Macrovision Corp.Macrovision Corp.

November 18, 2004November 18, 2004

David MizellDavid MizellMary VossMary VossWei WangWei Wang

Recommendation: HoldRecommendation: Hold

For the nine months ended 9/30/04 (third quarter of this year), revenues rose 38% to $122.5 million. Net income rose 10% to $20.9 million.

Higher R&D is a signal for future revenue increase.

Bought 200 shares at $75 on 3-Apr-2000 Current price $ 26.23 , The total loss is -$ 9,754.00 which representing a -65.03 % total return and annual return of -20.31 %

Company OverviewCompany Overview

Delaware corporation founded in 1983Delaware corporation founded in 1983- Started in video copy protection- Started in video copy protection- Still a leading revenue generator- Still a leading revenue generator

Develops copy protection technology, electronic Develops copy protection technology, electronic licensing technology and rights management licensing technology and rights management technologytechnology

License driven business modelLicense driven business model-- Generates recurring revenues by licensing the use of Generates recurring revenues by licensing the use of

its patented technologiesits patented technologies

CustomersCustomersCustomers include:Customers include:- major Hollywood studios and independent video producers- major Hollywood studios and independent video producers- hardware and software vendors- hardware and software vendors- music labels- music labels- consumer electronic- consumer electronic- PC and digital set-top box manufacturers- PC and digital set-top box manufacturers- digital pay-per-view (“PPV”) and video-on-demand (“VOD”) - digital pay-per-view (“PPV”) and video-on-demand (“VOD”)

network operatorsnetwork operators

Largest Customer: The Motion Picture Association of America Largest Customer: The Motion Picture Association of America (“MPAA”) studios(“MPAA”) studios- use the video copy protection technology to protect movie releases on - use the video copy protection technology to protect movie releases on videocassette or DVDvideocassette or DVD- revenues from MPAA were 42.6 in 2003 and 43.2 million in 2002 - revenues from MPAA were 42.6 in 2003 and 43.2 million in 2002

Revenues from MPAA accounted for 36% of total revenues in Revenues from MPAA accounted for 36% of total revenues in 2003 and 42.2% of total revenues in 20022003 and 42.2% of total revenues in 2002

Financial PerformanceFinancial Performance

Total revenues were:Total revenues were:- $128,346,000 in 2003- $128,346,000 in 2003- $102,262,000 in 2002- $102,262,000 in 2002- $98,813,000 in 2001  - $98,813,000 in 2001 

  Basic net earnings per share:Basic net earnings per share:- $0.61 in 2003- $0.61 in 2003- $0.24 in 2002- $0.24 in 2002- $0.38 in 2001- $0.38 in 2001

Financial PerformanceFinancial Performance

Research and development expenses were $17.2 Research and development expenses were $17.2 million, $11.9 million and $9.3 million in 2003, 2002 and million, $11.9 million and $9.3 million in 2003, 2002 and 2001 respectively.2001 respectively.

Third Quarter of 2004 earnings were $.03, due to one-Third Quarter of 2004 earnings were $.03, due to one-time and noncash chargestime and noncash charges

  For the nine months ended 9/30/04:For the nine months ended 9/30/04:- revenues rose 38% to $122.5 million- revenues rose 38% to $122.5 million- net income rose 10% to $20.9 million- net income rose 10% to $20.9 million- earning were $.21, $.18, and $.03- earning were $.21, $.18, and $.03- higher in-process R&D charges- higher in-process R&D charges

Macrovision’s NumbersMacrovision’s Numbers

Market Cap is 1.30BMarket Cap is 1.30B

P/E (ttm) is 41.63P/E (ttm) is 41.63

EPS (ttm) is .63EPS (ttm) is .63

Revenue (ttm) is 162.38MRevenue (ttm) is 162.38M

Operating Margin (ttm) is 29.55%Operating Margin (ttm) is 29.55%

Profit Margin (ttm) is 19.48%Profit Margin (ttm) is 19.48%

Beta is 3.35Beta is 3.35

Stock Price Over TimeStock Price Over Time

Financial AnalysisFinancial Analysis

P/E Approach P/E Approach Returns a price of $31.09Returns a price of $31.09

DCFDCF Returns a price of $22.04Returns a price of $22.04

View SpreadsheetView Spreadsheet

Macrovision vs. NASDAQMacrovision vs. NASDAQ

CompetitorsCompetitors

Digimarc CorpDigimarc Corp - communicating copyrights- communicating copyrights- enabling online licensing - enabling online licensing - audio digital watermarking in copy prevention - audio digital watermarking in copy prevention to protect music and movies to protect music and movies

MicrosoftMicrosoft - in 2003, Microsoft announced the release of its - in 2003, Microsoft announced the release of its

WMDST to compete in music technology WMDST to compete in music technology - independent of Macrovision’s solutions - independent of Macrovision’s solutions

Macrovision vs. CompetitorsMacrovision vs. Competitors

Porter’s Five ForcesPorter’s Five Forces

Threat of New Entrants: HighThreat of New Entrants: High

Threat of Substitutes: LowThreat of Substitutes: Low

Bargaining Power of Buyer: LowBargaining Power of Buyer: Low

Industry Rivalry: LowIndustry Rivalry: Low

Bargaining Power of Suppliers: ModerateBargaining Power of Suppliers: Moderate

- Job market picking up- Job market picking up

Macroeconomic ReviewMacroeconomic Review

Internet Piracy IssuesInternet Piracy Issues RIAA LawsuitsRIAA Lawsuits

Costs music industry over $300 million annuallyCosts music industry over $300 million annuallySince 1998, 5 lawsuits filed against largest Since 1998, 5 lawsuits filed against largest individual file sharers, hundreds convictedindividual file sharers, hundreds convictedNew International InitiativesNew International Initiatives

MPAA Anti-DVD Piracy InitiativesMPAA Anti-DVD Piracy InitiativesCSS Encryption, and the DeCSS HackCSS Encryption, and the DeCSS HackDigital Millennium Copyright ActDigital Millennium Copyright ActLawsuits against individual movie file sharers to Lawsuits against individual movie file sharers to start 11/16/04start 11/16/04

Company and Business BasicsCompany and Business Basics

Of the 2003 Revenue of $128 million:Of the 2003 Revenue of $128 million: 54% from from DVD/VHS protection54% from from DVD/VHS protection 29% from enterprise software29% from enterprise software 9% from PPV protection technologies9% from PPV protection technologies 4% from music protection4% from music protection 4% from gaming protection software4% from gaming protection software

Company and Business BasicsCompany and Business Basics

Video Technology SolutionsVideo Technology Solutions Analog Copy Protection (ACP) to prevent Analog Copy Protection (ACP) to prevent

analog recordinganalog recording RipGuard to prevent DVD “Ripping”RipGuard to prevent DVD “Ripping” Hawkeye P2P Anti-Piracy SoftwareHawkeye P2P Anti-Piracy Software

Used by MPAA to prevent illegal downloadingUsed by MPAA to prevent illegal downloading Protected over 8 billion DVD’s and VHS Protected over 8 billion DVD’s and VHS

cassettescassettes Have technology imbedded in over 300 million Have technology imbedded in over 300 million

DVD devicesDVD devices

Company and Business BasicsCompany and Business Basics

Music Technology SolutionsMusic Technology Solutions CDS technologyCDS technology

Allows user to copy music for use on other devices Allows user to copy music for use on other devices but prevents copying files to hard drivebut prevents copying files to hard drive

CDS has been used on over 400 million music CDS has been used on over 400 million music CD’s worldwide since 2002CD’s worldwide since 2002

Hawkeye P2P Anti-Piracy ServiceHawkeye P2P Anti-Piracy ServiceUsed by RIAA to prevent illegal downloadingUsed by RIAA to prevent illegal downloading

Company and Business BasicsCompany and Business Basics

PPV Technology SolutionsPPV Technology Solutions Protects against descrambler and other Protects against descrambler and other

electronic theft deviceselectronic theft devices117 million digital boxes protected117 million digital boxes protected

9 international cable and satellite operators 9 international cable and satellite operators activated copyright protection in 2003activated copyright protection in 2003

In 2004, VOD protection technology will be In 2004, VOD protection technology will be activated in U.S.activated in U.S.

Company and Business BasicsCompany and Business Basics

PC Games Technology SolutionsPC Games Technology Solutions SafeDisc Advanced Copy Protection and SafeDisc Advanced Copy Protection and

Hack ProtectionHack ProtectionEnables software publishers to protect, distribute Enables software publishers to protect, distribute and promote their products securely and effectivelyand promote their products securely and effectively

Helps to longer periods without hacks after retail Helps to longer periods without hacks after retail debutdebut

SafeDisc utilized on 80% of the top 20 selling SafeDisc utilized on 80% of the top 20 selling games in the U.S. over the past 4 yearsgames in the U.S. over the past 4 years

200 million total disks protected200 million total disks protected

Company and Business BasicsCompany and Business Basics

Software Technology SolutionsSoftware Technology Solutions FLEXnet universal licensing platformFLEXnet universal licensing platform InstallShield installation programInstallShield installation program Update ServiceUpdate Service Installed on over 500 million desktops Installed on over 500 million desktops

worldwideworldwide Used by 50,000 software publishers and Used by 50,000 software publishers and

hundreds of Fortune 1000 companieshundreds of Fortune 1000 companies

Company UpdatesCompany Updates

82% of revenue comes from DVD/VHS 82% of revenue comes from DVD/VHS protection technologies and enterprise software protection technologies and enterprise software technology solutionstechnology solutions

Workforce grew 20% to 349 employees in 2003Workforce grew 20% to 349 employees in 2003

Recently reorganized into two divisionsRecently reorganized into two divisions Entertainment Technology GroupEntertainment Technology Group

Music, Video, PPV and PC gamingMusic, Video, PPV and PC gaming Software Technologies GroupSoftware Technologies Group

Consumer and enterprise softwareConsumer and enterprise software

Internal and external expansionInternal and external expansion

SummarySummary

Recommendation: Hold 200 sharesRecommendation: Hold 200 shares

We believe Macrovision will be gaining We believe Macrovision will be gaining new market share because their industry new market share because their industry is growing. They are strategically placed is growing. They are strategically placed to take advantage of this growth.to take advantage of this growth.

Questions?Questions?