No Flash in the pan

After two decades of struggling in obscurity, Destiny Media is growing rapidly and catching the attention of Internet industry analysts

If Steve Vestergaard ever decides to go back to making video games for a living, he could include some convincingly real sequences in which the hero keeps taking a beating and keeps getting back up.

His company, Destiny Media Technologies Inc. (TSX:DSY), started out making those kinds of videos, after all. And it has been getting knocked down and back up for a couple of decades.

Since the 1990s, Vestergaard’s company has had its applications relegated to the fringes of the Internet through a combination of bad timing, poor pricing or stiff competition. More recently, it was locked in a patent dispute with a competitor.

“It was like running uphill,” Vestergaard said of Destiny’s running battle with Yangaroo Inc. “It created market confusion. Customers were confused. It also affected our share price. It made it hard to raise money.”

But things are looking up for Vestergaard’s company. Destiny grew by 20% in the last year and now employs 25 people. The company posted revenue of $1.2 million for the third quarter of 2011 – a 40% increase over the previous quarter and a 24% increase over 2010’s third quarter.

Destiny’s recent growth is based on just one of its two media applications – Play MPE – with a second one, Clipstream, moving onto the launch pad.

Destiny’s revenue growth has put it at No. 39 on Business in Vancouver’s top 100 fastest-growing companies, and has caught the attention of Standard & Poor’s. In mid-August, S&P analyst Jim Yin gave Destiny Media a ranking of 95 out of 99.

The report acknowledged that Destiny had cleared a significant hurdle with the resolution of a patent dispute with Yangaroo. As part of a recent settlement, Yangaroo agreed to pay Destiny $600,000 and grant the company licences to two of its patents.

With the legal the dispute behind him and Play MPE generating solid earnings, Vestergaard is buoyant about his company’s prospects.

“We’re already doing a run rate of about $4.7 million in revenue and $1.3 million in earnings, and we’re just getting going on that one product [Play MPE],” Vestergaard said.

Currently, 95% of the company’s revenue comes from Play MPE, which is used by record companies to deliver prerelease music to radio stations and entertainment journalists electronically and securely.

The application allows record companies to send electronic press kits – including audio and video song samples – that can be locked to specific users and made to expire at specific times, all of which avoids a big headache for the music industry: piracy.

Yangaroo has dominated the Canadian market, but Destiny has a significant foothold with American, Northern European and Australian record labels. Universal, EMI, Warner and Sony are among the 1,000 record labels now using Play MPE.

“Play MPE allows us to deliver promotional music securely and on time, simultaneously, around the globe,” said Rhodri Flower, digital promotional services manager for London-based Universal Music Group International.

“This was simply not possible with CD. Following a radio premičre of a new track in one country, we can now service global radio stations instantly – no more manufacturing lead times, envelope stuffing or postal delays.”

Vestergaard believes Clipstream holds even greater promise than Play MPE. It’s actually a 16-year-old idea that suddenly has currency again, thanks in part to the fact Apple products don’t support Flash.

“We have a bunch of Clipstream products over the next couple of quarters that are all service oriented and so it’s like a phoenix rising from the ashes,” Vestergaard said.

Vestergaard started out in 1991 making computer games (Darkseed II was one of Destiny’s more popular creations.) In 1995, the Internet took off, causing turbulence for the video game industry. Vestergaard got out of gaming and started developing Internet radio technology as well as a web browser.

The company came out with an early audio player for Internet radio called Radio Destiny Media player (still available, as Pirate Radio, for download). In 1995, Destiny developed Clipstream, which could play audio directly in a web browser without having to download and install a player of any kind.

In 2000, Clipstream video came out. Microsoft used it – ironically enough – to advertise its Windows Media Player.

But Clipstream never really took off. Bandwidth was so low when Clipstream came out that it was essentially ahead of its time, and when Adobe came out with its Flash player, that ended up dominating the market.

But just as Flash squelched Clipstream, Apple is now squelching Flash. Seventy per cent of video played online uses Flash. But Apple doesn’t support it – as owners of iPhones and iPads know all too well.

Destiny has been busy revising Clipstream, which Vestergaard believes many content users will want to use to get around the Apple-Flash incompatibility issue.

Since Clipstream uses a web object in the browser itself to play audio and video files, there’s no app to download, and no permission needed from Apple. HTML5 will also resolve the conflict, but content creators will still need to transcode video into a variety of formats.

Clipstream obviates the need for transcription into various formats, like AVI and MOV – something that downgrades quality with each transcription.

“With ours they’ll be able to use the one format and it will be cross-platform,” Vestergaard said. “Even our competitor, Flash, if they wanted to be on the iPad, they could use our patent to get there.”

In addition to the Clipstream audio and video application, Destiny Media will also be launching a new a playerless Internet radio app, as well as Clipstream TV. The latter will allow users to watch their own cable TV service anywhere in the world.

On August 17, Destiny filed a provisional patent application for Clipstream for all web platforms, including mobile devices. •