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Encoding.com ripe for download business

As music companies begin to turn to the Web in earnest for distribution, a Seattle firm wants to be the one to encode all that music so it can be downloaded or streamed online.

As music companies large and small begin to turn to the Web as a distribution medium, the question arises: Who is going to encode all that music so it can be downloaded or streamed online?

Encoding.com, a privately held, two-year-old company, wants to be the answer. In the last few days it has taken several steps toward that goal, inking deals with clients that run the gamut from giant EMI Music Distribution to San Francisco start-up Audio Explosion.

Encoding.com takes digital content--for music companies, that generally means CDs--and converts it to formats for streaming or customer downloading. Founder and chief executive Martin Tobias said Encoding.com can convert audio or video tracks into an array of formats, such as MP3, Windows Media, Liquid Audio, or a2b Music.

In doing so, Seattle-based Encoding.com takes advantage of a potentially huge market, without running the same risks as the content providers themselves. Even if online downloads and streaming don't catch on in the mass market as they are expected to, the Internet industry won't know it until after tremendous amounts of content are made available to consumers, which means Encoding.com will have already done its work.

Encoding.com's business model is like "selling arms to the warriors," said Microsoft alumnus Tobias, who's known internally as the "minister of order and reason."

In a sense, the model is similar to what Inktomi has done with search technology. Inktomi powers the searches of online players such as MSN and America Online's ICQ. In March it inked deals with eight firms, including BellSouth and StarMedia Network. Whereas portals and other gateway sites are always trying to one-up each other with features, they all have to offer search, so the idea is that Inktomi benefits regardless of which site is on top.

Encoding.com was formed about a year before the service would really catch on, Tobias said, and the business began to take off during the first quarter of 1999. At the end of last year, all the major record companies began sending the company CDs to encode for pilot projects, he said--about 45,000 in all.

"It's a big help to the record labels because all the big technology companies go to the record labels and say, 'Pick me, pick me, I'm the best.' They come to us for an informed opinion and to do multiple formats," Tobias said.

"We show them the options and talk to them about who their clients are--are they low bandwidth? High bandwidth? Are they going to do video with it, are they going to do e-commerce? We educate them on the capabilities of each format and encode [a sample] in each format and let them decide," he added.

Tobias said 70 percent of its clients are entertainment companies--and of those firms, 60 percent want audio content encoded and 40 percent want video. The latter includes movie trailers as well as short and full-length films, he said.

Encoding.com clients in that space include DVD Express and AtomFilms.com. Tobias said deals with some major movie studios are forthcoming, but he declined to name them or give a time frame.

The other 30 percent of Encoding.com's business involves "providing on-demand media for corporations" such as training videos and filmed company meetings, Tobias said. He added that his own company videotapes its weekly meetings, encodes the tapes, and posts them to an internal Web site so that employees in satellite offices can view them when they have time. In addition, the firm's technology makes it possible to search video content for specific items, which would save time if an employee missed only part of a meeting, for example, he said.

The service ranges in cost, but generally for audio it costs about $2 per track for the first format the content is encoded to if the client is encoding 100 CDs, Tobias said. He noted that the company provides discounts for additional formats and volume orders. It also charges by the hour for services such as data entry so a client can have CD liner notes or scanning of CD cover art.

This week at Jupiter Communications' Plug.In conference in New York, Encoding.com announced deals with Net music firm EMusic.com as well as EMI Music Distribution and Audio Explosion. Under the deal with EMusic.com, "Encoding.com will convert hundreds of thousands of CD audio tracks from EMusic.com's independent partner labels into the MP3 format, making them available for sample, download, and purchase" on EMusic's Web site, the firms said in a statement. Tobias said the firm will convert 180,000 CDs for EMusic.com.

EMI Music Distribution, which is the distribution arm of "Big Five" record company EMI, is developing a business-to-business extranet to communicate with its customers, which are music wholesalers and retailers.

"In our initial plan for the extranet project, we wanted to provide our Web site users with audio and track information for every single active title in our catalog," C.C. "Casper" Casparian, manager of business technology at EMI Music Distribution, said in a statement.

"Encoding.com provides us with a means for obtaining the most accurate and complete data--encoding audio, title information, artwork--from a single source, without additional delay and expense. These added efficiencies and cost savings are a critical part of our business model," he said.

As for Audio Explosion, which offers secure digital music technology to consumers and music industry clients, "Our business is to be a media company, focused on digital distribution of music," Andrew de Vries, vice president of marketing for Audio Explosion, said in an interview. "We were looking for a partner that would take over the laborious task of encoding.

"We're ramping up to posting 1,200 tracks a month on our site," de Vries added. "Having people encoding them in-house doesn't really make sense."

The idea for the Seattle-based company began to take shape during his eight-year tenure at Microsoft, Tobias said. In 1995 he began trying to figure out the myriad issues surrounding electronic software distribution, and from there he realized that audio and video content was going to face similar questions.