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HIVE EXCLUSIVE: VM Labs Suffers Layoffs as it Moves to Open Platform

19 Oct, 2001 By: David Ward

VM Labs laid off 45% of its formerly 100-person staff in recent weeks and is moving to open up the Nuon platform to all developers in the hope of spurring content development for Nuon-enhanced DVD players, company executives say.

VM Labs chairman and c.e.o. Richard Miller confirmed the layoffs, saying, “Like many companies in the semiconductor business, times are very difficult. This is a really challenging time for everyone and we have had cut backs to reduce our expenses and to accelerate the point at which we become profitable. We have not been profitable to date but hope to be profitable in the not-too-distant future.”

Miller indicated the bulk of the cutbacks were in sales and marketing, but did say the privately held Mountain View, Calif., company also cut back on first-party publishing operations, including Bill Rehbock, v.p. of third-party development.

Former Columbia TriStar Home Video executive Paul Culberg remains with the company as executive v.p. and says he is continuing to court studios to get them the add Nuon-specific content and features to their DVD movie discs. Culberg and Miller insist Hollywood continues to show interest in Nuon, pointing to upcoming releases of Twentieth Century Fox Home Entertainment's Dr. Doolittle 2 and The Planet of the Apes and MGM Home Entertainment's special edition rerelease of the cult classic The Adventures of Buckaroo Banzai Across the Eighth Dimension. The only other Nuon-enhanced title is Fox's Bedazzled, released last spring.

Even as it looks for additional financing, VM Labs is also evolving from a technology licensor to a MPG2 movie processor manufacturer. “We had licensed our processor to Motorola,” Miller says. “But the latest generation of our processor — which has significant advantages over prior generations in terms of performance and cost of integration — is now shipping in mass production and we're selling that directly ourselves.” He adds the new processor will be backward compatible with the current generation of chips.

VM Labs has the support of Toshiba and Samsung, both of which have brought out DVD players in the U.S. market with Nuon features that include zoom, smooth scanning as well as the ability to play Nuon-specific video games and other interactive content. From its launch last year through August 2001, about 20,000 Nuon enhanced DVD players have been sold at retail, according to retail sales tracking group NPD Intelect.

Miller explains the company's decision to move to an open platform as one that will dramatically expand the library of Nuon-enhanced content. “We'll be offering a wide range of support services including software development tools, hardware development systems, technical support, maintenance, capatability testing and so forth to third parties,” Miller adds, “At the same time we believe that VM Labs will be one of the premier publishers for content for the Nuon platform and we'll continue to build a business out of that.”

VM Labs had retained Greenwich, Conn.-based financial firm Wit Soundview to raise $40 million to $50 million in additional capital. While those efforts have yet to succeed, Miller says, “Wit Soundview are financial advisors to VM Labs and are assisting us in our financing and strategies.” As for the future of the company, Miller will not comment on whether his company is actively seeking a buyer. But he adds, “We have a very attractive piece of technology in a rapidly growing market and Nuon... is not going to go away.”

Working in Nuon's favor is the fact that the company's technology offers various kinds of features that have proven popular with consumers, says Tom Adams of Adams Media Research in Carmel Valley, Calif. Still, many discs on the market contain features that can be accessed without dedicated chips such as Nuon — and thus don't face the same hurdles that Nuon faces.

VM Lab's biggest challenge, he says, is getting its chips into more players — and the increasingly competitive environment may help Nuon do just that.

"The way hardware sales are booming and competition is getting fiercer suggests there's a role for companies that provide differentiating capabilities for hardware vendors to capitalize on," Adams says.

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