 350 employees, seven patents and more than three years of experience. Because it it can simultaneously format content for all the various media players on the market, "we have the most scalable and cost-effective process in the world," he says.


Fast Fact #10: Loudeye ended the third quarter with nearly $100 million in the bank.

Comment: Revenues for the quarter were $3.4 million, up 34 percent over the previous quarter and 345 percent over 1999's third quarter results. Even so, the company's adjusted net loss for the most recent quarter was $6.4 million. Nevertheless, Tobias has no doubt his company will become profitable. Analysts predict black ink by mid-2002.



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