Macrovision Corp. (MVSN)

1. Macrovision Corp.(MVSN) Matthew Thompson & Shengdong (Stanley) Zhu Presented April 26, 2007

2. “The Business” Industry Background Risk Factors Firm Strategy and Development Valuation DCF Analysis Recommendation Presentation • RCMP position • Stock Performance • Portfolio “fit”

3. “The Business” Industry Background Risk Factors Firm Strategy and Development Valuation DCF Analysis Recommendation Presentation • RCMP position • Stock Performance • Portfolio “fit”

4. “The Business” • Macrovision enables businesses that are reliant on the deployment of software or content to protect, enhance, or distribute their offering among digital distribution channels and destination devices. MACROVISION CORP, 10-K, Feb. 28, 2007, p.1

5. In simple terms… • Macrovision has two key segments: • A entertainment technology unit that develops and licenses copy protection and digital rights management technology for CDs, DVDs, pay-per-view/video-on-demand programs, and PC games • A software technology unit provides solutions to help software vendors and end users manage licensing

6. Sources of Revenue MACROVISION CORP, 10-K, Feb. 28, 2007, p.44

7. ET Revenues • Content owners (VHS/DVD/CD) • Per unit royalties based upon # of copy-protected units produced • Cable & Satellite operators (PPV/VOD) • Royalties on digital set top boxes • One-time and annual license fees from manufacturer • Transaction fees from PPV/VOD upon activation • CD-ROM/PC games/P2P • Service-based fee for right to use p2p file sharing content management technologies • Future revenues expected to increase with new contracts and business from Hawkeye, RipGuard DVD, and ActiveMARK products MACROVISION CORP, 10-K, Feb. 28, 2007, p.45

8. Customers Solutions offered to 3 distinct customer groups: • Entertainment and Content Producers and Distributors • Software Publishers • Enterprise End-Users • Customers include major Hollywood studios; independent video producers; game producers and distributors, hardware and software vendors; information publishers; consumer electronic, PC and digital set−top box manufacturers; PPV and VOD network operators; online retailers and portal and enterprise IT organizations MACROVISION CORP, 10-K, Feb. 28, 2007, p.2

9. 1. E&C Producers and Distributors Solutions Continued • PC Games Technology • 1SafeDisc, 2ActiveMARK • 1 unique digital signature designed to prevent pirated copies; if burned, signature won’t be found, decryption won’t take place and copy won’t run • 2 provides ease for digital distribution of game content online • Current network has over 300 partners offering over 1600 games • Enable an entirely new revenue channel with online merchandising and digital distribution of games

10. 1. E&C Producers and Distributors Solutions • Video Technology • Packaged Media Solutions (RipGuard DVD):Protect packaged media (CDs,DVDS,etc.) from being copied without authorization • Motion Pictures generate approx 2/3 of revenue from PM • Majority of MPAA studios use MVSN security technology • Declining dvd sales should be offset by increase in next 2 • PPV/VOD Solutions (ACP-VOD, ACP-WMDRM): used by content owners to control how long PPV/VOD content may be stored on compliant digital units or home media centers • DVR, extremely important to E&C owners b/c of ease of DVD replication • P2P File Sharing Solutions (Hawkeye P2P Anti-Piracy service): Global network solution that allows content owners to prevent illegal file sharing over the internet MACROVISION CORP,10-K, Feb. 28, 2007, p.3

11. 2. Software Publishers • FLEXnet Publisher offered to software publishers and hardware manufacturers • Enables customer to electronically track, enforce, and update their software licenses and guard against unauthorized use by implementing product activation or content security • Simplify product marketing strategies • Reduce unpaid usage and lower costs associates with product development, distribution, and delivery

12. Software as a service • Rights Products (RightAccess1, RightCommerce2): • available to:media, publishing, entertainment, and software companies *helps customer generate revenue and improve customer relationships by controlling and commercializing digital rights and services • 1-access control application providing advanced authentication, authorization, product segmentation, and delegated administration • 2-billing application allows customers to implement a myriad of pricing models *Advantages- put control in hands of business users

13. 3. Enterprise End-Users • FLEXnet Manager captures and analyzes software usage data to help enterprises determine where to allocate their software purchases and related costs • Also helps administer software access rights over global networks • Reputable Brands using MVSN technology: • HBO, NBC, Netflix, TiVO, Microsoft, Disney, Yahoo!, Adobe, Cisco Sytems, IBM, etc

14. “The Business” Industry Background Company Position Risk Factors Firm Strategy and Development Valuation DCF Analysis Recommendation Presentation • RCMP position • Stock Performance • Portfolio “fit”

15. Industry Background • Experiencing unprecedented amount of change • Inexpensive, easy to use in-home copying devices enable consumers to make unauthorized copies of video, audio and software content. • publishers have become more concerned with protecting their intellectual property

16. Company Position • Security solutions are proprietary and have broad U.S. and international patent coverage.The only analog content security solution that has been widely deployed on commercial products. • Currently,video content security technology is embedded in nearly 100% of all DVD players and most digital set-top boxes worldwide. • Take years for the competitive technology to be accepted by hardware manufacturers or embedded into the consumer electronic devices. • Sole player in the market, no comparable companies

17. Risk Factors • Business Risk • Market Risk • Additional Risk

18. Business Risk • Depends on the continued use by major movie studios • Depend on a few key customers for a high percentage • Limited control over customers’ decision to include services • If customers decide to focus on other methods to inhibit piracy, the business would be harmed • Customers try to minimize costs by decreasing their content protection usage.

19. Quantitative and Qualitative Market Risk • Fixed Income Investment • Foreign Currency Exchange Rates • Strategic Investment

20. Additional Risk • Seasonality affect the price of common stock • A significant portion of sales are derive from international sales. • customers decide to focus on other methods to inhibit piracy, the demand for products may decrease and business would be harmed.

21. “The Business” Industry Background Company Position Risk Factors RCMP position Stock Performance Portfolio “fit” Firm Strategy and Development Valuation DCF Analysis Recommendation Presentation

22. RCMP position • Bought 200 share on April 3rd 2000 @ $75.00 • Current price @ 25.25 • Losing $9,944.00, 66.29% of the initial investment

23. Performance • 52wk Range:18.84 - 29.20 • Market Cap:1.32B • P/E (ttm):40.33 • EPS (ttm):0.63

24. Correlation with other stocks Highly correlated with some stocks in portfolio

25. Portfolio Fit The initial purchasing decision is proved to be wrong

26. Current Distribution

27. New Portfolio Fit

28. The new distribution

29. “The Business” Industry Background Company Position Risk Factors RCMP position Stock Performance Portfolio “fit” Firm Strategy and Development Valuation DCF Analysis Recommendation Presentation

30. Firm Strategy and Development • Growth Strategy: • Build upon key customer relationships • Intend to target these customers for delivery of future digital and distribution management technologies • Introduce new product applications and technologies • Expand and Protect Patent Position • Continue to make strategic acquisitions • Next Slide

31. Strategic Acquisitions

32. “The Business” Industry Background Risk Factors Firm Strategy and Development Valuation DCF Analysis Recommendation Presentation • RCMP position • Stock Performance • Portfolio “fit

33. Valuation • Basic Assumptions • Total revenue will increase by 30% in 2007 due to success of newly integrated recent acquisitions and expanded product range, followed by volatile growth in the following years • Net income will continue to grow at very conservative rate • WACC of 11.36%, sustainable growth rate of 5%

34. Valuation DuPont Analysis

35. Valuation Step 1: Free Cash Flow Step 2: WACC • WACC = 11.36%, gterminal = 5% • Also, see sensitivity analysis

36. Valuation Step 3,4,5,6: PV of FCF, and PV of TV

37. Valuation Step 7: Firm Intrinsic Value (Price per share)

38. Valuation Sensitivity Analysis 52 week range: $18.84-$29.20

39. “The Business” Industry Background Company Position Risk Factors RCMP position Stock Performance Portfolio “fit” Firm Strategy and Development Valuation DCF Analysis Recommendation Presentation

40. Reasons Supporting Decision: DCF shows price undervalued in market with conservative assumptions Recent strategic acquisitions and future possibilities really expand product range Strong and experienced management team Growing need for new technologies in future Microsoft Vista, internet gaming, etc Content owners lose $billions per year, continued need for MVSN technology Online industries rapid expansion will create large market for MVSN products and solutionslead to adoption of new technologies Worldwide broadband penetration to reach 364MM households by 20101 MVSN providing customers with easier access to broad variety of distribution hannels RecommendationBuy 300 shares @ Market! 1 Press Release. “Macrovision Announces Online Games Distribution Agreement with Activision.” Business Wire. 7 March 2007 <http://biz.yahoo.com/bw/070307/20070307005278.html?.v=1>.