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Making their case

Kaleidescape offers dealers support during new economic reality

Kaleidescape is one of the pioneers in the media server category, having set an early benchmark in 2003 for how elegant and intuitive a “media search” user interface could be. The following year, the company was sued by

“Kaleidescape is focused on helping our dealers make this transition and helping them to find and secure retrofit opportunities.” —Michael Malcolm, CEO, Kaleidescape the DVD Copy Control Association, the consortium behind DVD technology, in an attempt to stop the company from allowing its customers to rip, store, and stream video from DVD sources. The case is considered by some to be an important test of fair use precedent, given advancements in technology and the digital media rights field. Company co-founder and CEO Michael Malcolm recently responded to questions about that case and discussed what his company is doing to help support dealers during difficult economic times.

What is the status of the legal issue(s) for Kaleidescape, and how has the industry responded?
Kaleidescape won the breach of contract case brought by DVD CCA in March of 2007. Subsequently the DVD CCA appealed the case, and that appeal is still pending. The appeal has been fully briefed, and we are waiting for the court to schedule oral arguments. There was a lot of interest among the press, our dealers, and customers at the time of the court case. Our victory was well received. Since then it has become a non-issue.

How have you seen the category evolve in the past five years, and what do you think are the next trends in this product category?
I think the concept of an appliance-like home entertainment server has become much better understood in the custom installation industry, but it is still largely unknown among potential end users. The evolution has been toward higher quality video, additional content sources, better reliability, easier installation, and greater simplicity. Simplicity and ease-ofuse will be the most important trends in the future, because people don’t have the time or the patience to learn complicated user interfaces.

Have many Kaleidescape dealers been affected by the economic contraction? If so, what kind of support do you offer?
All of our dealers have been affected by the economy. Some have gone out of business. Some acquisitions and consolidation have taken place.

Kaleidescape is offering dealers “Puppy Dogs” which are small Kaleidescape Systems preloaded with great content that the company loans to end users to get them hooked on the technology Many dealers are having trouble collecting from their customers, and some are having trouble paying their own bills. The biggest problem is that over the past five years the dealers in this market focused more and more on new homes. Their business evolved to serve the new-home market. Now, there are still a lot of homes being finished up, but very few are in the pipeline.

Most dealers will be forced to deal with this new reality in the first half of 2009. Most of our dealers will re-focus on remodels and other types of retrofit sales. The average job size will be smaller, so dealers will need to find a lot more jobs to avoid a significant contraction in revenue. Kaleidescape, in turn, is focused on helping our dealers make this transition and helping them to find and secure retrofit opportunities. Kaleidescape’s new Puppy Dog Program has been well received by our dealers because it gives them a foot in the door to such opportunities. A Puppy Dog is a small Kaleidescape System preloaded with some great content that Kaleidescape loans to end users that are identified by our dealers. The end user gets to live with a Kaleidescape System for a long weekend. Then the dealer takes it back. Just like a puppy, the Kaleidescape System usually finds a new owner this way.

Are you looking to build brand awareness among end users?
Kaleidescape already has good brand awareness among end users in some markets, and we plan to build a lot more brand awareness among end users in the future. People who use the Kaleidescape System remember the brand because Kaleidescape provides the user interface to their entertainment system. This is in contrast to speakers, amplifiers, display devices, etc. A significant percentage of our sales occur because the customer contacts a dealer and asks for a Kaleidescape System.