Doug McIntyre, CEO, On2 Technologies

Doug McIntyre Codecs , those compression/decompression codes that help
squeeze big media files over networks and make them look great on the other
end, may not rank as topic A at the hottest tech gatherings.

But maybe they should.

Codecs are a key driver behind one of fastest-growing trends on the Web:
Video over broadband. Video over phone lines. Video over cell phones, over
Instant Messaging and just about anything that’s connected to something

Video and rich media are at an inflection point among Web publishers.
It’s cheap to store and serve up and can be viewed from what barely
qualifies as a broadband-speed connection these days. And without all the
herky-jerky video performance from the Web’s early days.

Now, after toiling in the obscure world of video compression software for
15 years, On2 Technologies is having a Topic A moment. The New York-based
company is riding a wave of high-profile deals with media platforms, at a time when rich media growth is splashing across every corner of the Web. The latest is with Macromedia, maker of the ubiquitous Flash animation tool, as well as other rich media and collaboration toolsets.

Macromedia, currently in a merger deal with Adobe, is using On2’s VP6
codec as part of its toolset in the latest version of Flash, which just went
to public beta this week. As Macromedia positions Flash as a platform for
developers building rich Internet-based
applications, On2’s codec for compression is getting major notice.

On2’s CEO, Doug McIntyre, chatted with about how
he sees On2’s codec and Flash playing in the growing use of video on the
Web, and beyond.

Q: Can you tell us how your deal with Macromedia and Flash fits with
industry trends?

If you think about what we’ve been able to do, it’s about building
platforms. AOL’s media player, which we work with, has become a platform.
XM’s satellite radio service has become a platform.

[Macromedia’s] Flash is
the most broadly distributed media plug-in in the world on about 98 percent
of all computers. And they have a development community of about a million
Flash developers that use the tools for authoring and video and animation.
Now we have a deal with them and our VP6 codec, a new codec for the next
generation of Flash.

I think Flash is about 30 percent to 50 percent more broadly distributed
than Windows Media 9. So, in terms of total distribution of our codec, this gives
us the largest IP video distribution deal in the world. Flash is used on
some 600 million computers.

Plus, the old codec for Flash is getting a bit long in the tooth. [This
deal] would in essence be replacing that codec. It will deliver better
quality. What we’ve seen happen is that all of the video advertising on the
in the last year and a half to being Java-based. And now what we’re seeing
is that it’s moving from Windows and Real over to Flash.

All I’m seeing at is Flash. All those short movies,
with something like 200
million minutes of movies, all the big video sites are converting from Real
Player to Windows to Flash already. The video quality ratchets up so much
that Flash is going to be able to promote itself as a better alternative
than Windows Media 9 for encoding and putting content on IP connections. And
now there’s Flash lite for devices, cell phones, set top boxes and stuff
like that.

Q: So you’re helping to spread rich media across the Web?

Flash is considered a player-less player, because of the way the player
works. It launches the video when you load the Web page. The behavior you
and I are used to, of having to choose a media player [before viewing
video], no longer applies. That’s one of the things that makes [Flash] so

If I go to the, all the video on the site is
now in Flash. There aren’t multiple formats to choose from. With some 98
percent of PC distribution of Flash, you don’t have to offer two or so

[That’s a change] from the old world, when we took everything and encoded
it for QuickTime, Real Player and Windows Media. QuickTime kind of fell off
the map, then it was just Real Player and Microsoft battling. Now, the choice
[for video on the Web] appears to be player-less. Basically, you go to the
Web site, and bingo, it’s one format that works on all computers. You
just play the video.

Q: That’s the way it should be on the Web, right?

Flash video is allowing it to be the way people want: One video format.
Now, with VP6 and higher quality, you
have the computer moving closer to what broadcast quality looks like.

Of course, a lot of that depends on what data rate you can encode at, and if
you encode at between 400 and 500 kilobits per second. Some of it also
depends on the resolution of the screen. But it would certainly be what we
consider broadcast quality on TV video.

So, I think this is going to solidify [Macromedia’s] position, and it’s
moving from short-form stuff on the Web, especially for commercials. I
thought the Windows Media battle for IP video was over. What it looks like
now is that it’s just starting again.

Q: So we’re getting a peek at a behind-the-scenes struggle for server
licensing revenue?

Maybe for the Windows Media server licensing fees. Microsoft makes more
money on offering true server software. But Macromedia makes its money [off
Flash] in a similar way.

Macromedia paid for the rights to
distribute [On2’s VP6] decoder with Flash. We retained the rights to sell
the encoder. Our targets with that are the million or so Flash developers and
major publishers to use our video compression codec.

On the Flash server side, we have the codec for compressing the video.
And we have an earlier version of the codec in Real Player, earlier
version in QuickTime. One of the things that’s interesting about Flash is
that it isn’t just a video product.

[The Flash platform] has other tools, such as for running animation on
most sites. It’s a very rich tool feature set. So it’s about building rich media experiences that are and becoming more ubiquitous. All of this is being launched into the teeth of the big growth in broadband access.

Q: Beyond the Flash deal, what’s next for video compression?

Video Voice over IP in general. The codec we released in our VP7 version
is very much designed to be perfect for two-way video, especially in low
latency environments where there would be a lag on a screen. We’re seeing
this other wave of adoption in IM platforms, and in VoIP platforms for
two-way video. We’re finding that the VP7 codec is really strong for
adopting other kinds of IP video.

That would be video over Voice over IP and with instant messaging. We’re
seeing now that people have these big infrastructures for transferring both
voice and chat back and forth. That with really high codecs that go through
the pipe — you can get big picture quality in both ways. And so the adoption
for VP7 in this way for two VoIP business has been really great. And I
suspect it will lead to a lot more video sharing when it’s live.

Q: Do you fancy yourself a Windows Media slayer?

I think Macromedia and On2 are challenging Windows Media Player with this
latest codec. We’re about to mount a challenge to Windows Media that
[entities] Real Player and QuickTime weren’t able to successfully mount.
But we really don’t know the answer to that question. Talk to me in two

But the key factors here are that video quality is much better [on
this platform], and the Flash player base is so large. That’s what gives us
a chance of really beating Windows Media out.

But what we’re looking at is not the last move, just the latest chess
move. Now you’ll see [Microsoft’s] chess pieces move. And then Adobe
[which is merging with Macromedia] is going to have to decide what to do.

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