How a Galway firm secured Hollywood’s digital future

6 Nov 2008

A Galway tech firm which has struck lucrative deals with a number of Hollywood studios, as well as major tech firms like Microsoft, Samsung and Toshiba, has warned that, with private equity drying up, the Irish Government may need to step in to help seed start-ups into the future.

The company’s chief executive warned that with investment from private equity markets shrinking, and banks having closed as an avenue for funding, the next generation of entrepreneurs Ireland badly needs may not be forthcoming.

Portomedia, an enterprising technology company that hasn’t yet taken on any venture capital, will in the early new year begin distribution of thousands of DVD titles onto specially manufactured USB-key style devices in various retail outlets, initially on the west coast of the US.

The company has struck major deals with a US telecoms firm and a major media retailer, and is now focused on its go-to-market strategy.

The company’s chief executive, Chris Armstrong, was a guest speaker at an Atlantic Corridor conference in Tullamore, sponsored and supported by Discover Science & Engineering, Athlone Institute of Technology, Killeshal Concrete, IDA Ireland and Wellwood Healthcare.

Armstrong said that ahead of its US breakthrough, economic conditions have meant that Portomedia will have to make a number of critical choices; either to enter a trade alliance, or raise capital to rapidly expand and exploit the market opportunity.

“This decision will depend on new equity and funds. The normal route would have been the bank, but unfortunately it has its hands full, to say the least. Even when you look at venture capitalists, they are risk averse.

“We will also be looking at the shareholders who have supported us and have seen their risk mitigated by the deals we have struck. Luckily, there are people out there who didn’t bet it all on property.”

Portomedia’s USB-key device will be served by terminals housed in retail outlets such as entertainment stores, filling stations and coffee shops, and these will contain between 5,000 and 10,000 movie titles.

Each title is encrypted, and as a blockbuster movie leaves cinema distribution, it is fed into Portomedia’s system.

When a user goes into a store, they insert the USB device into the vending machine, enter a PIN number and choose what title they want. Once they get home, they plug the USB into a dongle device attached to their TV, PC or games console, and enjoy the movie.

“In the changing marketplace, retailers need a reason to sell extra products. Movie studios want more distribution outlets and consumers in a downturn want to spend more time at home,” Armstrong explained.

“I think the evidence so far is that, in terms of movies, rentals and sales go up during the poorer economic times.”

The USB-key device developed by Portomedia comes with two heads that can be inserted into a vending machine, and after paying by credit card or cash, a standard-resolution movie can be downloaded in less than 20 seconds and a high-definition movie within 60 seconds.

Samsung has provided the NAND Flash memory for the device, Toshiba is manufacturing the controller chip and Microsoft will create the digital rights

management (DRM) licensing software.

At the moment, getting this technology to market, along with Portomedia’s major blue-chip partners, is a priority for Armstrong. It is no easy undertaking, and raising the funding to do so has opened his eyes to critical problems that will impede the march of Irish entrepreneurs going forward.

“Despite all the doom and gloom you hear about, there are huge opportunities to grasp,” Armstrong said.

He also believes the Irish Government should be doing more to help early stage companies and get them seeded.

“Venture capital has dried up, private equity has dried up, the banks are looking to the State to bail them out. If Government doesn’t help to seed start-ups, then all start-ups will be heading over the cliff.

“The next generation of entrepreneurs this country so dearly needs is under water with negative equity. There’s no hope for them, unless we restructure the market for access to capital, and have a different way of funding start-ups,” Armstrong warned.

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years