Digimarc Corp (DMRC) 2011 Q2 法說會逐字稿

Good afternoon, and thank you for participating in today's conference call. Now, I will turn the call over to Chairman and CEO of Digimarc, Bruce Davis. Mr. Davis, please proceed.

Thank you. Good afternoon, everyone. Welcome to our conference call. Mike McConnell, our CFO, is with me. The objectives of this call are to review and discuss second quarter financial results, talk about significant business developments and market conditions, and provide an update on our strategy and operations. The webcast will be archived in the Investor Relations section of our website.

Please note that during the course of the call, we will be making certain forward-looking statements including those regarding revenue-recognition matters, results of operations, investments, initiatives, and growth strategies. These statements are subject to many assumptions, risks, uncertainties, and changes in circumstances. Any assumptions we offer about future performance represent a point-in-time estimate. Actual results may vary materially from those expressed or implied by such statements.

We expressly disclaim any obligation to revise or update any assumptions, projections, or other forward-looking statements to reflect events or circumstances that may arise after the date of this call. For more information about risk factors that may cause actual results to differ from expectations, please see the Company's filings with the SEC, including our latest Form 10-Q.

Mike will begin by commenting on our financial results. I will then discuss our outlook and execution of strategy.

Mike?

Thanks, Bruce, and good afternoon, everyone. Our quarterly profits grew by $4.5 million over last year on significantly higher revenues. Our balance sheet remains in excellent shape with more than $30 million of cash and securities and no debt. We purchased -- repurchased approximately 66,000 shares during the quarter.

And we continue investing significantly in growth, including marketing of our intellectual property with Intellectual Ventures, building out our joint ventures with Nielsen, developing the second wave of retained patents and beginning commercialization of Digimarc Discover, all in support of our vision of enabling computers, networks and other digital devices to see, hear, understand and respond to their surroundings.

Q2 financial highlights included revenues of $9.5 million, 81% higher than the prior year, reflecting increases and our new relationship with Intellectual Ventures and strong growth of some of our long-term licensees.

Our gross margins of 82%, which were 11 points higher than the prior year, reflect a greater mix of license revenues to the total, while gross margins on service revenues were consistent with the prior year. Higher operating expenses reflecting increased investments in our new product initiatives and some ongoing litigation costs, an operating profit of $2.3 millions or 25% of revenues.

A $700,000 capital contribution to our Joint Ventures with Nielsen were our share of the net loss for the quarter was about $700,000, and $1.9 million net income tax benefit, primarily related to recovery of net deferred tax assets that were previously fully reserved. We'd expect our effective tax rate for the balance of the year to be in the neighborhood of 30%, subject to changes in our currently estimated tax credits.

Bruce will now provide his comments on our outlook and execution of strategy. Bruce?

Thanks, Mike. As I noted in our last call, we got off to a nice start to the year. Our overall operating performance continues in line with our expectations. Market conditions are robust. Signs continue to indicate to us that the dawn of the era of pervasive intuitive computing is upon us. As senses proliferate and networks gain intelligence, (inaudible) indication of what is being processed becomes less necessary. In this world, simple, reliable and (inaudible) media objects is increasingly commonplace.

From security for digital images to banknotes and movies to music discovery and synchronized television, the common theme is an increasing capability of digital devices to recognize what they are processing, see and hear or see as humans do. This growing capability will change the world, simplifying access to the benefits of computing throughout everyday life for everyone. We think that Digimarc has an important role to play in this new world order.

Given we are at the midpoint of what's proving to be a very busy and complex year of developments for us, I will spend more time than usual today commenting on our execution of strategy and market conditions across the range of our business and our plans to grow profits from these markets.

Macro level, these are remarkable times. Much of what we do is related to a concept referred to by many as the internet of things. At a recent industry conference, the VP of the European Commission for Digital Agenda for the EU commented that the internet of things is expected to connect 50 billion devices by 2020. That's about six for each man, woman and child on the planet. The shift from an internet of people to an internet of things will create unprecedented market opportunities. We are seeking to play an important role in this new era.

Now, let's review more specifically how things are going in execution strategy for doing so. First in the government area, I'm pleased to note that we have an approved plan and budget for 2012 with essential patent customers. The budget is recently consistent with the growth trend of the last few years. In other government work, revenues [flagged] our expectations during the first half of the year. However, some recent contract awards in cyber-security defense lead us to believe that this situation will begin to improve in the second half of the year.

Digimarc is part of a winning team within Vertex Corporation to provide a broad range of research and development support to the national security community and Vertex is the prime contractor to a government customer. The contract is an ID-IQ contract, meaning [indefinite] delivery and [definite] quantity, and I suggest for those of you who are not familiar with this increasingly common form of government contract, that you go to Wikipedia and look up ID-IQ for a further explanation.

The duration of the contact is four years and the spending ceiling is $180 million for the work of all the contractors involved, and Vertex is one of the four winning prime contractors and each contractor has the ability to bid for tasks under this contract for this customer. Digimarc is expected to participate in some, but not all, of the tasks. We anticipate getting the work later this year. In addition to this recent award, our Defense and Intelligence (inaudible) limitless other opportunities for growth.

In the movie business, the transformation in movie distribution is accelerating. The standard definition DVD is rapidly being obsoleted by Blu-ray. NetFlix's success has inspired substantial investments by Amazon and existing cable and satellite video service providers. Blockbuster and Voodoo are also offering streaming movies. Hulu, another major video platform innovator, is rumored to be a takeover candidate.

Motion picture studios are expanding distribution into these new channels. As they do so, they are keeping security in mind and fostering increasing use of watermarking for copyright protection. As you know, digital watermarking is industry standard in security architectures for Blu-ray and digital cinema. It is now rolling out in early video-on-demand markets for a consistent man-made (inaudible) rights holders. Our licensees, Verance and Civolution, are the leading suppliers of these watermarking-based security solutions.

Civolution is doing well in digital cinema and early video-on-demand. At Verance, the watermarking supplier mandated by [ADCS] for Blu-ray, continues to be a significant source of license income despite their ongoing contract dispute. We received favorable rulings from both Delaware and Oregon courts during the quarter, with the Delaware court dismissing the Verance action for declaratory relief. The motions practice continues in these cases. We continue to recommend Pacer for those who desire to follow these cases closely.

Next, we'll review progress in developing marketing the seeing-hearing device platform. It is our major growth initiative and encompasses work in many media markets, including music, television, publishing, packaging, direct mail, freestanding inserts and various niche applications.

As you know, our ultimate goal is to enable mobile devices to [generally] see, hear, understand and respond with optimized network services when instructed by users to look or listen. This is intended to modernize the basic search function, reducing reliance on first-generation text (inaudible) keywords.

As Google recently noted in an update on search, search is increasingly done via mobile devices. Typing keywords on these devices is cumbersome. Our model makes the process simpler, more efficient and intuitive. The current version of the platform includes Digimarc Discover and the Media Sync venture with Nielsen.

The licensable Digimarc Discover software currently includes Music Discovery courtesy of our collaboration with Sony, in print and network connectivity based on QR Code reading and digital watermarking. Our goal is to produce an efficient platform based on various recognition means that will play an important role in a new model of computing that we refer to as pervasive intuitive computing.

We believe that this paradigm change is the logical next step in the evolution of search on the user interface for computing more generally. It is made possible by the proliferation of sensors connected to digital devices. Most notably are Smartphones, but also in laptops and tablets and soon, in televisions as well.

During Q2, we conducted an extensive beta test of Digimarc Discover and our associated online services portal that provides a simple and economic means of encoding digital watermarks into printed publications. The beta has been helpful in developing a better sense of how to make progress in facilitating this new era of pervasive intuitive computing.

While our confidence in the business grows, we are mindful of many practical obstacles to progress. I think we have the right strategy and patience and the financial wherewithal to see it through to a successful conclusion. As we encourage trial and adoption, research and development concerning the platform continues apace. We have done broadly and integrating [versions] of object recognition and innovating a higher order task for sense of fusion and inference.

We've added music recognition and QR Code reading to the watermarking embedding functions of the platform, progressing toward creation of a universal [meter] to use various technologies to [adopt] product content consumers want to experience further. Next up is likely to be conventional 1D barcode reading. It is under development and we expect to deliver it soon, and also look forward to an all-TV application emerging from our Nielsen joint venture.

I continue to believe that the basic object recognition functions belong in the operating system, given that they should be routine and ubiquitous capabilities that are natural successors to Smartphones and first-generation search.

In the music area, the music market, transformation is taking shape. I believe that the contours of the new industry paradigm are becoming obvious, with the successful public offering of Pandora and numerous other announcements of cloud services. The pace of innovation in the music business has noticeably accelerated. "Digital Music News" recently reported that funding for music-related startups in the first half of the year reached nearly $400 million. Shazam alone raised $35 million, although published reports indicate that much of this funding is targeted toward the television synchronization initiatives -- more on that in a moment.

Further in the music area, (inaudible) announced Music Discovery and Microsoft announced that the new mobile operating system release in the fall will have [theme] and audio and visual search in it. Mobile Music Discovery will play a pivotal role in a new purchasing model for music. Earlier this year, we updated Digimarc Discover to enable Music Discovery via collaboration with Sony [Greystoke]. We anticipate collaborating with Intellectual Ventures to pursue license income from the burgeoning Music Discovery suppliers.

In the television area, we have some stunning news concerning Media Sync. "Grey's Anatomy" sync apps for iPad, which launches in February for ABC's top-rated series, has been nominated for a primetime Emmy Award in the category of outstanding creative achievement in interactive media. Powered by the Media Sync platform, this app provides (inaudible) show with the ability to interact with exclusive content in real time using their iPads.

The Media Sync platform, a product of our joint venture with Nielsen, is being designed as a comprehensive application development and operating environment that allows television content producers and broadcasters to deploy synchronized photo apps in a rapid and scalable fashion. The platform relies on audio watermarks already inserted into nearly every television program in the United States as part of Nielsen's industry standard TV audience rating service.

In addition to giving viewers the ability to interact with synchronous content tied to their favorite shows and enhancing social TV co-viewing experience, the Media Sync platform also delivers interactive advertising modules as [opinions], the ads on the big screen. This capability gives viewers the opportunity to (inaudible) for TV ads for products that interest them and it gives advertisers a powerful new way to extend the effectiveness of their TV ad buy.

There's a lot of experimentation going on in this potential redefinition of television, providing encouraging signs of the transmission of television viewing experience that we envisioned is developing along the lines that we anticipated. Numerous initiatives have been announced by a wide range of suppliers regarding check-in, social TV, and synchronization. We see these initiatives as validation of our vision, licensing opportunities and competition for our joint venture with Nielsen.

We continue to build out the platform as more programmers are considering adoption and we are assessing the Walker Digital patent claims and determining the best course of action.

Much of our attention is focused on continuing development and initial marketing of Digimarc Discover for publications. As projected on our last call, we have begun commercialization of Digimarc Discover, while continuing research and development. Our public media program launched in February and concluded at the end of May.

Here are some statistics regarding trial usage from the program thus far, including the beta period in the first month of commercialization. Approximately 1500 online service portal accounts were opened and there have been more than 45,000 downloads of Digimarc Discover. We don't have reliable statistics on the numerous private label versions that have been created. Users in more than 60 countries have read more than 60,000 watermarks and Digimarc Discover revenues so far are about $200,000, which is generally consistent with our 2011 operating plan assumptions.

We still have a lot of work to do on developing and marketing for the publishing industry. We think it's a worthy investment. Our modeling of the total addressable US market for our solution for newspapers and magazines alone gives us an estimated value using our current pricing model and a strong (inaudible) assumption of one watermark per page to be in excess of $1 billion a year.

We have not attempted to quantify the global opportunity and we haven't yet developed estimates for other verticals by direct mail freestanding inserts and packaging.

We're mindful of many practical impediments to exploitation of this potential and associated costs and risk. It will take time, investment, patience, determination and skilled entrepreneurship to get a better sense of how well we can exploit this potential.

With regard specifically to newspapers, the US market has been crushed over the last several years. It may be too late to save many of them. On the other hand, desperate times will motivate experimentation and evolution by those determined to survive.

We are anticipating some interesting pilots launching soon here and overseas. These will be important initiatives in assessing the value of our technology to the industry. In parallel, we have hired a trusted consultant with whom we have considerable experience. It gives more opportunities in the Japanese market, home of the largest newspapers in the world.

Whereas the US newspaper industry is suffering mightily, the magazine industry has a different situation. Young people read magazines. According to the Magazine Publishers Association 2010 Fact Book, adults under 35 read more issues per month than older adults. The number of magazine readers has grown over the past five years.

Magazines score significantly higher than television or the internet in ad receptivity and other measures of engagement. In 2010, Chief Marketing Officers (inaudible) report noted that nearly one half of magazine readers go online to find more information about ads in printed magazines. According to another source, (inaudible) Research, magazines lead other media in influencing consumers to start to search online.

Digimarc Discover greatly improves the efficiency and timeliness of this type of activity. Regarding digital versus print preferences, the majority of readers interested in magazines view digital as complementary to print and not as a replacement. The annual magazine advertising revenues in the US alone are approximately $20 billion.

A number of small magazines have started using our platform. A couple of large US magazines have begun testing it. We are beginning our outbound marketing for prospects.

In another area of Discover, postal authorities around the world are a smart means to bolster revenues. They're particularly interested in bulk mail. The Royal Mail, the UK postal authority, has announced that they're working with our business partner there on a joint offering that will make direct mail interactive. According to the Royal Mail, they deliver about eight billion pieces of unaddressed mail and about 1.7 billion pieces of addressed mail each year. The target for launch is later this year. A firm date has not been set. Other postal authorities are considering similar initiatives.

In the packaging area (inaudible) Digimarc licensed supplier of product authentication and counterfeit protection solutions are showing some nice growth from a small base, and as we develop the packaging market for Digimarc Discover, we hope to find opportunities to accelerate their growth. Referring to Digimarc Discover for packaging, in late 2010, we announced that [Cadlett] will be collaborating with us to develop the market. They will encourage us to pull forward (inaudible) for later in our market development plan.

In March of this year, [Cadlett] sold its printed components business to a Dutch flexible packaging group. In the process, we lost our internal champion and Cadlett relinquished a key division ramp on the [team]. We're not sure where things will go with them, given these changes. In the meantime, a couple of other large packaging suppliers have approached us and we are in the early stages of (inaudible) initial offers (inaudible).

We are still comfortable about the timing of implementation of packaging our long-term plan for Digimarc Discover. Our strategy has been, and continues to be, the focus on publishing which is also in '11. These packaging opportunities may encourage us to expedite work in this area, but if they don't, we intend to get to packaging in due time.

This concludes our update on the strategy execution for Digimarc Discover.

In another area of our business, Digimarc for Images, we protect (inaudible) facilitate licensing for digital images on the internet. Customers have (inaudible) photography (inaudible) corporate brands and professional photographers. This application has generally contributed hundreds of thousands of dollars to annual revenues. Through some thoughtful and well executed investments in the last few years, it's begun to demonstrate a higher growth rate. Sales through the end of Q2 amounted to about $400,000.

One of our business partners have been executing for the software [distributor] on expanding the Digimarc for Images concept to a richer feature set and a wider range of document types. We'd love to have more say on this later in the year.

In the licensing area, we note a very fortunate coincidence that as the infrastructure in our product markets has been developing in ways that facilitate the spread of pervasive intuitive computing, and our relationship with Intellectual Ventures is operational, appreciation for the (inaudible) patents has been rising. This is particularly notable in the mobile market for Nortel, so on 6,000 patent assets for about $4.5 billion in a notable affirmation of the increasing appreciation for IT among tech industry leaders.

In light of the Nortel patent asset sale, the use of the expression "patent assets" is becoming more common as a means to characterize the patent estates of enterprises. Patent assets is the sum of issued patents and applications. We intended to focus attention on issued patents. To facilitate comparisons, we will begin using this approach as well. Along these lines, we have more than 1,000 patent assets, approximately 900 of which are exclusively licensed to (inaudible).

We're happy to do a deeper dive at any time with anyone who wants more details.

Our license revenues are up materially this year, aided by our Intellectual Ventures relationship. We're collaborating with IV on a number of licensing initiatives. I've been particularly pleased to see the proliferation of mobile Music Discovery services along the lines we had envisioned. We've also noted increasing interest in social and synchronized television. We are working in Intellectual Ventures to assess license opportunities in these areas, among others.

With regard to (inaudible) IV, we excluded 132 patent assets from the IV deal. We generally return -- refer to these retained patent assets as the second waves portfolio, the second wave mostly embodying our research initiatives since 2008. While this is not enabling intuitive pervasive intuitive computing via mobile devices.

The [interventions] which foster progress virtualization of our long-term vision build upon and expand from the growing relevance of the first wave of digital watermark and centric IP license to Intellectual Ventures. Our retained second-wave portfolio has already grown to over 160 patent assets, including (inaudible) issued patents and 154 applications since the deal was announced. We substantially increased our R&D budget and staff. We expect these investments to lead to substantial growth in our retained patent estate in the coming years.

In closing, I would say overall, we're executing very well on our strategy and anticipate a very exciting and rewarding year ahead thanks to the continuing support and commitment from our partners, customers, employees and shareholders, in making this vision a reality. Thank you, all.

And now, we'll open the floor to questions.

(Operator Instructions). We have a question from Corey Barrett of Pacific Crest Securities.

Bruce, Mike, good afternoon.

Hey, Corey.

The first question is on your QR Code announcement. I was hoping you could just talk about what the benefit is to Digimarc there, and then just sort of broadly speaking, how QR Codes and barcodes are competing with you in some of your initiatives, like packaging.

Sure. Our basic business, as you know, Corey, is intellectual property licensing and we have been working for many years on the seeing-hearing platform for computing. So in that platform development, we use various project recognition means, thus supporting barcodes 1D, 2D, 3D, QR Codes and so forth. That is consistent with the strategy of building a seeing platform, elements of a seeing-hearing platform.

We're not a watermarking company. We're enabling the pervasive intuitive computing vision and have already had substantial innovation, filings and issued patents regarding broader relevance and watermark and base-object recognition. So it's really in support of our core business strategy of innovation and the resulting licensing.

As far as the competition that goes on between various symbologies, I believe they all have some place in the market. So [when the] barcodes are pervasive already, and the primary use for the (inaudible) facilitating retail transactions. They also are increasingly used in the mobile environment for comparison shopping. QR codes, 2D codes, 3D codes, Microsoft tag, all the various labels associated with the more elaborate barcode structures, are being used primarily to link between publications and internet services, network services, much akin to what we do with digital watermarking.

And there, we think that if there's plenty of room, and the publisher makes the judgment that the esthetics are acceptable, the QR codes and the other variants do an okay job of doing what we do. Our special role is where those assumptions are not true, which is in many places. Where space is important, where esthetics are important, we're invisible unless (inaudible) the esthetics.

So we think we have a pretty compelling competitive advantage and that will yield lots of business for us, but we don't feel it's necessary for us to defeat competitors to win plenty of business to make us plenty of money. And so that's why we support all of the symbologies and support the basic licensing premise of the business, and because we think it's actually healthy for consumers to gain experience, however they gain it, with the value of being able to act correctly from (inaudible) materials to network services.

And so QR codes, in effect, teach that behavior and then we believe we have a superior solution in many environments, which is pretty obviously superior because of its basic nature.

Great, thank you.

You're welcome.

Can you provide any sort of update on IV? I know that they only provide a formal update once a year, but is there anything you can tell us there on the momentum or how that's progressing?

Well, nothing more than I said in my prepared remarks. That is we're working with them on marketing plans. Those marketing plans include a mobile Music Discovery and synchronized and social television.

Okay, yes. And that's what my next question, where I was going. Relative to Shazam or other fingerprinting technologies, you had mentioned that you were going to sort of go through IV in pursuing licensing. Is that -- would we then hear an announcement from IV or would that come at their annual -- at the time of their annual update to you guys?

I don't know yet, and so IV has announced licenses that they've now put out something that -- not licenses that they didn't announce. That will be at their discretion. The patents that we publicly stated we believed were relevant to Shazam have been exclusively licensed for sub-licensings to IV( so it's up to IV to monetize those.

Okay, great. And then just quickly, your operating expenses were lower than we had expected, primarily in G&A. Is that related to litigation expenses with Verance that were slower following the ruling in that case?

Hey, Corey, it's Mike. That had a little bit of impact to it, but Q1, if you recall, had some heavy outside accounting and auditing costs. We changed auditors right at the end of December, so an entire year's audit occurred all in like a 60-day period. So it's kind of doubling up on August (inaudible) 42,000 (inaudible) audit, but, yes, that's why you see the drop there.

Okay, perfect. So this is -- much of the delta there is sustainable, at least until Q1 of next year?

Well, we've worked on efforts to spread out our audit and accounting fees throughout the year where possible, but generally, it is every year in the first quarter of every year, but not to the extent it was in 2011.

Okay. And then just lastly, could you repeat how many app downloads you've had for Discover? I can look it up in the transcript, but --

Yes, I want to make sure to give you the number here. Hang on just a second; I [don't want to do that]. I thought it was 45,000. Mike mentioned that. I think that's the right number.

Okay. And that's all I've got.

It's 45,000.

Thank you both and congratulations on the quarter.

That's the branded app only, Corey.

I'm sorry?

That's the branded app only. That's the Digimarc Discover branded.

Okay.

There's numerous private label branded apps. We don't have the download figure for those.

Okay, perfect. Thank you both.

Okay.

The next question comes from Kevin Hanrahan of KMH Capital Advisors.

Hi, Bruce, I had a question about the digital cinema and that whole evolution that you were talking about you mentioned in your prepared remarks, and you mentioned Civolution. Is that -- is Civolution your main -- is that your main licensee in the digital cinema area? I know you were doing some stuff with Dolby sometime ago, but maybe the Dolby stuff -- which Dolby is involved in digital cinema, but maybe that's not -- they're not doing that with you anymore.

We believe that solution is the sole supplier of the watermarkings security block for digital cinema because they're the only Digimarc licensed supplier, and if we knew anyone else was supplying, we would suggest they should have a license.

I see. So there would be another merging opportunity?

(Inaudible) business.

Right, okay.

And (inaudible) has the entire business in Blu-ray.

Right, right. Okay. Well, thanks and congratulations on a nice quarter.

Thanks, Kevin.

(Operator Instructions). Your next question comes from Paul Sonz of Sonz Partners.

Hello. I have a couple of questions. The first is, are there any plans to have a developers' conference for -- to propagate the use of Digimarc Discover?

We don't have a plan. We have talked about that, though, Paul, so we may do that at some point. We're quite busy right now and content with how things are going, as we're doing them at this point in time, but we have talked about that and may do it at some point.

Okay. The second question is you mentioned that Verance is continuing to pay you substantial funds. Is Verance again a 10% customer, a 10% client?

I don't think I said they were paying us a (inaudible) sum, but I'll let Mike answer the question.

Yes, for the second quarter, they would again be one of the larger customers that we would name in our filings (inaudible).

And is there any -- are there any new in excess of 10% customers, not the usual ones, but anyone new?

It's all the usual ones.

Okay, all the usual --

Same (inaudible) this quarter, Paul.

Okay, got it. Last question -- in light of the -- it seems like there's been a change in the way that the marketplace is looking at intellectual property assets. You had the bidding by Google for the patent estate. You now have the IVCC in the digital -- the great interest in there. Both of these seem to represent more of the backbone of the mobile market, whereas you guys seem to be a step further than that, that rests on that.

How does your deal with Intellectual Ventures affect the way that a potential company might look at you in terms of an acquisition candidate? It may seem like a strange question, but I'm trying to understand the fact that you've licensed the bulk of your assets at the present time to Intellectual Ventures, and let's say that there's someone who sees the -- has the same vision on the way things are going to develop, as you do, and decides in light of what's happening now, it might be cheaper to buy earlier, rather than later. And someone comes to your door to sort of buy wholesale as opposed to retail. How does your relationship and the licensing agreement with Intellectual Ventures affect that kind of thinking?

Well, it depends. Let me give you a few scenarios and we'll cover most of the possibilities. So if the acquirer is licensed to buy Intellectual Ventures and they would be acquiring us for our know-how, our software and our second wave and our financial characteristics, and if they're not licensed by Intellectual Ventures, then under the grant-back license, they would obtain some rights, but they might want to do a deal with IV as well while they're doing a deal with us. They'd get everything they'd want to have.

Right.

So it kind of depends. What differentiates us from the sort of (inaudible) that's going on with Nortel and IVCC is the nature of the IP where there's a presumption, whether well founded or not, that the Nortel assets had immediate relevance to the global market. And our IP, as you know, we hope will be instrumental in the future of that market, more than in the current market.

Yes.

So we're perceived as a bit more speculative. So what that tends to mean to us is that it increases the likelihood of a successful licensing program in Intellectual Ventures, because we think people will pay higher prices for IP some of the high prices that we're seeing being paid for some of these basic patents in wireless.

Yes, yes.

(Inaudible).

Yes. That -- all right, good. Thank you very much.

You're welcome.

(Operator Instructions). This concludes today's question-and-answer session. Oh, my apologies -- we do have a question that just came up from Adam Fisher of Burnham.

How are you?

Good, thanks.

I just wanted a point of clarification. I believe you said that Digimarc Discover has generated about $200,000 of revenue?

Yes.

I'm trying to figure out the timeframe. Was that since it came out of beta in June, or was that since it went into beta, I guess, in February?

It's year-to-date.

Year-to-date, okay. Was the --

Now, some people -- remember, some people (inaudible) appearance for various reasons, so we try not to refuse any generous offers like that.

Was the majority of that in June?

I don't want to get down to that level of granularity and I don't intend to report on this regularly. The reason I mentioned this is because I'm sure everyone is curious about how we're getting started here, so I provided some statistics here as we're starting to market, but I'm not going to make this a regular accounting.

And the second question on that -- you mentioned, I think, in that when you were describing Digimarc Discover that there were some private label apps out there already. Can you -- kind of how many are there or can you talk about who's been developing them?

Well, in terms of what's already available in app stores, I think there are five, maybe five to six. I don't keep close track of them, frankly, and we're working on more now. And we believe there could be dozens or hundreds before we're done.

Okay.

So the basic posture in the market here early on, which I would call experimental, is that everyone still likes to do their own app and they want to maintain the brand of relationship with the ultimate customers.

Sure.

And they don't see how they -- with our brand because we're little guys, right, so it's not that it's going to drive a lot of traffic to have the Digimarc name on it. We charge them to create these private label brands or private label versions, so we're fine with doing it.

I'm not sure whether it'll be enduring or not because as I noted in these remarks and as you're already aware, I think that these functions become less functions, in which case then every app would have this feature, so to speak, because they're (inaudible) exposed to app developers generally, in which case then there might be thousands or tens of thousands.

I understand.

Oh, (inaudible).

Okay. Thank you very much.

You're welcome.

You have a follow-up question from Paul Sonz of Sonz Partners.

Thank you. Right now, the revenues that you generate are -- I look at it in three buckets. You have the revenues that you generate from your relationship with Intellectual Ventures. You have service revenue and then you have revenue from -- I'll put it in all the other stuff in one bucket, both from the government, the -- and the Nielsen Ventures. And I wondered if you could talk just a bit about what percentage of your revenues you see coming from each of those buckets over the next six to 12 months?

We -- there's no length of (inaudible) time on projections with the public because I (inaudible). So they're mostly -- we have nice growth opportunities (inaudible) our business. We have potentially very high growth potential in some of the areas. The licensing area, obviously, has lots of flex and enormous contribution because of 100% margin, and then we're working on Discover and if it catches on, it could be quite interesting. And as I noted, the addressable market is huge.

We have a differentiated offering and I feel comfortable that we're making good progress against our strategy pretty much consistent with our expectations. And the way these things work, having been in market development all my life, I can say is that for people who aren't immersed in it a lot, they tend to think things just kind of either explode or don't explode out of the door, and that's entirely wrong.

The way things usually happen is you're working along for a longer period of time than you think to get it going and then it takes off in a most unexpected way, largely by some events driving it. So I continue to work hard on this and see if we can create such an event and if we do, then you'll see a big uptick. If you don't, then hopefully, you'll see steady growth until we hit critical mass. At some point, there will be an inflection and it's not easy to discern in advance.

And then we have all the other stuff that we're working on, so our (inaudible) addressing any part of our business right now that I don't think has good promise. So I wouldn't want to try for public benefit to guesstimate how it all looks a year or two from now.

Would you likely take a crack at whether you think that the Digimarc Discover is more likely to develop before the interactive television?

No, actually, I wouldn't because they're both pretty hot.

Okay, (inaudible).

The synchronized television business, I've been joking lately, I don't know anybody who doesn't want to be in it. It seems like it's attracting all kinds of interest from Yahoo and Shazam and most recently, Audible (inaudible), a friend of ours. You can bet the big players are going to want to try to play in this. There are whole -- there are probably two dozen companies I haven't named that are trying to participate in the space.

And then in Discover, the interest in the publishing business in connecting from print to network services, I think is beginning to catch on. I think they're starting to get it, and again, this is one of those situations where there's likely to be an inflection point. Someone notable will do something which will cause everyone to want to be in the party and one of the virtues of our strategy is having created the online services portal. People can get going today, if they want to.

Right.

So it's no longer -- no screwing around with us, just go and get the publishing done. And then the larger players are welcome to sign up with us for our service providers to build appropriate infrastructure to a large -- for a large-scale use of the technology and the fundamental transformation of their publications. So who knows? Either one or both can take off at any time.

All right. Thank you very much.

Yes.

The next question is a follow-up from Kevin Hanrahan of KMH Capital Advisors.

Hi, Mike, I just had a housekeeping item. I wonder if you can just refresh our memory about how much is left on your share buyback authorization?

Sure. It's about $2.3 million is remaining.

$2.3 million. And you -- can you tell us how much dollars you spent this quarter?

Yes. I think the cash flow probably has it, but we totaled shares bought in both the corporate buyback program and in normal stock and option activity was 66,000 aggregated, $1.9 million.

Just about $1.9 million?

$1.9 million, yes.

Okay. Thanks so much, Mike.

Okay.

This concludes the question-and-answer session for today's conference. I will now turn the floor back over to Mr. Davis for any closing remarks.

All right. Thanks very much, everyone. I look forward to talking to you in the other quarter. Bye.

Thank you. This concludes your conference. You may now disconnect.