Virtual Spectator serves up a smorgasbord of new media

By CHRIS BARTON

Virtual who? It's a company virtually unheard of by the public, though its extraordinary technology has been seen by probably the entire country and audiences all over the world.

Remember how the on-screen graphics in the America's Cup TV coverage transformed boring pictures of yachts inching across the waves into a sport that was exciting to watch?

Those 3D animations - first seen on TV, then the internet and now broadened to coverage of other sailing events, golf, cricket, motor rallying and even pop bands - are Virtual Spectator's digital product.

The concept is to take sports' viewers into a virtual world. On TV, the animations enhance the pictures and commentary to tell the background story.

But on the internet it's the other way around. Pictures and commentary add touches of the real world to computer game-like animations to give a multimedia narrative.

In sailing that means tracking yachts with global positioning systems as they traverse the globe. For motor rallying, viewers see all cars simultaneously. With golf, the spectator "flies" over the course, sees the arc of the ball's flight and a bird's-eye view of where it lands. In cricket it's a "3D wagon wheel" of batters' strokes racing past fielders' "player domes". In soccer, a brilliant goal is replayed with the viewer choosing the camera angles.

The 20 and 30-somethings at Virtual Spectator that make this magic happen don't call Lindsay Fergusson old, they call him experienced. But at 61, the chief executive and chairman is the odd one out among the T-shirt-and-jeans set at one of the few surviving New Zealand dotcoms. He says working with people the age of his kids keeps him young.

This home-grown technology is brilliant and groundbreaking, but Virtual Spectator faces the hurdle of all dotcoms - making a profit. Since its formation in April 1999, it has burned through investors' money.

Last year, despite generating $2.4 million in revenue from the America's Cup, the company posted a loss of $3.2 million. In the year ended in March revenue shrank to around $800,000, with a loss of $4.7 million.

But Mr Fergusson isn't worried. This is the nature of the software startup, especially when the internet's involved - high risk promising gold at the end of the rainbow. The company expects to climb into profit in the third quarter of next year. In the process some $15 million will have been invested in a business projected to generate revenue in the "tens of millions".

Mr Fergusson's confidence comes from a belief that the company has diversified into more lucrative markets. The America's Cup, although a hugely successful proving ground for the technology, taught two harsh lessons.

The first was that sailing is a niche sport with not that big an audience. But it showed that fans would pay - a little - for internet content.

Virtual Spectator sold about 60,000 internet subscriptions during the last America's Cup fever, worth $1.2 million last year. Counting multiple users sharing a single subscription, press and other promotional offers, it is estimated around 300,000 fans watched the event via the net.

The second lesson was that big sailing events are few and far between - not great for cashflow.

That has led to a focus on sports with a bigger fan base and more frequent events. Virtual Spectator is adding animations to TV coverage of the World Rally Championship in Britain. In January the first trial of internet coverage begins at Monte Carlo, culminating in a full net-based subscription service for the rally of Cyprus in June. The World Rally has 14 events a year and a fan base of about 40 million, which makes Mr Fergusson much more confident about his numbers.

"Over a five-year period we're aiming for 1 to 2 per cent of those fans to be a profitable business," he says.

That's between 400,000 and 800,000 fans paying $US20-$US30 ($48-$72) to watch the rally via the net - at least $US8 million shared between Virtual Spectator and International Sportsworld Communicators, which owns the rally's TV and commercial rights.

Early next year the company will begin subscription broadcasts of UK band Simply Red via the internet. The service will include virtual concerts from Abbey Road studios and live concerts of the band on tour. The fan base is huge and Virtual Spectator software, as well as being available via the web, gets a new distribution channel - burned into the CD of the band's new album.

Television graphics provide revenue too, through deals with broadcasting giant ABC for coverage of the PGA Tour, and with Sky TV for this season's New Zealand cricket. The company also provides TV graphics and internet coverage of the Volvo Round the World yacht race.

Then there's the big one - soccer. The company has incorporated new optical-tracking technology into its software which defines the position of players on the field using data from up to six optical cameras mounted in a stadium. With that data stream, just as it did with the positional data coming from the America's Cup yachts, Virtual Spectator creates animations of the players moving around the field.

The company is on the verge of signing a revenue-sharing deal with a large UK club which, if successful, will bring another subscription stream - from the 1 to 2 per cent of 50 million-plus soccer fans prepared to pay about £1 a game to watch around 20 home matches via the net.

The opportunity, as Mr Fergusson sees it, is "to build a loyal consumer base for the product".

"The one thing we've learned is that we'll do almost anything to get your email address, so we can personalise what we send you. It's an efficient, effective way of communicating," he says.

For Mr Fergusson, the beauty of software - when its core development is complete - is that it can expand into other uses, providing payback for the huge initial development cost.

With Virtual Spectator that has meant making the product multilingual and incorporating features specific to each sport. In the case of music, it has meant employing the product's interface design and global internet delivery infrastructure to provide streaming audio and video. There's also the prospect of licensing the software to other parties.

As the company's "executive vice-president" of technology, Craig Meek, puts it: "Virtual Spectator is a real smorgasbord of new-media content."

The smorgasbord extends to the staff - a mix of creative graphic designers, software coders and project managers - equipped with latest notebook computers and fast internet access to their homes. Because much of their work is happening in different time zones, they often work in the middle of the night and on weekends.

They travel frequently to set up and manage equipment and data at sports events. Hundred-hour weeks are commonplace.

The same convergence of skills is apparent in the company founders - Mr Fergusson, Mr Meek and Dunedin-based Animation Research managing director Ian Taylor.

They met at the 1995 America's Cup challenge in San Diego. Animation Research was providing graphics for the TV coverage and Mr Meek, at the time with multimedia company Terabyte, was working on a CD-Rom of the Louis Vuitton challenger series and the Cup races.

Mr Fergusson - whose business background includes 26 years at Mobil Oil, managing director stints at Magnum Corporation and New Zealand Steel, and directorships at the Reserve Bank and Forestry Corporation - was a consultant and director at Terabyte.

The marriage began in 1999 of the core software developed by Animation Research with CD-Rom graphics and live positional data from the America's Cup yachts delivered by the internet.

The initial investment was a few hundred thousand dollars of the trio's own money and some from private investors, plus a $300,000 Technology New Zealand grant.

The company rapidly found development costs much more than anticipated. At the end of 1999 new investors arrived - listed company IT Capital and United States venture capital firm Snider Capital - which pumped in $5 million on condition Mr Fergusson put in $1.5 million himself.

Since then those investors have continued to supply funds. IT Capital has a 23 per cent stake; Snider Capital, 19 per cent; and Mr Fergusson, 14 per cent.

In May Animation Research sold the intellectual property of its digital sports business to Virtual Spectator for $4 million - mainly in shares - to secure a 19 per cent stake. Minority shareholders are Mr Meek, with 5 per cent; and One World Sport International, 6 per cent. Fourteen per cent is set aside for staff stock options.

Another round of funding, seeking new investors is under way, but completion has been hampered by the events of September 11.

The New Zealand company has also become a 100 per cent subsidiary of Virtual Spectator Inc - a United States' registered company. Mr Fergusson says the move was made to ease international investor concerns and because American accounting rules are more favourable for venture capital.

Mr Fergusson acknowledges the whole process - from startup to going concern - is taking longer than expected.

"I thought it would take two to three years," he says. "I think it's going to be more like five or six."

But he remains convinced this New Zealand dotcom will succeed.

"In my various jobs, I've always seen what you can do with bright, incredibly talented people.

"When I first saw what they were doing, I knew it would work."

But he admits, as someone who had never used a computer until the age of 51 and who now works among young, highly computer-literate staff, he has worked hard to lift his game to their level. How's the experienced one doing?

"The one thing I can beat Meek and Taylor at is an Excel spreadsheet," he says.