Destiny Media Technologies Inc

FINAL TRANSCRIPTDestiny Media Technologies Inc.Third Quarter ResultsEvent Date/Time: July 17, 2012 – 1:00 p.m. E.T."Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 1 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsCORPORATE PARTICIPANTSSteve Vestergaard Destiny Media Technologies Inc. – Founder and Chief Executive OfficerFred Vanderberg Destiny Media Technologies Inc. – Chief Financial OfficerCONFERENCE CALL PARTICIPANTSRoger Hartman Hartman Company Phillip Mitchell Contra Mundum Capital – Analyst Andy Taylor Private Investor Jon Hickman Ladenburg Thalmann – Analyst Jurgen Popp Private Investor Patrick Tenney Emrose Capital – Analyst Sean Peasgood Clarus Securities – Analyst Dana Kreiss Stern School of Business John Bach Whitmore Advisory Group – Analyst"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 2 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsPRESENTATIONOperatorGood morning. My name is Sarah (phon), and I'll be your conference Operator today. At this time, I would like to welcome everyone to the Destiny Media Technologies Inc. Third QuarterResults Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time simply press *, then the number 1 on your telephone keypad. If you would like to withdraw your question press the # key. I would now like to turn the call over to Mr. Steve Vestergaard. You may begin. Steve Vestergaard – Founder and Chief Executive Officer, Destiny Media Technologies Inc.Thanks, Sarah. I'm Steve Vestergaard. I'm Founder and CEO of Destiny. I'd like to introduce our CFO, Fred Vanderberg, who will be discussing our financial results. Fred Vanderberg – Chief Financial Officer, Destiny Media Technologies Inc.Thanks, Steve, and thank you to everyone who’s joined the call. I'm going to take you through—briefly through a nine-month income statement and highlight some items from our results."Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 3 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsFor the nine-month period ending May 31, 2012, revenue decreased by 1 percent from prior year. Revenue from our largest offering, Play MPE, was down by 0.5 percent. There are a few items that contribute to this result. Firstly in the comparative period in the prior year, we recognized a lump sum revenue amount in the third quarter from a two-year agreement, and due to the revenue recognition rules we were able to recognize that revenue only in that third quarter. On the renewal of that agreement, that revenue is more evenly spread throughout the year. We also saw a reduction in revenue in Australia associated with the departure of a marketing partner. And lastly, the devaluation of the euro relative the US dollar adversely impacted our results.However, these items hide some very positive signs with Play MPE. Firstly, US independent revenue grew by 20 percent over the prior year on a nine-month basis. Indeed when comparing like quarters, as quarter one to quarter one and so forth from year to year, revenue from US independent labels has never declined in the five years since inception. Indeed, over the past three years revenue has grown by an average of 24 percent per quarter. That's on a quarterly basis. Also,European revenue from Play MPE grew by 20 percent compared to the prior nine-month period or11 percent on a quarterly basis. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 4 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsMoving onto our expenses. While there are fluctuations in spending on a number of items, they are generally consistent from period to period. There are a couple of items, one in particular worth discussing in a bit more detail. You may have seen that we recorded a negative expense associated with the settlement of the Australian litigation. We recorded the net present value of the settlement, and that is approximately US $859,000. This settlement impacts income in a few different ways: firstly, the actual amount that was recorded as a benefit, the 859,000; then there are exchange gains and losses on that amount; and there's an interest component as we amortize that amount over the life of its payment schedule; and lastly, there's income tax expense associated with the income on this. I won't put a precise figure on it, but I will mention that had we not undertaken the litigation and there was therefore no expenditure on the professional fees or the recovery from the settlement, the company would have been profitable in both the quarter and the nine-month period. Also during the fiscal 2012, we added four employees and combined with some salary adjustments there was a 19 percent increase in total spending. I think that's the major highlights, so I'll leave it there, but I will be available to answer more questions later on at the end of the call, and I'll turn it over to Steve Vestergaard, who will discuss some developments over the year. Steve Vestergaard"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 5 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsOkay. Thanks, Fred. So the company is debt free and we're profitable even after our investments in R&D for new products. Our core Play MPE music distribution business is generating reliable recurring revenue that is enabling us to invest in new technology. We believe our new cross platform Clipstream video is extremely disruptive to the current way streams are created and hosted, and we think it's going to take the company to the next level when it launches. I'm not going to comment too much more on the financials Fred presented, other than to just talk through some of our one-time legal expenses in the last nine months. During the period, we won a wrongful dismissal suit after a five-day trial. We settled a large case on the courtroom steps in Australia, and we won a permanent injunction against a company that was using our Clipstream trademark without our permission. But besides all the litigation there were also other professional fees that should be non-recurring going forward. We've been investing fairly heavily in protecting our existing and future intellectual property in anticipation of growth. For example, we currently have patents for locking and watermarking technology, but during the period we received a second patent over a watermarking solution, and we filed for seven patents for our new Clipstream technology, which again we think is very disruptive to the existing paradigm. We want to get this right and to make sure our claims are solid, so we actually hired two firms, an IP lawyer in Vancouver to draft the claims and an IP litigator in New York to try and get"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 6 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results around our own claims. So it was quite a back and forth. It took a bit of time and it surely wasn't the least expensive approach, but we think we've probably got it right and we think the lawyers have done a good job of protecting our intellectual property. We also protect our brands with registered trademarks in North America, Europe, andAsia. During the period we expanded that. We filed new trademarks to expand the industries and product types that our trademarks covered, and we expanded registered protection of all our marks to include Australia/New Zealand. But I think as Fred alluded to, we anticipate that many of these professional fees will decrease substantially going forward.But we actually came out with streaming back in 1995, and then launched the first version of Clipstream in 1999. So that's 13 years ago, yet Clipstream generation one is still generating about5 percent of our revenues mostly through video questionnaires we are doing for market research companies. The market research companies like the Clipstream content is watermarked and it can be locked to prevent piracy, and it has an extremely high play rate, much higher than other solutions. Still though, 95 percent of our revenue still comes from Play MPE. We charge the record labels transaction fees to send their content digitally through the Internet to radio stations and other trusted recipients. This business is a bit seasonal, but highly predictable and one reason our nine-month figures aren't much different than the prior year. Fixed costs are high. We have four server facilities,"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 7 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results a 24-hour call centre, and teams of developers, list management, support, and radio relations people. But again, those costs are fixed. The variable costs are low. There's a lot of opportunity for us to quickly grow earnings from this business unit as the margins are higher on that last transaction. So in trying to get that last transaction—or those last transactions to be a little bit higher, we've been waiting to launch a new suite of player software. This is a major initiative. It started a few years ago, and that was kind of needed for us to roll out into new markets. So we started a soft launch in May, mid May of this year, and we're actually still in the process of rolling out and upgrading recipients and we're still updating that software. So we've launched a brand new website and new players in 27 languages. The new browser Mac and PC versions are now live, but new standalone applications for the iPhone, iPad, Android, tablet, andBlackberry will still be launching shortly, probably over the next couple of months. As part of this rollout process, some of the majors have begun introducing the solution into new territories. If you want to watch this in real-time, you can come to the front page of our dsny.com site and in the bottom right you can click and see the stats yourself. Click that link and it goes to a page that automatically updates recipients or transactions as they occur. The number of recipients is often blanked out at the request of the labels who want privacy, but the aggregate stats at the top are always available and accurate. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 8 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsSo something we're really excited about is the coming soft launch of our second generation version of Clipstream. Clipstreams are playerless streaming video solution, which we call this second generation G2. This is something we believe there’s going to be extremely strong demand for because it's a lot simpler and less inexpensive than the solutions people are using today. Historically, streams were provided into Windows Media, QuickTime, or Flash format withFlash being a dominant provider. Typically you'd need streaming servers in behind the web server, and consumers would need to install and maintain player software, and the solutions weren't cross platform and weren't widely supported on phones. Earlier this year, Adobe actually announced that they would be discontinuing support forFlash on smart phones. The whole video, streaming video industry is a bit of a mess right now as there's no cross platform video standard. With the introduction of the new web page format HTMLVersion 5, new video formats such as H.264, OGG Theora, and VP8 have been added to the mix. But different browsers have standardized on different formats, so to reach everybody you would need—with HTML 5, you'd need to use those three different formats all at once.So the bottom line is that the industry has to do more than one format with more than one streaming server to reach their entire audience, and the industry’s currently spending about $3 billion on content delivery networks, and by 2014, it's anticipated to spend 1.6 billion on transcoding. Because our streams are re-used, each viewer doesn't need their own dedicated"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 9 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results stream, and the server bandwidth infrastructure can literally reach 10 times the audience. Or another way to say it is that we can reduce an individual publisher’s demand for content delivery networks for 90 percent and their demand for transcoding by 100 percent. Our solution is completely cross platform. We reach all computer operating systems, most smart phones as long as the resources are there and the phone is compliant, and we even reach some e-book readers without, again, without any transcoding at all. Whereas other solutions need multiple streaming servers, we don't even need one streaming server. Content in our format will stream directly from the web page server. Another nice thing about Clipstream G2 is there's no player for the viewer. They don't have to download or configure any software. They don't have to update anything. The content just plays.It is being directly rendered by the browser. This protects the viewer from spyware or being hacked, and the same content can reach a much larger audience because the installed base—because you don't need to install it, the installed base is literally 100 percent. Our anticipated rollout is to initially put a public demo on our site for initial feedback and that's going to happen shortly—I know that's something people are waiting for—and then to start rolling it out to initial partners in the ad industry. We'll start with free trials and begin charging as soon as we meet the needs of the advertisers. In parallel, we're building out our self-serve encoder software so that web developers can create their own clips, the enterprise batch encoder system, so that large enterprises can automate"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 10 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results the creation of clips on our format. So in other words, they put the batch encoder on their server to automatically create clips in high volume. So those products or those support technologies are still in development. We'll be building out our marketing materials and new website to launch in parallel with these tools, and that would be the timing when we'd expect to make a larger PR initiative to the bigger customer audience with a more formal launch. So we anticipate that this soft launch period's going to probably be at least a few months, and then we're going to make a lot of noise. Anyway, thanks. With that, I'd like to turn this call back to questions. Q&AOperatorAt this time, I would like to remind everyone in order to ask a question, please press *, then the number 1 on your telephone keypad. And we'll pause for just a moment to compile theQ&A roster. And your first question comes from the line of Roger Hartman from London, England. Your line is open. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 11 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsRoger HartmanThank you. Steve, can you be more specific on when we’re going to see a first version ofClipstream playing on your website? I mean soon doesn't sound like—I mean it could mean a whole pile of things. Are we talking, what? Two weeks? Two months? What? Steve VestergaardSo in answer to that, it could be as early as early next week and as late as a few weeks from now. We're really in the final stages. There's a couple of messaging glitches that we're ironing out, but otherwise it's almost ready to go.Roger HartmanRight. Have you had any technical problems on this, Steve?Steve VestergaardWe have historically, but believe it or not most of the technical problems were solved byFebruary of this year. Since then it's mainly been trying to work around limitations in certain phones where the hardware is limited in some way or that the phone is noncompliant. And just a lot of the usability things like in terms of improving the user interface and improving the messaging and all those things that you need to do to take a technology from its raw form into more of a product. Roger Hartman"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 12 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsRight. Okay. That's fine. One other question for you, Steve, MPE revenue in North America in this latest quarter appears to have dipped quite heavily compared to the similar quarter in 2011.Is this all due to that one large contract you had? Or is there more to it than that?Steve VestergaardI'll let Fred follow up, but initially I believe most of the difference is just revenue recognition. This year things were spread out more evenly through the year, but because of the way the contract read a lot of revenue had to be recognized in that particular quarter last year. Fred, do you want to add to that?Fred VandenbergYeah. Roger, it was a significant enough drop that it was a one-time revenue recognition item that had we not had that in the prior quarter we would have seen an increase both in theUnited States and in Europe. There would have been a small decrease in Australia, but overall a fairly substantial increase in revenue. Roger HartmanAll right. Okay. Thanks. OperatorYour next question comes from the line of Phillip Mitchell from Chicago. Your line is open.Phillip Mitchell "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 13 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsYeah. Hi, guys. Congratulations on the continued progress with MPE and then this new product. I have a couple of questions. The first is about a year ago you guys announced an Asian distribution agreement I think with All Access of Japan, and I wondered if you could give an update on that because I don't think I've heard anything since. And the second question is on your watermarking technology. Is that something that would ever be a standalone product that you could generate revenue from? Or do you always see it as something that is going to go along with your MPE or your other products?Steve VestergaardGreat questions. Yeah. So we actually went into a reseller agreement with a subsidiary ofDentsu in Japan. And you're right. It's been a while now. The company is called All Access Today.And yeah, we're working very closely with them. They've actually been waiting for our products to be available. It's been a bit frustrating for them because the majors didn't want to launch the—they didn't want to launch in Japan until the new player software was ready. And like I said, that just started soft launching, soft rolling out in about May 15th of this year. And that roll out's still happening. But they're training the majors in Japan as we speak, and we're anxious to put out some follow-up news and let you guys know how it's coming. But I alluded to some international markets that we're starting to do trials in. Big ones include Indonesia, Germany, and Japan is actually fairly significant and that's happening through our partner. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 14 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsBut Dentsu, like I said, they're the second biggest ad agency in the world. They have offices all over the world, and we're hopeful that they can also assist us with Clipstream. So they're just— just as our investors are anxious to see the new demo, so are they. They're seeing a lot of opportunity and we're still in the early days there. What was your second question again?Phillip MitchellOh, just…Steve VestergaardAbout the watermarking. Yeah.Phillip MitchellWatermarking ever be stand alone or just primarily a…Steve VestergaardYeah. Yeah. I think investors may not fully appreciate the value of the watermarking. What watermarking is is imbedding secret information into music. In our case we typically imbed the identity of the person that downloaded the song. So if they turn around and upload that song to like a Torrent site or a pirate site, every copy of that song is going to—and I say song; it could be a song or a video, but every copy of that content is going to contain their identifying mark so we can trace back and the content owner can hold them legally responsible.Now a lot of people have tried to do watermarking, but they typically do it by adding frequencies into the music and that perturbs the audio quality. A lot of people's ears can actually"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 15 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results hear that distortion, whereas ours is completely inaudible. It's instant to imbed, instant to—or near instant to detect. It's literally almost impossible to get rid of, whereas everybody else you can filter this stuff out because it’s digital. And our stuff survives non-digital technologies, like for example, an on-air broadcast. So I'm being a little long-winded in the answer but, yeah. It definitely could be a standalone product. One of our challenges is not to spread ourselves too thin. We have a lot of products out there, products we haven't even talked about, like our Internet radio, which is close to launch as well. But, yeah, we're exploring opportunities especially to try and partner with somebody to license that outside of our core products.Phillip MitchellGreat. Thanks. Steve VestergaardThanks you. OperatorYour next question comes from the line of Andy Taylor from Winnipeg. Your line is open. Andy Taylor"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 16 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsHi, gentlemen. Congratulations on the quarter. I have just a couple questions I'd like to ask. Currently Destiny has global contracts with two majors, being Universal and Warner. Universal is currently going through I guess some sort of acquisition of EMI, and that leaves Sony as being the other major. Is there any anticipation or development along those lines of whether or not we can have those majors as well under our umbrella?Steve VestergaardYeah. So the Universal—just to back up, there's four majors. So there's a lot of record label brands out there, but they all fall under four parent labels. The four parents are Universal, EMI,Warner, and Sony. And, Andy, you're right. We have global contracts with both Universal andWarner. In the case of EMI, EMI is being potentially acquired by Universal. They have to go through some antitrust issues. Hopefully they're successful. The labels are thinking that that could happen by October, November of this year, in which case we'd expect those majors to—or we expect EMI to fall under our existing contract with Universal. In the case of Sony, Sony was formed by the merger of Bertelsmann and Sony a few years ago, and it's run a little bit differently in that there isn't really the same concept of a global parent.It's a lot more regional and the sub labels under Sony have a lot more say. So for example in the US, some of the sub labels would be like Columbia, RCA, Provident. And what we're doing is we're contracting with those regional sub labels directly. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 17 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsFred, maybe you could—I can't quite remember what territories we're active in, but where are we active with Sony outside of North America?Fred VandenbergOutside of North America it would be primarily Northern Europe, sort of Scandinavia. But just to highlight what Steve says is that in negotiating these agreements, the internal structure of the label varies considerably. So it's—you have to negotiate with each individual sub label with a company like Sony more than you would with Universal, for example. Andy TaylorOkay. My next question is just as the company continues to grow and it's grown substantially the last few years, is there any possibility of maybe getting off of the OTC and looking at another exchange, such as a NASDAQ, global, or an AMEX listing at all?Steve VestergaardYeah. Absolutely. That’s something that we would really like to do. Currently we don't meet the listing standards, but we're hopeful that in the not too distant future that we will. Andy TaylorOkay. That's great. Thank you for your time. OperatorAnd again, if you would like to ask a question, please press *, then the number 1 on your telephone keypad. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 18 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsAnd your next question comes from the line of Jon Hickman from San Francisco. Your line is open.Jon HickmanHey, Steve, this is—thanks for taking my call. I was wondering if you could maybe look into your crystal ball and give us some sense of what you think the next growth—you did 14 percent sequentially. Can we look to see that ramp up in the future? Is there some level at which you would be happy with or disappointed in? Steve VestergaardYeah. So we avoid giving forward-looking…Jon HickmanYeah.Steve VestergaardProjections, but in the case of Play MPE, what's held that growth is waiting for the new software. The new software, for example, comes out in 27 languages. There's 27 versions of the website to reach all the different territories. There are a large number of things that labels wanted us to do before they were willing to expand. Besides geography, we're looking to expand into other recipient types.For example, journalists; for every one radio station there's 10 journalists and we had to upgrade the software to be more appropriate for journalists. The existing software was pretty radio-"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 19 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results centric. But we're expecting that going forward that we're no longer held back. As I indicated, we are moving into new territories.But on the other side, with the Clipstream G2, we're looking at opportunities where a single opportunity on an annual basis could be more than what we're currently doing in revenue for the company as a whole. The blue sky on Clipstream G2 is phenomenally large. It's a very large opportunity. Streaming video data is currently more than 50 percent of the traffic on the Internet, and it's been growing at about 52 percent annually compounded. So we see tremendous opportunity, but our crystal ball’s not going to be any clearer than yours. Until we get out there and start selling it and start closing the deals, I would be just speculating. I'd just be pulling numbers out of the sky to give you any projections. Jon HickmanSo have you have been—have you started to be able to sell to or send music to journalists and other media personalities?Steve VestergaardYeah, we have. And you can see that in the stats if you see sends where the numbers are bigger, so instead of hitting a few hundred stations you'd be hitting possibly as many as 1,000 or more with journalists. But we're still in the pretty early stages. We're still, as I mentioned, we're still rolling out that software that we started rolling out in mid-May. Jon Hickman"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 20 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsSo if we were to give you another quarter or so to get the full rollout happening, perhaps by the end of the year we should start seeing some ramp in revenues from these new things?Steve VestergaardYeah. I would expect you're going to see like a positive increase in revenue. I just don't want to be tied down to the quanta. These are really big opportunities, both Play MPE andClipstream, and we're focused on doing it right than being rushed into a market. In both cases there's a lot of things that we've got to figure out to grow revenue, but that said, Q1 is historically our best quarter. That's when all the record companies are sending increased volumes getting ready for Christmas, and we're targeting to try and expand as much as possible before Q1 starts. So Q1 for us is September, October, November. Jon HickmanOkay. And…OperatorYour next question comes from the line of Jurgen Popp from Switzerland. Your line is open.Jurgen PoppHello. I would like to know, you're talking about Clipstream as a disruptive technology.What do I have to understand, what it is disrupting? Is it Akamai Technologies with their worldwide content network delivery networks? Or is it Brightcove service provider, also a couple of hundred"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 21 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results million company, doing all these encoding, encrypting. So what is it really disrupting so that we get a feeling about the size of the market we are targeting in?Steve VestergaardIt's literally both. So the first example you gave is an example of a content delivery network. A content delivery network is where you have servers in cities all over the world to try and spread out the server load. Again, that's a $3 billion annual spend currently, and we can reduce that by 90 percent just because our technology re-uses streams. And companies will—they’ll have the opportunity to either continue outsourcing or they can potentially do it in-house on their own in- house servers. In terms of the all the transcoding companies, we make that go away completely and the projections are that by 2014 that could be a, I think it's a $1.6 billion spend. I can't quite remember, but the reason for that is our single video format once you convert it into our format, you can just drop that video in any old website. You don't need any streaming servers whatsoever. You don't need any streaming infrastructure. You just use your existing web server. On the recipient side the viewer doesn't have to install any web software or plug-in player software. The browser just directly renders it, and if you look at the reduction in infrastructure cost, to reach 10 times as many people means that you have one-tenth the hard drives and one-tenth the electricity and one-tenth the support staff to manage the machines. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 22 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsAnd the best thing is it's actually quicker. Because our streams are getting re-used the streams will tend to be close to the end user. So if you were in Vancouver we'll be re-using a stream that somebody else in Vancouver previously watched, and that gets rid of a lot of the latency on theInternet and the video’s a lot more reliable. OperatorYour next question comes from the line of Patrick Tenney from California. Your line is open.Patrick TenneyHey, Steve, maybe you could walk us through sort of the business model for Clipstream and how we can think about the metrics for that opportunity? I understand that it's large and you're excited about it, but maybe talk a little bit about customer indications and feedback and then what the business model looks like? Steve VestergaardSure. Yeah. We have tremendous interest from some of the biggest companies right now.We actually haven't shown any demos publically outside of face-to-face demos in our office, but the early indications are that the opportunity is very large for us. But the market kind of breaks out into about four categories. First category is oddballs. That's everything from licensing to hardware manufacturers to integrating into third party software and that sort of thing. Those are all going to be custom priced."Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 23 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsThe second opportunity would be going to the big ad agencies. So imagine on McDonald's I want to put a TV commercial on a website. I can go through an ad agency that’s using Clipstream G2 and I can just drop that ad into a web server, just a standard web server, and I reach across all the computers, but I also reach smartphones. And with player-based solutions it's common to have penetrations as low as 85 percent, so15 percent of the people actually don't see the ad. Whereas with our stuff it'll just—it'll always play.So the people that are hosting the ads are going to make more money because 100 percent are going to view it, and it's going to be a better experience for the advertiser because it's going to be instant and cross platform and everybody's going to get the same experience.The third opportunity would be going to the web developers. Adobe's got an army of about 150,000 web developers signed up that regularly buy their encoder software for a few hundred bucks. We'd like to harness that army ourselves. We're still trying to price out exactly how the technology's going to work. Some of those decisions are still being made. We're doing a lot of market research right now, but basically the web developer would use our encoder software, convert the video into our format, and then just upload it to any old web server or possibly more than one web server to put the content out there. Once they've converted it they don't really need to talk to us anymore, and that's going to be a credit-based system. So the web developers will come to our website. They'll put in their credit card number, buy credit, and just build the credits into—or use the credits to create clips. As you notice, that’s an"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 24 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results automated system. It doesn't take a lot of staff on our side and it scales really well. We can reach an awful lot of web developers automatically just through the website. And then the fourth and last opportunity would be enterprise-type clients that do a lot of video. So that could be anything from like a CNN or a YouTube type company that’s just processing a ton of video. We would give them our batch encoder and we'd negotiate a monthly site licence and we'd tie the videos to only play on their particular website. So unlike the web developer videos, which would be free to go on more than one website, these would be locked down and they'd be enterprised just to that particular URL.But the oddball category, the first one potentially is our biggest because some of the inquiries that are coming in are telling me that there's all kinds of opportunity there. But we're still thinking it out, we're still building out the models and by the time the encoder software's ready we're going to have a pretty good business set-up I think.OperatorAnd your next question comes from the line of Phillip Mitchell from Chicago. Your line is now open. Phillip MitchellHi. A final question for me, and I think that last question and answer was very useful to sort of understand exactly who you would sell this to and how it would work, so I appreciate that.Regarding the technology behind this, I don't remotely understand it. I barely know what a server is,"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 25 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results although I do use the term, but one reads all the new articles about new HTML5 replacing native apps, a new video compression, codecs coming out, and things like that. It doesn't sound like, but just I assume that none of those things threaten or would affect the need for the new ClipstreamG2. Am I correct in that?Steve VestergaardYeah. So what happened is there was a really big problem and the big problem is that there's no standard for video on the Internet. So just like in the old days when you go to a video store to rent a movie, things were coming out in VHS and Beta. It's the same—and the poor store owner had to double up on shelf space and have two copies of every movie. It's the same thing on the Internet, except worse. You have to have multiple copies. There's probably a dozen formats out there, but you need at least three to reach most people. And so the industry kind of realized there was a problem. HTML5 is just the definition of what a web page is, so it's the fifth version of what constitutes a web page and it's not about video, it's just in general what are all the tags and features that can be in a web page, and so the new browsers are HTML5 compliant. So one of the things in HTML5 is they wanted to come out with a new video tag. And initially they were extremely hopeful that they could just settle on one video format, just come up with one standard video format that played everywhere. And so the original idea and the original"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 26 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results marketing hype was that HTML5 video will be cross platform and play everywhere and it'll be our great solution.But what ended up happening is they couldn't settle on a single standard. So instead what the video tag does is provides a list, so there's a list of different video files that are available and then the web browser will go through that list, it'll pick one that it understands, and it'll play back that particular video. In that case the users don't need to install software, so it is better for the viewer, but for the publisher, the publisher's still got to convert the video into a bunch of different formats. The publisher still has to use streaming servers, and they're not re-using streams and so they still take 10 times our infrastructure. So in terms of HTML5, some of the features in HTML5 are features that our newClipstream G2 is taking advantage of, but HTML5 definitely is not cross platform without the need for transcoding and content distribution networks. Phillip MitchellGreat. Yeah. I hadn't understood that because the supporters talk about there's no need for players anymore and it sounded like that could be an option, but… Steve Vestergaard"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 27 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsAnd that's a huge advantage. Getting rid of the players means that the audience is going to be bigger. So there is definitely an improvement with HTML5 video, but it's all on the viewer side and not on the publisher side. Phillip MitchellGreat. And it's great to hear that also some people have been knocking on your door wanting to look at this, so both large and small. So thanks for the conference call. Steve VestergaardYeah. Thank you. OperatorYour next question comes from the line of Sean Peasgood from Toronto. Your line is open. Sean PeasgoodGood afternoon, everyone; just had a quick question on the penetration rate of the PlayMPE. It sounds like you've got most of the majors signed up and a big part of Sony as well, but I'm just wondering what the penetration rate is of your customers currently and where you expect that to go with the upgrade that's coming out? Steve VestergaardSo we're—like our install base with radio in North America is extremely high. Almost every radio station is installed. With some of the majors, occasionally songs go out through non-protected"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 28 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results formats. If it's not a big release for them they might not worry about security, and there are a couple of other systems out there. But by and large, most of the US market is pretty heavily using us, and that also goes for the UK and Northern Europe, so that'd be Sweden, Finland, Demark, and Norway. And also markets like Australia/New Zealand. But in all the markets I think we could do a better job with independents. There's a lot of room for growth there. There's also a lot of room for growth for us to hit more recipients. Right now the labels are very careful to cherry pick who they send to just because the way our pricing model works. There are new recipient types, for example, journalists and DJs and VIPs, the music buyers and sports stadiums, and a lot of other lists that they could be hitting. Then we've got the geographic expansion. Most of the world is wide open to us. Some of the majors have been experimenting pretty aggressively in territories all over the world. We've had sends on every continent. But to answer your question a different way, I would say that we're less than 10 percent into what the opportunity is. So where we get to we'll have to see, but these are still pretty early days for Play MPE and we're as excited about Play MPE as we are about Clipstream G2. Sean Peasgood"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 29 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsOkay. Okay. That's good. And then so you're 10 percent penetrated, so I guess the other question then is the Clipstream opportunity sounds very interesting. When do you think that that business or do you think that business will overtake the Play MPE business?Steve VestergaardAgain, that's kind of similar to an earlier question about speculating as to what future revenues are going to be. We'd be pulling numbers out of the air if I started giving you projections before we started actually selling to customers. We've done market research and we have a pretty good idea of what the price points are and what the potential volumes are and who are customers are going to be, but we're not prepared to put that out publically yet. Sean PeasgoodOkay. And then just a couple financial questions. As far as your operating expense level, I know there was the one-time items in the quarter and it looks a little bit funny this quarter. But can you just talk about an operating expense level that you're comfortable with over the next several quarters? And then how that may need to ramp as far as adding new people as these new products get deployed?Steve VestergaardYeah. So in terms of how it's going to ramp, there's going to be a lag time obviously. And we need to build up fairly aggressively in terms of sales, marketing, and support for G2. But as much"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 30 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results as possible, call it a one-quarter lag, we're going to try and make that business unit profitable as quickly as possible and not cannibalize earnings from the Play MPE business unit.But in answer to the first part of your question, I'm going to let Fred run with that one. Fred VandenbergSean, could you repeat that for me?Sean PeasgoodYeah. I'm just trying to figure out what the operating expense level is on a normalized basis, so what you're expecting it to be? I mean I know a lot of the costs are fixed, so maybe over the next few quarters what you think that's going to be? And then I'm trying to get a sense of where you may need to add people as the new products get rolled out. Fred VandenbergRight. Okay. Well, I guess the first part of that is that if you extract the most significant item in the nine-month period would be the professional fees that we incurred, and then the resulting gain on that. I alluded to it earlier, but I won't put a precise figure on it, but it's…Sean PeasgoodMaybe another way to do it would be if you guys have a target model of what you're expecting as a percentage basis of sales? Fred Vandenberg"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 31 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsI think it also depends on the development of the business model for Clipstream G2, so it depends on precisely who we're selling to and what the sales force that we would need for that. Steve VestergaardI think the answer is some of these things that we're still figuring out, we're still building out our business plan and pricing and marketing plan for the G2 product. Sean PeasgoodYeah. Okay. Fair enough. And then just one last one then on the balance sheet, maybe just the cash that you had at the end of the quarter and then any capital expenditures that you see in the very near term. And that’s it for me. Thanks a lot. Fred VandenbergWell, okay. I mean the cash was just a little bit more than $1.1 million at the end of the quarter, AR of about $500,000, and then we have a long-term receivable that totals approximately$700,000. That 700,000 is going to be received over a period of almost six years now. The accounts receivable we've received mostly, so everything’s healthy in terms of a cash basis. Steve VestergaardYeah. We also have access to credit if we needed to expand. Fred Vandenberg"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 32 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsAs far as capital expenditures, we do invest fairly heavily in patents and trademarks and translations in terms our software we translate into various language, but our capital requirements aren't significant enough to be a concern, given our cash basis. Steve VestergaardYeah. We assume that servers and stuff are somewhat disposable, and we just replace them on a regular basis so they're just replaced and expensed as needed. Sean PeasgoodOkay. That's great. Thanks a lot. OperatorAnd again, if you would like to ask a question, please press *, then the number 1 on your telephone keypad. And your next question comes from the line of Roger Hartman from London, England. Your line is open. Roger HartmanHi. Fred, can I go back to your G&A costs in the last quarter? You had 607,000 on litigation and we all know why that is. You appear to have pretty much wrapped up all your litigation now.What will your litigation spend be going forward?Fred Vandenberg"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 33 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsWell, most of the litigation, just to summarize I guess, we had some patent litigation associated with a competitor in Canada in the prior year that had been—that was finalized in Q4 of2011. In the current year we had litigation associated with an Australian reseller and a wrongful dismissal suit. There was also dispute on the trademark of Clipstream, and there's some minor other litigation. But it's almost impossible to predict what could happen, but as far as what's ongoing there's not a great commitment. We settled the Australian litigations, which was by far and away the largest part of that600,000. The wrongful dismissal was the second largest one and we got a favourable ruling on that.That has been appealed, but we were awarded costs on that case. So going forward I don't—I would actually expect a negative expense, but probably not significant. Steve VestergaardYeah. Unless we fall into something new. We're trying not to be litigious, but unless something new comes up, litigation spending’s going to be fairly minor. Roger HartmanRight. Well, 100,000 a quarter or something like that. Steve VestergaardOr less. Roger Hartman"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 34 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsOr less. Right. Well, I'll take 100. That's great. And one final question, Internet radio and video rental. Internet radio is getting to be quite big here over in the UK. We just love listening toChicago stations in the middle of the night and things, and of course the video rental business has gone from posting DVDs now to streaming on demand. Any thoughts on how this could impact your business? And what's happening with that over in North America?Steve VestergaardYeah. So in terms of anything about going to—going through retail to consumers, we're very interested in that. We have a toolkit of technologies. Everything from the locking to the watermarking to all the distribution stuff we've built out to our ability to stream completely playerlessly. But anything we were to do like that we would rather be the supplier. We'd rather be the pipe than the plumbing, so we would want to work with a large retailer to go to those places.We'd rather be the people behind the scenes. In terms of Internet radio, we have built out a broadcast-quality Internet radio system, which we will be offering to radio stations. It's mostly ready to go. The user interface needs to be updated, but we're not ready to market it yet. We've still got to build out our marketing materials and websites and we just as a small company, we've only got 28 employees. We just weren't able to launch a third product at the same time. So we're launching Play MPE. We're going to be launching G2. So we've actually putInternet radio on hold just for the short term, but it is ready to go and it will launch. I'm not going to"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 35 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results put a date to that, but it's a bit of a sleeper technology because the radio stations will be paying us a monthly fee for it, and the system is largely automated and there's a lot of stations out there. And they trust us. They’re currently using our Play MPE product, and we think it's something that could generate a lot of business.But it's something for tomorrow and probably not something we should spend a lot of time on in the call today. Roger HartmanThank you.OperatorYour next question comes from the line of Dana Kreiss from New York. Your line is open. Dana KreissHey, guys. Thanks. On July 11th, an e-mail was sent by All Access promoting All Access downloads, which was a music distribution service to radio broadcasters. I know they're a strategic partner of yours. Was this a joint venture? And if not, do you believe this'll put pressure on PlayMPE revenue or your relationship with All Access?Steve VestergaardYeah. All Access, we were a partner with them. Our partnership expired last fall. At the time they did indicate that they wanted to launch a service and that's why we kind of went our separate ways, but there's different classes of service. There's—well, at the highest I would say"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 36 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter Results we're the highest, but there's a perception in the industry that sometimes it's still a good idea to send out a CD, and occasionally they still do send out physical CDs. And then another premium level of service is to use us. Everything’s protected. You get real-time reporting. It's instant. The recipient's got a wide variety of ways to access the content.We're integrated with all of the third party systems that matter.Then there's a bunch of kind of third-tier systems where there's very limited security.There's no compression. Like for us if you have a broadcast-quality song it downloads really quickly because we've got—we've built out technologies to squish the song or to compress the song, but at the other side to actually literally get the exact same original back these third tiers don’t offer that.They don’t offer the reporting. They don't offer the same level of security. Besides All Access, other examples of that would be in the States there's a new music server is a big competitor like on that third tier. Serato I think is another one. There's a few of them out there. And at the bottom tier we still have some labels sending out mp3 files, so just sending out an mp3 file as an e-mail attachment. In that case, mp3 is a very low quality format. A lot of the frequency information's been removed from the song. It's not really appropriate for broadcast. And the majors, all four of the majors have banned it, but it still happens. As a company, we've decided that we only want to at least under the Play MPE brand we only want to compete in that top tier where we get a premium price for a premium service. We think to go to the bottom tier is going to be a race to the bottom and not in our best interest. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 37 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsDana KreissOkay. Thanks very much. OperatorYour next question comes from the line of John Bach from Garden City, New York. Your line is open.John BachYes. Steven, I have a question regarding direct competition for the G2 platform coming out. Can you articulate what other platforms are out there that might be in competition as far as the robustness of G2?Steve VestergaardYeah. So there's huge demand to be cross platform. So if you search for let's say a play anywhere video on Google or any search engine, you'll see lots of examples of that. But what's happening behind the scenes is these software products are actually converting into a bunch of different formats, so behind the scenes there's still different formats for the different devices. We see these companies as not competitors, but potential partners because we can come in and we can get them to switch over to our technology. They can still keep reaching their own customers, but do it far, far less or far more inexpensively because they don't need the same storage, they don't need the same transcoding, and they don't need third party streaming servers.They can just do it off a web server. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 38 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsBut in terms of direct competition, to my knowledge there isn't any, and the reason is because the technique that we're using is fairly novel. We're using some of the things in the browser in ways that they probably weren't intended to be used. And that's why we've spent so much time on the patents is because there's a bit of a eureka moment to come up with the G2 solution, but we're worried about copycats and people reverse engineering what we've built and trying to come out with their own solutions. And so we're hopeful that the seven patents will protect us from that and will keep out direct competition. I can't think of another way you could be cross platform other than the patent- pending techniques that we're using. John Bach Yeah. I was thinking of Senacor and their acquisition of Carbin (phon), which was essentially a Canadian startup and if you were to read what Carbin software was, it sounds extremely similar to DSNY's G2, and I was wondering if you're familiar with that and whether or not they perhaps might even be infringing on your patents?Steve VestergaardMy expectation is that that they probably are doing transcoding. I'm not familiar with them in particular, but anytime I've looked at somebody that's made that claim in behind the scenes they have been doing transcoding. If you want, you can reach out to me directly after the call and I can have our engineers take a look at that solution and find out exactly what they're doing. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 39 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsBut most of those companies that are in that video everywhere space I view as potential customers. They're not competitive to us. John BachYeah. They allege that they're a cloud-based platform similar to yours, but I don't know if it's just…Steve VestergaardWell, a cloud-based platform is where you host things up on servers in the sky. John BachMm-hmm.Steve VestergaardWe plan to offer that service in the future. That's another product I haven't talked about where in the future we're planning on coming out with a Clipstream cloud product, but with our main Clipstream G2, it's just a straight technology. So you just convert into our file format and then you upload it anywhere. We're not offering any cloud service or anything. We're letting people just put in on their own websites.John BachOkay. Thank you. Steve VestergaardThanks."Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 40 FINAL TRANSCRIPTJuly 17, 2012 – 1:00 p.m. E.T.Destiny Media Technologies Inc. Third Quarter ResultsOperatorThere are no further questions in queue.Steve VestergaardWell, thank you, everybody. I appreciate you taking the time to come and listen to Fred and I. We welcome questions. If you didn’t get a chance to ask a question in the conference call, we're both very approachable. You can reach out to us either by phone or e-mail. Fred’s at extension 236; I'm at 222, phone number 604-609-7736. I'm [email protected] and Fred's [email protected]. Thank you for attending and look forward to talking to you on the next conference call. Fred VandenbergThanks, everyone. OperatorAnd this concludes today's conference call. You may now disconnect. *****"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or liabilities which may arise out of or result from any use made of this transcript or any error contained therein."« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. » 41

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