Macromedia to "Atom"-ize Shockwave

Macromedia says its media acquisition will give its shockwave.com division a better business model, including revenues from Web-based advertising and sponsorships, and online and offline content syndication. That model sounds a lot like those we've seen beaten up all year. But that's evolution -- it might not be easy to live with, but there's no living long without it.

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By Nico Detourn (TMF Nico)
December 15, 2000

In a change of pace from the flow of "Going Out of Business" announcements by dot-coms in distress, word came on Friday that a new, Internet-oriented media and entertainment company was being born -- albeit into a challenging environment.

Graphics and animation software developer Macromedia (Nasdaq: MACR) has announced it will acquire Seattle-based AtomFilms, a privately held distributor of short-form films and entertainment. AtomFilms will be combined with Macromedia's entertainment website, shockwave.com, a content and software hub built around the company's widely used Shockwave and Flash formats and applications. Like Macromedia, the new company (for which no new name was announced) will be based in San Francisco.

The stock-for-stock deal will have no affect on Macromedia's results for the current quarter, the company said. Shockwave.com was created in 1999 and has been carried on Macromedia's books as a wholly owned subsidiary. The transaction is expected to close in the first quarter of 2001; shockwave.com will then be deconsolidated from Macromedia's financial results and reported as investment interest. AtomFilms will own 30% of the new company. The companies did not place a price tag on the deal and offered no additional financial details. For the quarter ended Sept. 30, Macromedia reported revenues of $102 million.

Macromedia Chairman and CEO Rob Burgess will be chairman of the new company. Upper management is being drawn from AtomFilms, including company founder and CEO Mika Salmi, who will become shockwave.com's CEO, replacing the current chief who will serve an advisory role through the transition.

Built-in traffic advantage
The idea behind the deal is that bringing AtomFilms' 1500-title content catalog and distribution channels together with Macromedia's Shockwave technology will better position shockwave.com as high-tech, next-generation media hub. Macromedia says shockwave.com has more than 30 million registered users, giving it a "built-in online traffic advantage." According to Media Metrix, the site saw 5 million unique visitors during October, reaching between 5% and 6% of all online users.

AtomFilms says that more than 100 syndication, distribution, and content partnerships with Internet sites, broadband and wireless services, television, and other outlets give it access to 150 million worldwide viewers. Partners include Amazon.com's (Nasdaq: AMZN) Internet Movie Database, Excite@Home (Nasdaq: ATHM), Microsoft (Nasdaq: MSFT), RealNetworks (Nasdaq: RNWK), Viacom's (NYSE: VIA) SonicNet, Time Warner (NYSE: TWX), Yahoo! (Nasdaq: YHOO), and the Short Attention Span Film and Video Festival.

Better business model
In announcing the deal, the companies said "the combined entity has access to a better business model," including revenues from Web-based advertising and sponsorships, and online and offline content syndication. These are tough times for online media firms, however, and every day the words "online advertising" sound more like "duck and cover" to even confident, optimistic investors. Attempts to get comparable schemes off the ground have recently failed, including Digital Entertainment Network, Pseudo Programs, and Pop.com.
Shockwave.com itself, which one year ago anticipated going public, recently tightened its belt and cut 10% of its workforce.

On the plus side, Macromedia's technology has been embedded throughout the Web and, even more than traffic to shockwave.com, that gives the company some kind of staying power. In that sense, the company's situation is similar to RealNetworks' (Nasdaq: RNWK) and its ubiquitous streaming media format.

RealNetworks has decked out Real.com as a streaming media hub in which advertising revenue plays a role not typically associated with software companies. Real launched RealPlayer GoldPass in August, a fee-based service built around its media player. Macromedia's plans for combining shockwave.com and AtomFilms find it on the same basic track as RealNetworks as it evolves beyond its core technology base and adapts to a changing business environment.

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