2. Macrovision  Develops and markets copy protection and rights management technologies and products to prevent the illicit duplication, reception, or use of video and audio programs and computer software  Purpose is to help right’s owner maximize revenues  “Today, we are also beginning to get involved with information that is transmitted over the Internet digitally.”  Offices in California, England, and Tokyo  40 U.S. patents, 200 international patents, another 340 pending

3. Company History  1983--Macrovision founded  1988--“Back to the Future” is the first motion picture ever copy protected  1990--Developed technology for digital pay-per-view  1993--Their technology included in digital set-top decoders, now included in 90% of these units sold  1997--Developed technology for DVD players and titles, now included in 100% of DVD players sold worldwide  1999--Increases exposure to CD-Rom and internet- delivered software products through acquisitions  May 2000—Digital Millennium Copyright Act takes effect—all new VCR’s sold in US must be compatible with Macrovision technology

4. Importance of Copy Protection  1996—unauthorized consumer copying of prerecorded videocassettes cost the industry about $370 million in lost revenues  1998 Industry Revenues—Theatrical Box Office: $3.1 billion, Home Video: $6.7 billion, Pay-Per-View: $357 million, Subscription Pay TV: $1.6 billion  Home video has surpassed the theatrical box office as the largest source of revenues for the motion picture industry  Macrovision has contracts with Disney, Columbia Tri-Star, PolyGram, Paramount, Dreamworks, and Universal Home Video to copy protect virtually all of the motion pictures that they release in videocassette and DVD format in the US

5. Business Units  3 Business Units: Video Copy Protection, Computer Software Rights Management, and Encryption Technologies

6. Video Copy Protection  Copy protection for motion pictures that are stored on videocassettes or DVDs and for media transmitted by cable or satellite (i.e. pay-per-view)  Approximately one third of all commercial videocassettes produced worldwide during 1998 were copy protected (550 million), and virtually all incorporated Macrovision’s technology –No competition  Used by every MPAA movie studio on some or all of their videocassette releases  Total Macrovision-protected videocassettes: 2.5 billion, 500 million alone in 1998

7. Video Copy Protection  Currently used on 75% of all DVDs produced  Allows movie studios to protect their DVD’s from unauthorized copying to VCR’s  The only technology of its kind currently available  Used in both DVDs and DVD players (over 120 manufacturers incorporate Macrovision technology)  Working with Philips to develop a digital-to-digital copy protection system for next generation recordable DVD devices and other digital media  DVD software sales reached 9.3 million units in all of 1998, up from 1.5 million in 1997

8. Video Copy Protection  Digital Pay-Per-View copy protection is integrated in over 90% of the 20 million digital set-top decoders worldwide  Allows consumers to view, but not record, copy protected pay-per-view programs that are distributed via digital set- top decoders  Over 45 set-top decoder manufacturers are licensed to incorporate this technology in their products  Most major digital cable and Direct Broadcast Satellite (DBS) operators are deploying Macrovision copy protection-capable networks

9. Computer Software  Markets CD-ROM copy protection and rights management products to publishers of consumer entertainment, educational, reference,and applications software  “SafeDisc”—effective against consumer copiers and professional pirates and thwarts attempts to use CD- recordable drives or hard discs to make useable copies of CD-ROMs  SafeDisc was applied to over one million discs in the first 60 days of its launch  “SafeCast”—helps prevent unauthorized use and copying of software and helps publishers encourage trials and generate additional sales using electronic software distribution (ESK) technology. Supports secure software downloads over the Internet

10. Encryption  PhaseKrypt—a video scrambling technology that offers excellent security at a low price to manufacturers of analog cable television set-top decoders  Sells other proprietary video scrambling technologies and systems which prevent unauthorized viewing of video signals during transmissions from one location to another location

11. Future  Media world is moving to digital. MVSN plans to compete aggressively here.  Growing computer software copy protection business  Growing Internet-delivered software business  Looking into going into audio downloads  Getting into audio CDs (CD copiers) (TTR Technologies investment in January, 2000)  DVDs are expected to more than make up for any decline in video business

12. Recent News  Dec 8—signs copy protection agreement with Palm Pictures  Dec 8—announce partnership with TTR Technologies to develop music CD copy protection system  Dec 13—signs long term contract with Disney/Buena Vista to copy protect videocassettes and DVDs  Dec 17—signs copy protection agreement with Havas Interactive, Inc  Dec 20—signs long term contract with Universal Home Video to copy protect videocassettes and DVDs  Dec 23—files registration statement for stock offering, proceeds used for strategic investments

13. Recent News  Jan 13—completes strategic investment in TTR Technologies  Jan 25—Hambrecht & Quist raised 2000 EPS to $0.51 from $0.42 to reflect growing demand for the company’s products. “The company should generate 58% EPS growth over the next three years.”  Jan 31—U.S. Bancorp Piper Jaffray started coverage of MVSN with a strong buy rating and a price target of $91.5. EPS estimate for 2000 EPS is $0.47. Views the company as a “play on the massive growth of digital content software.”

14. Recent News  Feb 14—announced fourth quarter 1999 net revenues of $12.8 million (increase of 76% over fourth quarter 1998); earnings before goodwill amortization were $4.2 million (89% higher than 1998)  Feb 14—Sets 2-for-1 stock split  Feb 29—MVSN survey finds that 47% of respondents who had purchased PPV programs in the last year admitted to copying at least one of those programs; 11% admitted to copying ten or more in the last year.  Mar 13—DCM, Digital Communication Media AB Becomes Macrovision's First European Authorized SafeDisc Reseller  Mar 21—Tae-Bo video producer (#2 video for overall sales in 1999) renews contract with Macrovision

15. CAPM  r i = r f + B i [r m – r f ]  r f = 5.654% (3 month T-bill)  B i = 1.66 (Yahoo profile)  r m = 12.615% (15 year S&P 500 average)  r i = 5.654 + 1.66 (12.615 – 5.654)  r i = 17.209%

16. Security Market Line

17. Management  Grew revenues by 53% in 1999. Expects future revenues and earnings growth to be 40-45%  Gross margins: 90% Operating margins: 40%  Every employee in the company has stock options (interests aligned)  Variety of bonus plans that are tied to company performance  Cautious with investment decisions, but expanding in rapidly growing areas (DVDs, Internet, etc…)

18. Income Statement  Selling and marketing expenses are high  Profitable company

19. Balance Sheet  Patents and intangibles  A/R

20. Balance Sheet

21. Cash Flows  Most of revenue comes from royalties

22. Cash Flow  S-T investments are in municipal bonds  40 issues of patents, significant investment  Use stock to finance growth

23. DuPont Analysis

24. Ratio Comparison

26. P/E EPS Projection

28. O.k.... Is the price justified?

29. Recommendation  Buy 300 shares of MVSN at market (~ $73 per share)