In the Boardroom With…
Mr. Bruce Davis
Chairman and Chief Executive Officer
Digimarc Corporation (NASDAQ:DMRC)
SecuritySolutionsWatch.com:
Thanks for joining us today, Bruce. You’ve been Digimarc’s CEO and
a Director since 1997, and Chairman of the Board since May 2002. Please
give our audience an overview of your background.
Bruce Davis: As Chairman and CEO of Digimarc, I bring more than 20 years experience developing major new consumer technology markets and driving the early adoption of new digital technologies ranging from video games and computer entertainment to electronic TV program guides and most recently digital watermarking-based applications.
Since I joined the company, Digimarc has developed a continual stream of innovative media applications that address issues of major importance to the technology marketplace – counterfeiting and piracy deterrence, ID security, digital rights management, and simplified Internet access.
Prior to joining Digimarc, I founded and served as president of TV Guide On Screen, a joint venture of News Corporation and TCI that supplied electronic program guides and navigational software for the cable television market, which merged with Prevue Networks who was, at that time, the leading supplier of electronic program guides. My team developed what was and is the leading interactive program guide for cable television.
Prior to that, I served as chairman and CEO of Activision, a leader in the video game industry, for six years. I began my career as an intellectual property attorney at Orrick Herrington & Sutcliffe in San Francisco. My experience in intellectual property development at Orrick and later at TV Guide On Screen provided a solid foundation for our patent strategy at Digimarc.
I received a BS in accounting and psychology and an MA in criminal justice from the State University of New York at Albany, and a law degree from Columbia University.
SecuritySolutionsWatch.com: August 2006 seems to have been a great month for Digimarc’s secure driver license solutions. On August 4, Digimarc announced a $16 million “win” in Canada and on August 29, the Company announced a two-year contract extension valued at nearly $7 million with the Louisiana Office of Motor Vehicles. Please elaborate on these 2 deals for our audience?
Bruce Davis: Our recent win with the Atlantic-Canada region, which represents a new customer for the company, demonstrates the growing list of North American customers who rely on Digimarc to supply the highest value secure solutions for driver licenses and other citizen identification programs.
In regards to Louisiana, we are proud of what Digimarc and Louisiana accomplished together following last year’s Hurricane Katrina, ensuring that displaced and evacuated citizens were able to get the photo identification they needed to get jobs and access social services.
The Louisiana extension is part of an encouraging trend we are seeing among our long-time customers and evidence that customer loyalty efforts are paying dividends. As a trusted and responsive supplier, we provide expert advice and market leading solutions to these issuers as they upgrade their systems to better serve their customers and prepare to comply with REAL ID. These improvements include more secure enrollment, verification and production processes and documents.
SecuritySolutionsWatch.com: Please tell us about the Nebraska drivers’ license pilot project.
Bruce Davis: Many States are engaging in impressive innovation
in driver license security. But the U.S. Department of Transportation
pilot study conducted by Nebraska, coupled with investments that Nebraska
has made in identification security, provide a useful case study to inform
the national debate about the use of driver licenses for crossing our
land borders with neighboring nations and readily available ID authentication
technologies.
In 2003, Nebraska was one of the first States in the country to incorporate Digimarc’s digital watermarking feature into its licenses. In 2005, the Nebraska Department of Motor Vehicles conducted a pilot under a grant from the U.S. Department of Transportation to demonstrate authentication of digitally watermarked driver licenses as a means to fight ID counterfeiting, reduce the purchase of age-restricted alcohol and tobacco products, and enhance traffic safety.
Digital watermark scanners were installed in a total of 18 point-of-sale sites, 30 DMV offices, and 35 law enforcement sites, and were used in "real time" for an average of 30 days. The deployed readers continue to be used by the state, and in fact, this summer, Nebraska plans to put new Digimarc Document Inspector units into production at DMVs across the State. This will arm front-office operators with the tools to inspect and positively authenticate the millions of U.S. driver licenses secured with Digimarc IDMarc digital watermarking.
At the conclusion of the pilot, Digimarc staff interviewed the users regarding their experience with digital watermarking technology. Retailers, law enforcement and DMV operators were equipped with reader devices that
allowed them to verify the information printed on a driver license-even an unfamiliar out-of-state driver license-against the information contained in the digital watermark. By doing so, they were able to determine if a driver license was valid or not and in the retail situations which, if any, age-controlled products the driver license holder was old enough to purchase. The scanner/reader devices proved invaluable in instantly determining whether or not the license presented was authentic, as well as validating the age of the driver license holder.
SecuritySolutionsWatch.com: We understand that more than one in three driver licenses issued in the U.S. in 2006 will carry the Digimarc IDMarc feature. This market share, and the recent “wins”, are very impressive. What does this market segment look like for the Company for the remainder of 2006 and for 2007?
Bruce Davis: U.S. States began incorporating digital watermarking
in their driver licenses in 2002, resulting in more than 35 million watermark-secured
driver licenses in circulation. Digital watermarking is a covert, machine-readable
feature that enables reliable cross-jurisdictional authentication of U.S.
driver licenses. By the end of the year, 1 in every 3 issued driver licenses
will include digital watermarks and this number is growing rapidly.
Visual inspection of ID documents - the key method our inspectors have
today - is inadequate for a number of reasons, including the fact that
there are more than 200 valid U.S. driver license formats. Only specialists,
with years of training, have the skill sets needed to conduct reasonable
visual inspections, and even then, visual inspection alone is not adequate
to catch digital counterfeits.
As we’ve seen in the Nebraska pilot, authenticating documents like driver
licenses and IDs can be done quickly and simply with a single device that
scans both sides of the document simultaneously, and the Digimarc Document
Inspector software that checks the validity of common ID security features,
including the digital watermark.
We believe the experience of Nebraska, and similar experiences in several
other States that have implemented driver license security innovations,
can be leveraged by the Federal government to help make our nation's borders
more secure in a timely and cost effective way as well to support our
State driver license issuers in fighting identity theft and fraud and
enhancing traffic safety.
SecuritySolutionsWatch.com: Digimarc recently provided expert testimony to
the Senate Finance Committee hearing on improving North American border
security. Can you share with us some of the highlights of this testimony?
Bruce Davis: Customs and Border Protection and law enforcement
officers face extraordinary challenges as they try to authenticate the
more than 200 forms of valid driver licenses circulating in the U.S. today
through unaided visual inspection. Our testimony discussed technological
innovations that are available now and in use by several State governments
and commercial entities to augment visual inspection of driver licenses.
Such technologies, like digital watermarking, are already in broad distribution,
and can be used to automatically authenticate U.S. driver licenses, travel
documents and other modern identification documents. Solutions, like those
demonstrated in our testimony, could be leveraged by the Federal government
to improve the security of our borders within 6 to 12 months.
We recommend that the Federal government promptly deploy capabilities
to machine verify the authenticity of U.S. driver licenses at the border,
including
reading and authenticating the digital watermark. Over time, these readers
could be upgraded to accommodate enhancements being made to driver licenses
and other identity documents from both the U.S. and Canada, and also other
from other Western Hemisphere countries as deemed appropriate by the Department
of Homeland Security and the Department of State. These technology solutions
are scalable, having the capacity to integrate new technologies that will
be developed in the future to ensure that criminals and terrorists are
always challenged to defeat ever higher levels of security.
Every border crossing official can be equipped to do rapid and reliable
machine-verification of driver licenses, processing the covert features
in documents that are presented at the border. In addition to putting
stationary readers at all border crossing stations, mobile readers should
also be deployed to ensure that agents can do rapid and secure screening
of driver licenses and/or travel documents. This will help ensure that
transit times are not unduly affected.
The REAL ID law requires the States to add a machine-readable feature
to their driver licenses. Given that digital watermarking is now widely
deployed in U.S. driver licenses, we recommend that the Federal government
require or encourage all States to adopt digital watermarking technology
in addition to other appropriate machine-readable security features to
comply with the requirements of this law so that national standard authentication
will be realized.
We believe that Congress should help the States pay for REAL ID compliance.
The REAL ID Act will help States meet the security challenges of the 21st
century by ensuring that they deploy best-of-breed, end-to-end security
systems. Given the initial cost estimates by the National Conference of
State Legislatures suggest that compliance will run between $9 and $13
billion, and a recent report by INPUT, the authority on government business
estimated REAL ID spending to be at $2.5 billion through 2012 -- the Federal
government should bear a fair share of costs for upgrades mandated for
the benefit of national security.
Finally, we recommend that Congress harmonize the Western Hemisphere Travel
Initiative and the REAL ID Law. This approach would leverage the significant
investments in ID security that the States have already, and will continue
to make, in the coming years. The harmonization should require DHS to
establish common security standards to be applied to credentials used
for land border crossing. This approach would also leverage the existing
ID systems that the US States and Canadian Provinces have already deployed.
The opportunity for the United States and Canada to develop a collaborative
approach should not be missed.
SecuritySolutionsWatch.com: The U.S. District Court of Oregon recently
dismissed the final of three consolidated securities class action lawsuits
that were filed against the Company. What will this mean for Digimarc’s
future operating performance?
Bruce Davis: The U.S. District Court of Oregon recently dismissed
the final of three consolidated securities class action lawsuits that
were filed against the Company and certain of its current and former executive
officers, arising from accounting errors discovered by the Company in
2004 and rectified through a restatement of certain prior period financial
statements.
These decisions fit nicely into trends of improving operating and financial
performance, helping to re-energize the Company as we put this chapter
behind us and focus on customer satisfaction, market leadership, and the
exciting business opportunities ahead.
SecuritySolutionsWatch.com: At a recent investor conference, we believe
you described Digimarc's vision as having its digital watermarking technology
in all media objects. Please give our audience an overview of the Company’s
business model as it supports this vision.
Bruce Davis: Digimarc’s vision is to improve the value of media
content through technology. Our mission is two-fold:
• To foster large-scale adoption of digital watermarking
solutions licensed under
the Company’s intellectual
property
• To be the most desired profitable supplier
of driver license issuance systems
Today, the substantial majority of the Company’s revenues arise from provision
of mission critical solutions to government agencies pursuant to long-term
contracts — primarily U.S. state government agencies engaged in the issuance
of driver licenses, a consortium of leading Central Banks, and national
governments of certain foreign countries.
The remainder of the Company’s revenues is generated primarily from patent
and technology license fees paid by business partners providing media
and rights management solutions to movie studios and music labels, television
and radio broadcasters, corporations, and creative professionals.
Our digital watermarking technology is a breakthrough that allows our
customers to infuse digital data into all media content that is digitally-processed
at some point during its lifecycle. The technology can be applied to printed
materials, video, audio, and images. The inclusion of such digital data
enables a wide range of improvements in security and media management,
and enables new business models. We use digital watermarking as a value
driver and differentiator in nearly all of our product offerings.
As an example, Digimarc IDMarc digital watermarking has been adopted by
15 states representing more than 40% of all U.S. driver licenses
issued annually. This feature links together elements of the ID in a way
that is imperceptible under normal use, can be added to existing designs,
and is readily detected by enabled software and hardware. With the introduction
of security features such as IDMarc, Digimarc’s secure IDs carry machine-readable
features that allow for low-cost and effective cross jurisdictional authentication,
augmenting visual inspection to determine if a presented driver license
matches one of the more than 240 valid driver license designs. Digimarc
is pioneering the use of point of inspection validation in its pilot study
with the U.S. Department of Transportation and the State of Nebraska.
The pilot uses digital watermarks for cross-jurisdictional ID validation
at various law enforcement, DMV and retail locations as a means to reduce
the use of fake IDs for underage drinking and to improve traffic safety.
Simultaneously, Digimarc’s business partners in the media and entertainment
industry, under patent license from Digimarc, are delivering digital watermarking-based
solutions to track and monitor the distribution of music, television,
movies and radio to consumers. In sum, our solutions enable governments
and businesses around the world to deter counterfeiting and piracy, enhance
traffic safety and national security, combat identity theft and fraud,
facilitate the effectiveness of voter identification programs, and improve
the management of media content.
SecuritySolutionsWatch.com: Congratulations on the deal
with Microsoft. We understand that Microsoft will embed Digimarc digital
watermarks into satellite images served up by its Virtual Earth platform. Can
you give our audience an overview of this application and Microsoft relationship?
Bruce Davis : This agreement is consistent
with trends across various media industries toward use of digital watermarking
to protect copyrighted media assets as well as to enhance consumer experiences.
Generally, market conditions for digital watermarking are the most favorable
we have seen in years. Along these lines, we were very pleased with
the recent decision by Microsoft to use our Digimarc ImageBridge™ digital
watermarking software to embed digital watermarks into tens of millions
of satellite images provided to Internet users by its new Virtual Earth
mapping service. Recognition of the value of digital watermarking in the
IT industry has lagged behind the growing momentum in the media and entertainment
industry. Given the important role that the IT industry is expected
to play in providing infrastructure for many new means of distributing
news and entertainment, it is encouraging to see a major IT industry player
like Microsoft adopting digital watermarking. As watermarking is
increasingly used in entertainment content, we believe that the relevance
of the technology to IT suppliers will become more obvious and inevitable.
In this application of digital watermarking, users of Microsoft Virtual
Earth platform will be able to check for copyright information or connect
to additional opportunities through a Digimarc-enabled image by reading
the digital watermark carried by the image. Digimarc digital watermarks
can be read through the digital watermark reader plug-in found in many
popular image editing applications, including Adobe Photoshop, or through
Digimarc's free Reader software, which can be downloaded at www.digimarc.com
SecuritySolutionsWatch.com: Digimarc is a market leader in digital watermarking
and in government-issued secure identity management. Let’s spend a moment
on Digimarc’s work in the government secure ID business first.
Bruce Davis: Digimarc became a supplier of secure credential issuance
systems via acquisition of the Large Government Programs business of Polaroid
Corporation in 2001. By virtue of this acquisition, the Company became
the leading supplier of driver license (DL) issuance systems in the United
States, producing more than two-thirds of all driver licenses issued.
Worldwide, hundreds of millions of people carry secure credentials produced
by Digimarc issuance systems. On the heels of 9/11, we realized that our
expertise in security printing and digital imaging technologies and systems
placed us in a position to understand both the digital threats to identity
management credentials and the issuer’s environment. In the strategic
acquisition of the LGP business unit of Polaroid, we saw a unique opportunity
to assist in efforts to deter identity theft and fraud and enhance Homeland
Security through the combination of a new layer of security using our
digital watermarking innovations and market-leading competence in secure
ID solutions from Polaroid, furthering our strategy of delivering innovative
customer-focused solutions. The resulting business has more than 47 years
of experience from the production of more than 2 billion issued IDs. Customers
have trusted Digimarc to guide them through numerous major upgrades and
technology migrations in ID security.
SecuritySolutionsWatch.com: We understand that the State of Kansas Division
of Motor Vehicles recently integrated two key elements of the Digimarc
Identity Validation Suite into its driver license enrollment process to
deter driver license fraud and identity theft and that the Company is
a principal supplier of driver licenses in the United States, producing
nearly two-thirds of all driver licenses issued. Please give us an overview
of this business, today and tomorrow.
Bruce Davis: As the leading provider of secure ID credentials in
North America, Digimarc systems produce more than 60 million driver licenses
and other secure personal identification documents per year. Nearly two
thirds of the U.S. states and many foreign governments, including Russia,
Latvia, Mexico, and Canada, utilize Digimarc secure ID solutions. Many
aspects of our advanced technology solutions anticipate both the mandate
of the recently-passed REAL ID Act and the emerging consensus on best
practices consistent with our product and service strategy.
Digimarc secure driver license solutions provide our customers with “best
practices” and modular, flexible products designed to improve security
within each component of the secure ID lifecycle—from the time an applicant
applies for or renews his or her driver license; to the secure production
and issuance of the ID to the legitimate cardholder; to the authentication
of that document at a traffic stop, a bank, a border crossing, a store,
or the DMV.
For example, in 2005, Digimarc introduced the Digimarc Identity Validation
Suite (IDVS) to validate identity documents and verify the biometric and
demographic data presented to establish an applicant’s identity. As identity
credentials become more secure and difficult to counterfeit, counterfeiters
turn to producing false breeder documents to fuel attempts to fraudulently
obtain valid secure credentials. Thus the process of validating identity
is becoming central to secure ID issuance as document quality improves,
ensuring that only valid applicants receive genuine IDs. This market development
is underscored by the focus of REAL ID on identity validation. IDVS is
the Company’s most strategic product offering in 2006, enabling migration
to REAL ID compliance, and expanding Digimarc’s footprint in the customer
workflow.
SecuritySolutionsWatch.com: Secure ID, of course, has many applications
beyond drivers’ licenses. You’ve had “wins” with Voter ID in Mexico and
Haiti, and Digimarc’s ID validation has enabled Federal Agencies to meet
Homeland Security Presidential Directive 12. Without divulging any confidential
or sensitive information, please tell us about some of your “wins” and
applications in these other Secure ID market segments.
Bruce Davis: Both domestically and abroad, government ID issuers are
increasingly sensitive to the issue of identity theft and fraud, to concerns
around verifying personal identity, and to the role that the credentials
– whether driver licenses, voter IDs or national IDs – play as a primary
form of identity verification for personal access to secure facilities,
and public transportation, the conduct of financial transactions, and
at point-of-sale for age restricted products such as alcohol and tobacco.
As the IDs themselves become harder to alter or counterfeit, more attention
is being directed toward effective end-to-end solutions, encompassing
enrollment, document issuance, and post-issuance verification. This presents
an excellent opportunity for Digimarc to grow revenues by expanding our
offerings to broaden the footprint with existing customers and expand
our presence in related federal, law enforcement and financial markets.
These favorable market trends are not limited to North America. Countries
around the world are evaluating their ID processes and systems in the
wake of heightened terrorist threats and increasing levels of identity
theft and fraud. As the producer of over 60 million ID cards worldwide
each year, Digimarc is well positioned to help the large, emerging, fragmented
international market enhance and standardize its secure personal identification
processes to meet the challenges of the 21st century.
SecuritySolutionsWatch.com: Now let’s turn to Digimarc’s “digital watermarking”
technology and your work in the Media & Entertainment market.
We understand Digimarc has more than 200 issued U.S. patents with more
than 400 additional U.S. patent applications pending in “digital watermarking,”
which allows imperceptible digital codes to be embedded in all forms of
media content, including personal identification documents, financial
instruments, photographs, movies, music and product packages. Please tell
us about the traction Digimarc has achieved in this business.
Bruce Davis: Many major movie studios, record labels, broadcasters,
corporations and creative professionals rely on digital watermarking as
a cost-effective means to:
• deter piracy and illegal use of movies, music
and images;
• protect entertainment content from copyright
infringement;
• track and monitor entertainment content for
rights usage and licensing
compliance;
• monitor advertisements to verify ad placement
and measure return on investment;
and
• enable fair and legitimate use of content by
consumers.
Our business partners in this area now include Activated Content, Dolby
Laboratories/Cinea, GCS Research MediaGrid, Nielsen Media Research, Royal
Philips Electronics, Signum, Thomson, Verance and Verimatrix. While each
partner addresses particular customer needs, as a whole they are propagating
digital watermarking in music, movies, images, and television and radio
as a means to improve media rights and asset management, reduce piracy
losses, improve marketing programs, and provide more efficient and effective
distribution of valuable media content.
SecuritySolutionsWatch.com: Digimarc technology has been used by Central
Banks to prevent counterfeiting. Please tell us about a couple of "wins"
in this market segment.
Bruce Davis: Banknote counterfeit deterrence was the first large-scale
success for digital watermarking. Digimarc, in cooperation with an international
consortium of leading Central Banks, developed a system to deter the use
of personal computers in the unauthorized reproduction of banknotes. Due
to the security and confidentiality of the program, I cannot discuss the
project in any more detail.
SecuritySolutionsWatch.com: The Company seems to have a very impressive
list of strategic partner relationships in this business with Dolby and
Thomson just to name a few. Care to give us some details about these key
relationships?
Bruce Davis: In the media and entertainment field, profitable growth
is dependent on the success of our patent and technology licensees, whom
we support with our evangelism and innovation in digital
watermarking. Digimarc and its licensees are delivering a variety of digital
watermark-based solutions for forensic tracking of pre-release music and
movies by most major movie studios and record labels and for broadcast
monitoring by a number of producers of television and radio entertainment,
news and advertising. In Q4 and 2005 as a whole, we continued to be encouraged
by several developments across the spectrum of movies, music and television
that bode well for our partners and our patent licensing business.
We recently announced new licensing agreements with two of the leading
providers of digital watermarking solutions that help improve the management,
distribution and protection of digital media content, including digital
cinema: Dolby and its Cinea subsidiary, and Thomson. With the inclusion
of digital watermarking earlier in the year as a component of the Digital
Cinema System Specification, these two patent licensees are now well positioned
to help in the secure rollout of digital cinema solutions in theaters
around the world.
SecuritySolutionsWatch.com: Digimarc recently announced that a recently
passed U.S. Department of Defense bill has appropriated $1 million to
the U.S. Army Night Vision Electronic Sensor Directorate for the use of
digital watermarking in providing more effective battlefield, port and
border intelligence. Please tell us about this Military deal and the broader
opportunity going forward with the DOD.
Bruce Davis: More than ever, Homeland Security and national defense
rely on image and sensor data to understand, manage and respond to threats.
This is especially the case for intelligence, mission planning and emergency
response. By directly embedding key sensor and event data in imagery
and sensor streams with digital watermarking, analysts will be able to
more rapidly synthesize and analyze data from multiple sources – an essential
element to equipping military forces and intelligence personnel with an
information advantage and building out the military’s network-centric
war fighter capabilities. This project is expected to demonstrate the
value that digital watermarking can bring to image- and sensor-based defense
and intelligence applications.
The U.S. Army Night Vision Electronic Sensor Directorate is going to use
Digimarc digital watermarking in its “Smart Data Project” to provide more
effective battlefield, port and border intelligence. We are working on
this contract with three other companies – GCS Research, S&K Electronics
Inc., and AquilaVision Inc.
SecuritySolutionsWatch.com: Bruce, going forward, what are the major
market drivers for Digimarc’s fundamental strategy?
Bruce Davis: In the government market, we believe that the global
market for secure identity management solutions is in the early adoption
stage, characterized by a fragmented supply chain with no dominant brands,
emerging standards, and increasing concerns about national and economic
security,
entitlement programs, and requirements for controlling access to information
and physical assets. Serving the citizen identity management market involves
successfully delivering a set of solutions that span the secure ID lifecycle,
ranging from demographic data capture, identity validation, and applicant
data and biometric verification systems, to the design and secure production
of credentials incorporating linked and layered security features, culminating
with effective ID authentication deployed at various points of inspection.
It also requires the expertise to integrate these solutions with existing
government agency applications and IT infrastructure, and the service,
support and training necessary to effectively manage the implementations
over the course of long-term customer relationships.
According to the U.S. Department of Transportation, there are more than
195 million licensed drivers in the U.S.. Digimarc estimates that the
size of the U.S. driver license issuance market is significantly more
than $100 million per year and believes the market is likely to expand
due to: the broadening use of the driver license as a secure credential
beyond its traditional role as evidence of competence to drive a motor
vehicle, technological innovation, desire among issuers to improve security
and efficiency, and new governmental regulations, including the REAL ID
Act.
In the media and entertainment field, we believe our intellectual property
is essential to substantially all known digital watermark implementations
in the marketplace. The use of digital watermarking solutions from our
business partners for forensic tracking of pre-release movies and music
has gained a strong foothold in Hollywood. Digital watermarking is incorporated
in more than 2 million audio tracks from major record labels to identify
and track leaks of promotional, pre-release music onto the Internet. Customers
of these solutions from Digimarc and business partners such as Activated
Content include SonyBMG, Universal Music Group and Warner Music, mastering
studios, disk duplicators and online business-to-business music distributors.
In a similar application for movies, digital watermarking has been identified
by representatives of the movie studios as dramatically reducing piracy
of movies in the Academy Award screener program.
Digital watermarking may also play a role in the movie industry’s transition
from film reel distribution to digital file format distribution for theatrical
release. In July 2005, the Digital Cinema Initiative, which is supported
by Disney, Fox, MGM, Paramount, Sony Pictures Entertainment, Universal
and Warner Bros. Studios, released its Digital Cinema System Specification,
which details industry guidelines designed to help spur deployment of
digital cinema systems for the hundreds of thousands of movie theater
screens in the United States and around the world while establishing uniform
levels of security, distribution, performance, reliability and quality
control. The specification requires that digital cinema systems be capable
of applying digital watermarks in both the video and audio streams of
digital movies upon request of the studios or other content providers.
The digital watermarks can be used as a forensic tool to help identify
the theater, location, production version and even the date and time that
a film plays in a specific theater.
Broadcast monitoring allows clients to identify where, when and how their
media content is being aired. This type of information is important to
many different types of users. For example, every day, thousands of advertisements
run in thousands of markets across the country. With highly regionalized
cable, satellite and terrestrial delivery, advertising agencies and their
clients need to know that the advertisements they
pay for are actually being broadcast. By using digital watermarking-based
services, these companies can monitor broadcasts in major media markets
around the world, verify compliance by broadcast partners, and measure
the effectiveness of the campaign. For example, consumer products companies
like Coca Cola and Pepsi, and broadcast networks such as ABC Television
Network, NBC News Channel, BBC and Reuters Television, currently apply
solutions from these Digimarc partners to monitor broadcasts on over a
thousand channels in more than 50 countries worldwide, studying the distribution
of their content, verifying compliance by broadcast partners, and measuring
the effectiveness of broadcasts.
SecuritySolutionsWatch.com: Digimarc recently reported record revenues
and improved cash flow for the third quarter ended Sept. 30, 2005. Third
quarter revenue totaled $26.8 million, the Company's highest quarterly
revenues ever and 14% higher than revenues of $23.5 million in the comparable
period of 2004. What can you tell our audience about Digimarc’s current
backlog and financial objectives going forward?
Bruce Davis: The key success factors in our business begin with earning customers for life by profitably delivering exceptional value at fair prices and by growing our IP licensing margins as a trusted partner that supports our licensees’ businesses with technology and market evangelism. We believe we are making excellent progress toward those goals as evidenced by new contracts or extensions in late 2005 with three of our long-time customers – the States of Massachusetts, Texas and California -- and through the recent signing of licensing agreements with Dolby and Thomson, two leaders in the media and entertainment field.
Serving the citizen identity management market involves successfully delivering
a set of solutions that span this secure ID lifecycle as well as the expertise
to integrate these solutions with existing government agency applications
and IT infrastructure, and the service, support and training necessary
to effectively manage the implementations over the course of long-term
customer relationships. That’s where Digimarc identity verification solutions
like our Identity Validation Suite of products, IDMarc digital watermarking,
and secure ID production offerings are gaining traction in helping many
States fortify their enrollment and issuance processes, protect the integrity
and value of the driver license as our de facto citizen ID, and prepare
for compliance with the requirements of the REAL ID Act.
In terms of opportunities in the media and entertainment market, licensing
of our digital watermarking patents is a critical element of our long-term
shareholder value proposition. The greatest near-term interest in digital
watermarking is in the entertainment field. The Company and our business
partners are successfully propagating digital watermarking in music, movies,
television and radio broadcasts, images and printed materials. Within
these markets, digital watermarking has been used to provide improved
media rights and asset management, reduced piracy and counterfeiting losses,
improved marketing programs, and more efficient and effective distribution
of valuable media content.
SecuritySolutionsWatch.com: Thank you very much for your time today,
Bruce.
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