The company may take the unit public if the business succeeds in popularizing the Web site, Shockwave.com, and in luring consumers to use new software that acts as a virtual remote-control panel for playing games, music, and entertainment.
Macromedia started a campaign last year to expand the reach of its Shockwave software by gaining distribution through Netscape's Navigator browser, America Online's Internet service, and Microsoft's Internet Explorer browser. Now it's hoping to play on the program's popularity by getting consumers to pick up games and entertainment at the Web site.
"They have everything they need to create a successful company," said Seamus McAteer, director of Web technology strategies at Jupiter Communications. "Wall Street will salivate at the thought of an IPO."
Macromedia's shares have more than tripled in the past 12 months as the company recorded a profit for its fiscal year ended March 31 after two years of losses and gained good reviews of its Web-designing software such as Dreamweaver. About 77 percent of people who surf the Web use its Shockwave and Flash software, Macromedia said.
San Francisco-based Macromedia said the new unit will be housed in a separate building close to its current headquarters. It hired former Walt Disney executive Stephen Fields, 44, to be chief executive of the new venture. The unit will have between 30 to 50 full-time employees, which will increase to 80 within a year, said Macromedia chief executive Rob Burgess.
"There's a possibility that we may sell some of it to the public," said Burgess, who said it was too early to say when an IPO would occur. "The Web moves so quickly, you have to give people the opportunity to compete. It has to have its own culture."
Macromedia designed two new pieces of software for the Web site that act as virtual remote-control panels for online entertainment. Shockwave Remote, which is free, lets people save five games or other pieces of entertainment. Consumers can then play the game, rewind or fast-forward the content, or send links to Shockwave material in an email to friends.
The second piece of software, called Shockmachine, is a fancier version of Shockwave Remote that costs $19.99. It lets people store an unlimited number of games or movies and looks like a Web-based jukebox.
Macromedia is hoping that consumers will download the new software and then continue returning to Shockwave.com to grab new games, movies, or other content from the Web site.
Macromedia said the unit will gain revenue through advertising on the Web site and on Shockwave Remote and Shockmachine, through e-commerce; and by selling the Shockmachine software.
Still, Shockmachine may not prove to be a hit because its price tag probably won't appeal to consumers used to getting everything for free on the Internet, analysts said.
On the other hand, the free Shockwave player probably will prove popular and boost visits to the Web site, they said.
"Next week, lots of people will grab it, show it off to friends, and pretty soon, there will be a circle" of people downloading the software and then returning for entertainment, said Forrester's Manning.
Macromedia today also announced version 4 of its Flash animation authoring software, which adds support for MP3 streaming audio and for text-entry fields in forms.
Macromedia said it would publish the source code for the Flash player and allow developers to use it under a public license. Macromedia opened the Flash file format (.swf) last year.
News.com's Paul Festa contributed to this report.
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