RealTime IT News

On the Record with Martin Tobias

Loudeye is currently the leading digital infrastructure arms dealer for media companies worldwide. So why has Wall St. not seemed to notice?

Good question. Loudeye Technologies founder and CEO Martin Tobias still seems to be struggling for the right answer. As the legal warfare surrounding Napster and MP3.com continues, Tobias continues to keep his digital encoding factories humming.

Today, Loudeye provides outsourced video and audio encoding services to over 350 companies worldwide including offline media giants like Sony , Universal Music and Time Warner . In essence, Loudeye currently has a near monopoly on this unglamorous side of the emerging digital media business.

However, even after recently reporting record quarterly sales of $3.4 million, a 345% annual increase, the company has watched its stock drift to a near all time low of around $4 a share. With over $99 million in cash on hand, nearly two-thirds of Loudeye's current market valuation is accounted for in cash.

Obviously, Wall St. must believe then that there is something else wrong with this company. One obvious stumbling block is that with a pro forma loss of $6.4 million last quarter, Loudeye still appears to be well over a year away from reaching profitability. On top of this, some skeptics are convinced that streaming audio and video encoding will quickly turn into a commodity business.

Thus, we recently sat down with Loudeye Technologies CEO and founder Martin Tobias to help set the record straight and to explain his company's long term plans for growth in the digital media infrastructure sector.

ISR: What exactly does Loudeye Technologies do?

Tobias: Loudeye is a leading Internet media infrastructure company. I started the company three years ago back when people didn't even know if the Internet could play audio or video yet. My general idea was that there was going to be a need for a new category of technology companies that enabled traditional media companies to access digital media users. We are the leader in the outsourced encoding space. We produced in the last twelve months 6.1 million music files for the Internet and over 1 million minutes of video. That's equal to the length of over 10,000 feature length films.

ISR: Okay. So encoding is one portion of your business, but I know that you've been moving into other areas as well.

Tobias: Yes, we are building a new category of software applications that are in addition to the standard streaming servers from Microsoft and RealNetworks that do "business rules" around streaming media. This allows the media companies to make a return on their investment in technology. We have a product in that area called the Loudeye Media Syndication Server, which let's media companies do syndication of streaming media on the Net. So we identified very early on that there was going to be an additional set of software that needed to be written to turn streaming media into a real business.

ISR: Let's switch topics to your business model. You've done lots of encoding work so far, but is the real sweet spot to your business the additional applications that you're developing?

Tobias: That's certainly the higher margin part of the business. We honestly got into the applications business because we'd been knocking on doors for three years asking people if they had anything that they wanted to put on the Internet. We heard all of the reasons why the media companies were not adopting the Internet as a distribution platform. Our software business is really a response, then, to writing technology that solves their business problems. So if you can do that, these media companies will give you more encoding business. You can then sell them more software as well.

ISR: What does the future hold for companies like Loudeye once all of the traditional media c