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Encoding.com comes of age in digital market

The privately held company, which takes digital content and converts it to formats for distribution over the Internet, changes its name to LoudEye and receives $48 million in a third-round venture deal.

Privately held Encoding.com, which takes digital content and converts it to formats for distribution over the Internet, has changed its name to LoudEye and has received $48 million in a third-round venture deal from a coalition of investors including Microsoft, America Online, Intel, CBS and NBC, the company announced today.

The company also has signed a deal with CD distributor Valley Media to offer online music sellers 30-second digital music clips.

LoudEye founder and chief executive Martin Tobias said today's investment was a further sign that attitudes toward digital distribution have changed in the last year. "It's starting to turn the corner," he said. "No one has figured out the long-term business model, but they realize they have to start trying things."

He added that the cross-section of partners in the deal was a strong validation of the company's technology and business plan.

Wasserstein Adelson Ventures led today's investment group, which included a roster of entertainment industry elite. According to a release, individual investors in the deal included Terry Semel, former chairman of Warner Bros. Studios; Michael Deluca, president of New Line Cinema; Michael Gruber, an agent at Creative Artist Associates; Jeff Berg, founder and chief executive of International Creative Management Agency; and Robert Zangrillo, a digital media industry executive.

Industry analysts said LoudEye is well positioned to take advantage of the media industry's embrace of streaming technology.

The company has recently inked deals to convert content for a host of media and entertainment companies, including Atom Films, BMG Entertainment, EMusic.com, EMI-Capitol Music Group, Sony Corp., Warner Bros. Online and Universal New Media.

"People are beginning to take the Net seriously as an entertainment platform," said Aram Sinnreich, an analyst at Jupiter Communications. "But most media companies are incapable of doing the back end themselves."

LoudEye's primary service involves taking a nondigital format, such as a VHS video, and turning it into one of several formats that can be sent over the Internet. Tobias said the company supports all major video and music formats, including Microsoft's Windows Media and RealNetworks' RealPlayer formats.

"The company is sitting on a mother lode of content that needs to be encoded," said Sinnreich.

The company plans to offer more than pure conversion services.

LoudEye recently announced the acquisition of Alive.com, a multimedia applications developer, and the launch of its Consulting Services Group. Alive.com's e-Show Engine is a digital media application that makes it simple to create, host and manage media on any Web site.

Today's deal with Valley Media gives LoudEye rights to the company's songs and puts LoudEye in charge of Valley's content management and hosting.

The investment is one in a chain-reaction of deals on the streaming media front. Yesterday, Microsoft invested $30 million in streaming pioneer Intervu, and Sony this week took an undisclosed stake in satellite network start-up iBeam.

Analysts said such deals are part of a trend that has been building for some time, as media companies have largely begun to give up fears of online piracy and have started to look for ways to capitalize on the Net's emerging capacity to deliver high-quality music and video broadcasts.

"Everybody has been in these kinds of talks," said Sinnreich. "It only takes one deal for everyone else to follow."