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The Dealmakers - Terence O'Hara

IBiquity Digital's Make-or-Break Point Approaches

By Terence O'Hara
Monday, February 28, 2005; Page E01

It has been seven years since the first significant venture money poured into iBiquity Digital Corp. and nearly 15 years since the company's founding. For private equity investors, that's an eternity to wait for a payoff.

IBiquity is about to demonstrate whether it's been worth the wait.

Chief executive Robert J. Struble is working to make iBiquity's digital radio technology the broadcast industry's standard. (Andrea Bruce Woodall -- The Washington Post)

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The Columbia company, which developed and controls the technology for high-quality digital radio broadcasts and receivers, recently raised what is likely to be its last venture capital. It will spend the $20 million mostly on the marketing and sales effort required to license and deliver its technology to major consumer product makers and broadcasters that have promised to make it widely available in the coming year.

Barring a widespread rejection of the technology by consumers, iBiquity by this time next year will finally be drawing in some real revenue after 15 years of spending the money of investors that have pumped in more than $135 million in corporate and independent venture capital. That doesn't include the millions spent on the technology's early development by Lucent Technologies Inc., Westinghouse Electric Corp. and other big electronics companies that gave birth to digital radio technology in the late 1980s and early 1990s.

When you consider that the "investment horizon" of most venture capitalists for cashing out of a given investment is five years, at the maximum, iBiquity has required more than the usual amount of patience.

"If we had this conversation seven years ago and you were to tell me that in 2004 this company would still be private and raising funds, I'd probably have keeled over," said Thomas Uhlman, a managing partner at iBiquity's largest shareholder, New Venture Partners LLC.

Uhlman is a former Lucent Technologies executive who was there when the company created Lucent Digital Radio, one of iBiquity's two predecessors. Lucent Digital Radio merged with USA Digital Radio in 2000, creating iBiquity. New Venture Partners was Lucent's venture capital arm until it was spun off the New Jersey technology company in 2001, taking its investment in iBiquity with it.

"Looking back on it, it's not a surprise that it took this long, but you always wish it were shorter," Uhlman said. "It's been a lot of heavy lifting."

Most of the heavy lifting involved convincing the radio broadcasting industry to adopt iBiquity's digital radio technology as the industry standard. The last boost came in early January, when 21 of the biggest radio broadcasters committed to accelerate the rollout of digital to 2,000 AM and FM stations covering nearly every metropolitan area in the country. Before that, only 500 stations had committed.

Digital radio, or HD radio, as iBiquity prefers to call it, is the same basic conversion from analog to digital that has been occurring across a wide variety of consumer media, from cable TV to MP3 players to digital cameras. An HD radio (you'll have to buy one special) receiving a digital radio broadcast gets better reception and richer sound, and stations can send out extras such as text describing songs. . Once you buy the receiver, the service is free, like regular broadcast radio, although the technology could be used to sell subscription services.

IBiquity is, in essence, an intellectual property company. It owns the patents on all the technology used, from the chips installed in the receivers to the software and gear used by broadcasters to transmit the signal. Makers of HD radios will pay a royalty for every unit sold, and broadcasters will pay iBiquity licensing fees for software and hardware. The company has 80 employees -- 40 in Columbia doing mostly business development and refining the broadcasting technology and 40 in New Jersey working mostly on developing the chips used in the receivers.

Patrick M. Walsh, iBiquity's chief financial officer, said the company had $4 million in revenue in 2004. Much of that revenue came from two of HD radio's main competitive threats -- satellite radio companies Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc., which license iBiquity's technology for their own all-digital signals. Walsh said revenue should double year-over-year this year and next, and "grow much faster thereafter." The company will begin to hire more people, as well.

"If you looked at us five years ago, you'd have seen a lot of engineers working on things," Walsh said. "Now you'll see a lot more business development and sales professionals. We're working on getting retailers and car makers on board, and spending a lot of time in Asia."

In other words, a company bent on making money rather than spending it.

Uhlman said his current investment horizon, from this point on, is three years. That would mean iBiquity would be bought out or go public before 2009. If the IPO market remains welcoming, it could come a lot sooner.

Terence O'Hara's e-mail is oharat@washpost.com.

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