BusiNEss PLAN
`
`FOR
`
`DIGITAL SIGHTISouNn, INc.
`
`PRESENTED To:
`
`lltis Business
`Titis business plan ("Business Plan") is Ute confidential proprietnry infonnation of Digital SightJSoWtd, Inc.
`Plan is delivered to the individual or entity identified on the cover pnge ("Recipient") solely for the purpose of enabhng the
`Recipient (and advisors of Recipient) to evaluate this Business Plan and to determine whether or not to pursue investment
`discussions \\ith Digital SightJSoWtd. Dy accepting delivery of Utis Business Plan, the Recipient (for itself and its advisors)
`agrees with Digital Sight/Sound, Inc. that the Recipient (ami advisors of ihe Recipient) \\ill not disclose or usc all, or nny
`portion Qf, this Business Plan except for the purpose of making such evaluation and determination. Should the Recipient
`choose not to pursue investment discussions with Digital Sight/Sound, Inc., the Recipient \\ill retum (w1d \\ill CDUse each of
`Recipient's advisors to return) this Business Plan wtd all copies thereof to Digital Sight/SoWtd, Inc. upon request.
`
`The in.fonnation contained in this Business Plw1 is to serve as a basis of discussion only. Estimates, projections, forecasts,
`assumptions, etc., contained within this Business Plan are believed to be as accurate and reliable as possible, however, no
`guarantee to their validity is expressed or implied.
`
`THIS BUSINESS PLAN DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF
`AN OFFER TO BUY, ANY SECURITIES. THIS BUSINESS PLAN IS BEING PROVIDED TO THE
`RECIPIENT TO ENABLE DIGITAL SIGHT/SOUND, INC. TO OBTAIN INDICATIONS OF INTEREST
`TO BE USED IN PREPARING POSSIBLE SUBSEQUENT OFFERING DOCUMENTATION. ANY
`OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES WILL ONLY BE
`MADE BY SUCH POSSIBLE SUBSEQUENT OFFERING DOCUMENTATION.
`
`HlGHLY CONFIDENTIAL
`ATTORNEYS' EYES O~L':
`FiNANCIAL INFOI~MA flO•~
`
`98-0118
`000447A
`
`CO:\'FIDE!\TIAL
`Pursuant to ProtcctJ\'t: Order
`SJt-htsound.corn \. '!\2K C!Y. 9~ 4011 ~
`
`Confidential
`
`SST-025004
`
`Apple Exhibit 4161
`Apple v. SightSound Technologies
`CBM2013-00020
`Page 00001
`
`

`

`TABLE OF CoNTENTS
`
`L
`
`IL
`
`EXECUTIVE SUMMARY
`Mission Statement
`Enabling Technology
`Entertainment Industry
`Product Line
`Required Capitalization
`
`COMPANY HISTORY
`Patented Technology
`Corporate Fonnation
`
`llL mE BUSINESS
`Core Business
`Virtual Video & Record Store
`Music Distribution Rights
`Market Penetration Strategy
`Advertising & Exposure
`
`IV.
`
`v.
`
`VI.
`
`THE COMPETITION
`Inefficient Distribution Model
`Lack of Action
`Competitive Advantage
`
`THE INTERNET
`Initial Purpose of the Internet
`Creation of the Internet
`The World Wide Web
`Credit Card Transitions on tltc Internet
`
`TilE rtv.HOME NETWORK
`ihe Business
`The Technology
`The Market
`Investors in the @Home Network
`Benefit to Digital Sight/Sound
`
`VlL
`
`VIRTUAL VIDEO & RECORD STORE
`Operations
`Customers and their Equipment
`Ease of Electronic Purchase
`Credit Card Payment
`
`page 1
`
`page 2
`
`page J
`
`page 4
`
`pageS
`
`page 6
`
`page 7
`
`HIGHLY CONFIDENTIAL
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`98-0118
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`Confidential
`
`SST-025005
`
`Page 00002
`
`

`

`TABLE OF CoNTENTS
`[continued)
`
`vm.
`
`IX.
`
`X.
`
`XL
`
`ENTERTAINMENT OPERATING SYSTEM
`Swnmary
`Browser Add-On
`Addressability
`Encryption
`Digital Compression
`Player Functions
`Rapid Play
`User Configuration
`
`MARKET ANALYSIS
`U.S. Home Video Market
`U.S. Recorded Music Market
`U.S. Home Computer Market
`
`STRUCTURE OF DIGITAL SIGHT/SOUND
`Owners & Board of Directors
`Officers & Employees
`Outside Advisors
`
`BIOGRAPHIES
`Arl11Ur R. Hair
`Scott C. Sander
`AnselM. Schwartz., Esq.
`Dennis Unkovic, Esq.
`Grant M. Wirth
`
`page 8
`
`page 9
`
`page 10
`
`page 11
`
`EXHIBITS
`"A"- Milestone Events
`"B" - Seven Year Financial Projections
`"C" - Start-Up Capital Source/Use of Funds
`"D" - Digital Sight/Sound's Internet Web Site
`"E" -The @Home Network
`"F" -'Future Shocks: The End of the Music Business As We Know It'
`"G"- 'Why the Internet Chews Up Business Models'
`"H"- United States Patent 5,191,573
`"I" -Tenus for Investment in Digital Sight/Sound, Inc.
`
`HIGHLY CONFIDENTIAL
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`Confidential
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`SST-025006
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`Page 00003
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`

`

`I. ExEcuTIVE SUMMARY
`
`Mission Statement -Foster an intimate relationship between artist and audience through technology.
`
`Eaablin& Tec:baolozy - Digital Sight/Sound, Inc. was established on August 1, 1995, for the purpose of
`electronically selling digital video [movies] and digital audio [albwns] recordings via the Internet. Digilal
`Sighl/Sound currently operates a virtual video & record store connected to the Internet which required Digital
`Sighl/Sound to license technology owned by Parsec Sight/Sound, Inc. ["Parsec"). The technology owned by Parsec
`is centered around United States Patent 5,191,573 ["Patent", see Exhibit "H"] which protects a method whereby
`digital video and digital audio recordings can be electronically sold via telecommunications lines. Digital
`Sight/Sound is the exclusive licensee of the technology protected by the Patent for use on the Internet.
`Commencing in April 1996, Digital Sight/Sound will connect to the @Home Network [see Section VI) to take
`advantage of their 10 Megabit per second service to residential customers.
`
`Entertainment Industry - Digital Sight/Sound will initially concentrate efforts on penetrating the $9 billion
`recorded music market [see Section XI) through the electronic sale of digital albwns. In early 1997, and once the
`customer base possessing adequate computer storage memory reaches adequate levels, Digital Sight/Sound will
`focus efforts on penetrating the $17 billion recorded video market [see Section IX] through the electronic sale of
`digital videos.
`
`Product Line- Digital Sight/Sound directly represents one band [The Gathering Field) and expects to represent
`ot11er "up and corning•, which have not yet contracted with a traditional recording label, for electronic sales via the
`Internet (see Section V]. Digital Sight/Sound will seck out and sign these previously unsigned bands for the
`express purpose of selling tl1eir music electronically via the Internet. Digital Sight/Sound will approach
`"unsigned" bands via global advertising on the Web Site, trade magazine advertising, and direct solicitation of
`managers and agents. With only one copy of the band's digital recording [either CD or DA T], Digilal Sight/Sound
`can sell an infinite nwnber of electronic copies of that recording, world wide via Digital Sight/Sound's virtual
`record store on the Internet. Addilionally, Digital Sight/Sound plans to negotiate electronic distribution
`agreements with record labels and other o"ners of "content" to increase the "library" of products offered, and
`conuncncing in 1997, Digital Sight/Sow1d plans to offer digital videos as well.
`
`Required Capitalization - Digital Sighl/Sound requires $700,000 of equity financing [see Exhibit "C"] to fund
`the company's immediate expansion necessary to commence operations on April 1, 1996, on the @Home Network
`[see Section VI]. Shortly there after, Digital Sight/Sound will seek an additional $4 million of equity financing
`required to grow U1e company to a level which will support an lnilial Public Offering of stock in early 1998.
`
`Page I of 12
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`Page 00004
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`

`

`II. CoMPANY HisToRY
`
`In the mid 1980s, Arthur R. Hair conceived an new method to electronically sell and
`Patented Tedloology -
`distribute movies and music in digital form. On March 2, 1993, Mr. Hair received United States Patent 5,191,573
`["Patent"] protecting a method to sell digital video recordings [movies] and digital audio recordings (digitized
`twisted pair, fiber optic, coax cable TV,
`albums] over telecommunications lines (such as, but not limited to:
`cellular, radio, satellite, etc.]. More specifically, and without limitation, Mr. Hair's patent protects the electronic
`sale and transmission of digital video and digital audio recordings over telecommunications lines and
`corresponding charges (i.e. to a telephone bill, credit card, or other billing means] for the purchase or rental of the
`digital recordings (see Exhibit "H"]. Mr. Hair assigned the Patent to Parsec Sight/Sound, Inc. which is jointly
`owned by Mr. Hair and Mr. Scott C. Sander.
`
`UNITED STATES PATENT 5,191,573
`"MrnloD Fo11 TIIA.NsMrrnNo A Dr.suu:o D10rr.u. VID&O O~~.AuoJo S1oN.u. 11
`
`Corvo rate Formation - Messrs. Hair and Sander, sharing a vision to foster an intimate relationship between
`artist and audience through technology, established Digital Sight/Sound, Inc. on August I, 1995. Parsec
`Sight/Sound, Inc. exclusively licensed the technology protected by tl1e Patent to Digital Sight/Sound for use on the
`Internet. Digital Sight/Sound then set out to obtain exclusive audio distribution licenses with artists and on August
`18, 1995, signed The Gathering Field. Shortly thereafter, on September 27, 1995, Digital Sight/Sound became tl1e
`first con~pany to post an digitized album for sale on tl1e Internet. Digital Sight/Sound is now preparing to advance
`the company with a connection to the @Home Network [see Section VI].
`
`Page 2 of 12
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`S1ghtsound.com \', N2K Cl\·. %-011 !-
`
`Confidential
`
`SST-025008
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`Page 00005
`
`

`

`III. THE BusiNEss
`
`Core BuBineJJ - Tile Digital Sight/Sound mission is to foster an intimate relationship between arlist and
`audience through technology. Supporting this mission, Digital Sight/Sound's core business is the operation of a
`virtual video & record store and tlte acquisition distribution rights for music and movies. Digital Sight/Sound is
`actively engaged in the business of electronically selling Digital Audio Music over the Internet and intends to
`engage in the business of electronically selling Digital Videos via the Internet as well, commencing in 1997.
`
`Virtual Video & ~ord Store - The Digital Sight/Sound virtual video & record store is currently operated on
`an Internet Web Site with a moderate bandwidth direct connection ( 1.544 Megabit per second] to the Internet, and
`will be transferred to tlte massive bandwidth of the @Horne Network in April 1996. Three key components are
`essential for the financial success of Digital Sight/Sound:
`I] massive bandwidth, 2) robust digital compression.
`and 3] substantial hard memory possessed by the customer. First, bandwidth [the speed which digital information
`flows] to the customer must be robusl. The 10 Megabit per second service offered by the @Home Network is more
`than adequate [see Section VI]. Utilizing this massive bandwidth, Digital Sight/Sound will be able to offer a
`dramatically more impressive Web Site with a richer visual presentation. Second, a robust digital compression
`algoritluu such as HARC·C, a product recently announced by the Houston Advanced Research Center. HARC·C
`compresses digital audio recordings at a 6: I compression ratio, and such a product is essential to reduce
`transmission tinleS and to decrease the customer's hard memory requirements. Third, and in addition to robust
`digital compression, the customer will be required to possess much more computer hard memory than was
`customary in 1995. Using a robust digital compression algorithm, the customer will be able to store SS digitized
`albums on only 6 Gigabytes of hard memory. Historically, major corporations and government agencies
`constituted the market for such massive hard memory requirements. Prices for hard memory in general have
`consistently dropped over tl1e past decade, and the recent surge of demand for multi-Gigabyte hard memory devices
`by small business and residential computer owners will further accelerate the price reduction of hard memory.
`
`Music Distribution Rights - Concentrating on tl1e electronic sale of recorded music, Digital Sight/Sound
`currently represents one band (The Gathering Field] and expects to represent other "up and coming" bands on tl1e
`Internet which have not yet contracted with a traditional recording label. Digital Sight/Sound plans to have
`secured rights to distribute at least 25 digitized albUJns, targeted to the demographics of tl1e early adopter, for sale
`by Aprill996, when tl1e Digital Sight/Sound Web Site is transferred to the @Home Network. Digital Sight/Sound
`will approach "unsigned" bands via global advenising on the Web Site, trade magazine advenising, and direct
`solicitation of managers and agents. Digital Sight/Sound plans to ofTer anists favorable royalty percentages as
`compared with traditional record labels since Digital Sight/Sound does not incur manufacturing, production.
`distribution or overhead costs equivalent to those incurred in the conyentional record label. With only one copy of
`the band's digital recording [either CD or DATJ, Digital Sight/Sound can sell an infinite number of electronic
`copies ofJhat recording, world wide via Digital Sight/Sound's vinual record store on the Internet.
`
`Market Penetration Strategy - Digital Sight/Sound is currently negotiating audio distribution licenses with
`other "unsigned" bands. When the library of music reaches an appropriate level, Digital Sight/Sound will target
`small record labels for inclusion in the Digital Sight/Sound library. Building on this strategy, and once a critical
`mass has been achieved, Digital Sight/Sound will target major performing artists who have the flexibility to "break
`ranks" and post their music for sale on the Digital Sight/Sound Web Sile. Once this newly formed electronic
`market has evolved beyond infancy, Digital Sight/Sound will target the "big six" record labels for inclusion in the
`Digital Sighl!Sound music library.
`
`A1henising & Exposure - Digital Sight/Sound has already obtained "profile" or visibility for its Web site by
`establishing reciprocal hyperlinks of the site wilh other high traffic sites on the Internet (such as the Silicon
`Graphics homepagc at h11p:ll1t1vw.sgi.com), as well as registering the sile with on-line search engines such as
`Yahoo and Lycos. Additioually, Digital Sighl!Sound will receive additional exposure when the @Home Network
`is nctivatcd. Digital Sight/Sound iutcnds to expand its Web site "profile" on the Internet as _widely and as rapidly
`as possible.
`
`Page 3 or 12
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`Confidential
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`Page 00006
`
`

`

`IV. THE CoMPETITION
`
`I.Deffic:ieot Distributioa Model - Digital Sight/Sound's objective is to position itself in the newly emerging
`Internet market by signing as many recording artists in as broad a spectrum of music as is possible before potential
`competitors enter the market. Notwithstanding Digital Sight/Sound's exclusive rights to patented technology, it is
`likely that the traditional "big six" record labels (Sony Music Entertainment, Warner Music Group, PolyGram
`Records, EMI Music, MCA Music, and Bertlesman Music Group) are, or will be, hampered in participating in this
`emerging m.uket for the distribution and sale of digitized music over the Internet by an oveniding desire to protect
`the existing physical disUibution infrastructure and their relationships with existing retail outlets.
`
`Lac:k of Actiou - Taking advantage of the lack of action by the "big six", Digital Sight/Sound's specific strategy
`is to assume a dominant position in this emerging market by quickly developing interest in, and a demand for, this
`Immediate and effective marketing of the products distributed by Digital Sight/Sound
`electronic marketplace.
`among Ute sophisticated, but currently limited, audience on the @Home Network of the Internet who have, or will
`acquire, adequate memory storage capacity should create "brand identity" for Digital Sight/Sound.
`
`ln the traditional distribution model, a recording label signs artists to exclusive
`Competitive Advantage -
`disUibution arrangements, and enters into contracts with manufacturers for the production of the artists' recordings
`on a physical mediwn, such as compact disks. ("CDs") or cassette tapes, and agreements with disUibutors (such as
`Sam Goody or Tower Records) for Ute retail sale of such products. Digital Sight/Sound's Internet based
`disUibution model gives Digital Sight/Sound two primary competitive advantages over the traditional distribution
`model. First, Digital Sight/Sound's products will have a lower retail cost to the customer. The average retail price
`of a CD today is between approximately $15.98 and $16.98. Of this amount, approximately $2.00 to $3.00 is used
`to pay royallies and copyright fees to the recording artists. The remainder is used with the exception of
`approximately $1.30 for marketing costs, to cover the costs of physical manufacture, production, disUibution,
`overhead and profit. By contrast, Digital Sight/Sound currently offers its initial product, a full album by The
`Gathering Field, and intends to offer additional products, for $6.00 on-line through the Digital Sight/Sound virtual
`video & record store. Other than approximately $1.00 which Digital Sight/Sound estimates will be paid as
`royalties to the recording artists, the remaining proceeds will be retained by Digital Sight/Sound. Second, Digital
`Sight/Sound will have a distinct service advantage over the traditional distribution model by virtue of the fact that
`Digital Sight/Sound products will be available for purchase and "downloading" 24 hours a day to a world wide
`market.
`'
`
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`Page 00007
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`

`

`v. THE INTERNET
`
`Initial Purpose of the Internet- The Internet owes its existence to the PeniJigon and the Cold War. lf an atomic
`war were to break out, telephones would be the first victim. So, the U.S. Government wanted to bomb-proof the
`communications linking the U.S. Government with: institutions performing defense research, defense contractors,
`In 1964, the concept of a center-less network was developed by the Rand
`and other defense related entities.
`Corporation. This would mean that no single computer would be the weak link that could be destroyed by a well
`placed bomb. The government "Ul.ink IJink" anticipated hundreds and eventually thousands of computers
`coMected in parallel with plenty of communication-line redundancy built in, the way Ute human brain is wired, so
`that the loss of a few key "neurons• would not result in the loss of key bodily functions.
`
`Creation or the Internet - The result was called ARPAnet after the Pentagon's Advanced Research Projects
`Agency, the sponsor of Ute project ARPAnet came into existence in the late 1960s and since its inception, the
`Internet has grown from four to over 16,000 interconnected networks. ~ the number of universities and other
`organizations on the original ARPAnct increased, it became clear that making communication easier between
`colleagues around the country had benefits that went well beyond facilitation military research. In 1985, with the
`goal of coMecting five supercomputer sites around Ute country, the National Science Foundation [NSF] created
`regional networks using TCPIIP protocols from the AP.P.Anet. In 1989, the ARPAnet was decommissioned. The
`greatest measure of the stability of the Internet lies in the fact that when the ARPAnet was shut down, Internet
`users didn't even notice. Conversely, with the proliferation of free enterprise on the Internet, level of service has
`increased and Ute number of Internet users began to grow and is still growing today- at a rate of 20% per month
`by many estimates.
`
`The World Wide Web -
`In 1992, the Swiss high-energy physics research organization, CERN, unveiled the
`World Wide Web [user friendly feature of the Internet], with its support for fonts, graphics, sounds, and video.
`The result on Ute World Wide Web was to make the Internet user friendly and Web browsers such as NCSA
`Moasic were created to further assist the "computer illiterate" in their ventures within the Internet. The 1993
`release of U1is first Web browser, NCSA Mosaic rocketed the rapid gro"1h of the Internet. The World Wide Web
`is a menu system which gathers lntcmct resources from all over the world into a series of menu pages, or screens
`for graphical view by the user. The World Wide Web is also a distributed system which stores data and
`information on many computers. The World Wide Web server maintains pointers or links to d.1ta that is spread
`out over Ute entire Internet, and can go out and retrieve data upon user request. Currenlly, wilh the innovations
`provided by Netscape and Silicon Graphics, new standards and file formats arc being added, bringing the World
`Wide Web to a true "media-rich" environment.
`
`Crellil Carll Transactions on the Internet - At this time, Digital Sight/Sound uses products produced by
`Netscapc. which in turn utilizes encryption algorithms licensed by RSA Data Security. In the fall of 1995, two
`UC-Berkelcy students posted a message to lhc Internet detailing their successful ciTorts to reverse engineer some
`security capabilities of the popular Netscape Navigator. Their eiTorts revealed how the program generates session
`encryption keys, enabling them to replicate these keys with a moderate amount of computing power and decipher
`messages sent across the Internet. TI1e potential vulnerability was confirmed by Netscape engineers and developed
`a "patch". Netscapc strongly recommended that U1eir customers take adequate precautions by gelling a
`replacement DigitallD and install Ute Netscape issued "patch". Netscape addressed the vulnerability by increasing
`the amount of random information used to generate keys that cannot be discovered by external sources.
`In
`addition. the random infonnation is more difficult to replicate because they greatly expanded the techniques and
`sources used to generate the random informntion. According to Netscape. their solutions were review by an
`external group of world class security experts. These experts validated Nctscape's solution and ensured it's
`completeness and eiTectiveness in solving the previous vulnembilily. Netscape announced that they will usc the
`group on an ongoing basis to work with Netscape's internal security experts to review the design and
`implementntion of security in Nctscnpc's products and to provide an ndditional measure of assurance that their
`products implement the highest levels of security possible.
`
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`

`

`VI. THE @HoME NE1WORK
`
`The Busiuea- The @Home Network was est.ablished to provide high-speed dat.a services to homes, business and
`schools via hybrid fiber coaxial [HFC) technology to personal computers, HFC technology delivers both cable
`television signals and dat.a over a combined fiber-optic and coaxial infrastructure. This service represents an
`overwhelming improvement over CWTCnt dial-up modem speeds and makes rich graphics, audio and video feasible
`through very rapid system response times. Priced at only $29.95 per month, deployment of the @Home Network
`service will begin in April 1996, to TCI cable TV customers in Sunnyvale, California and continue in select
`national markets.
`
`The Technology - The @Home Network will operate its own global network infrastructure that connects to the
`Internet at multiple locations. TI1is backbone will connect infonnation providers to regional data centers via a
`multi-Megnbit, switched data system. These regional dat.a centers will be connected to local hubs, which in tum
`transpon data to end users. The service will offer users connection spccd.s of 10 million bits per second, or more, a
`significant improvement over current dial-up modem speeds by more than 500 times, and more than 50 times
`faster than current ISDN connections. TI1e network pipe itself is two-way hybrid fiber-optic/coaxial cable
`configured in an asymmetrical scheme. Dat.a is carried downstream to l11e user over a broadband channel, while a
`lower bandwidth return pall1 carries commands and responses upstream. The @Home Network is based on a
`distributed model that will connect users to multiple sources of content, and is designed to insure security and
`reliability. The network's use of caching and·replicating optimizes dat.a now on the system's backbone and offers
`users a full multimedia environment. The only equipment requirements for the user of the @Home Network will
`be a PC or Macintosh with an Ethernet connection. TI1e software required will be provided by the @Home
`Network to the user and will include an Internet browser, e-mail software, and TCP/IP stack. A high-speed cable
`modem will be installed by the cable TV opcrntor.
`
`The Market - The on-line services industry ns a whole is growing rnpidly. The drmnatic increase in the
`penetration of home personal computers has spurned a similar increase in the penetration of commercial on-line
`and Internet services. World Wide Web homepagcs are growing at a rate of 500 sites per day, and in 1995, 8.5
`million households subscribed to on-line services, up 57% from 1994. Dramatic growth in this market is expected
`to continue, wil11 12.3 million households expected to subscribe to at least one on-line service by the end of I 996.
`This growing interest in the Internet and on-line services has created the need for a faster, easier means of
`accessing this information. Traditionally, the cable TV infrastructure has been primarily used for one-way
`television broadcast, however, when used for two-way data transmission, the broadband pipeline of HFC offers
`significnnt benefits. William Randolph Hurst Ill, CEO of the @Home Network. expects to have 1 million
`subscribers to the @Home Network by the end of 1996.
`
`ln,·cstocs in the @Home Network - The @Home Network is a joint venture between Tele-Communications.
`Inc. [TCI] of Denver, Colorado and Kleiner Perkins Caufield & Dyers I KPCB) of Menlo Park, California. TCI is a
`leading provider of cable television and telecommunications services to the home. TCI is actively developing a
`wide array of new multimedia ser•ices and telecommunications technologies worldwide. Kleiner Perkins Caufield
`& Byers is one of the most prominent venture capital firms in Silicon Valley. formed in 1972, it has provided seed
`money for some of the biggest high-tech successes, including Genetech, Inc., Sun MicroS)·stems, Inc., lind
`Nctscape Communications Corporation.
`
`Benefit to Digital Sight/Sound - Once operational, @Home Network subscribers could "down lond' an
`uncompresscd album from Digital Sight/Sound in just under 9 minutes. Should Digital Sight/Sound utilize the
`HARC-C digital compression technology [sec Section Ill], the duration to "down load" an album would be reduced
`to just under 90 seconds. Additionally, for video offerings subscribers could "down load" a full length movie from
`Digital Sight/Sound in 4 minutes. using HARC·C. The HARC-C digital video compression ration is 10: I and the
`digital audio compression ratio is 6: I.
`
`Page 6 of 12
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`Pur.;uant to Pr0tect1\'e Order
`Sightsound.com ,- '\:'!-; Cl\. %-Oil>
`
`Confidential
`
`SST-025012
`
`Page 00009
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`

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`VII. VIRTUAL VIDEO & RECORD STORE
`
`Operations - Digital Sight/Sound's virtual video & record store on 1he World Wide Web feature of 1he Internet
`is located at hllp:llwww.sightsound.com. The Web Site currently operates on a Silicon Graphics' Web server
`computer system and running software provided by Netsc:ape Communications Corporation. ln April 1996, Digital
`Sight/Sound plans to have the @Home Network host the Digital Sight/Sound's virtual video & record store on
`ln doing so, Digital Sight/Sound will take advantage of the massive
`hardware owned by 1he @Home Network.
`bandwidth operated by the @Home NetWork. Processing content will continue to be performed at Digital
`Sight/Sound's offices at 610 Smithfield Street, Suite 405, Pittsburgh, PA 15222.
`
`Customers and their Equipment - The initial customers of Digital Sight/Sound are the Internet early adoplers
`who subscribe to the @Home Network. William Randolph Hurst, founding CEO of the @Home Network,
`anticipates I ,000,000 subscribers by the end of 1996. The prototypical early adopter must own an Intel™ 386
`multi-media PC [or equivalent] with available data storage in excess of 700 Megabytes and random access memory
`in excess of 8 Megabytes. The @Home Network provides their customers with a web browser necessary to access
`Digital Sight/Sound's virtual video & record store.
`
`Ease of Electronic Purchase - The @Home Network subscriber uses tl1eir PC or Mac to access the Internet
`through the web browser provided by the @Home Network which was written by Netscape Communications
`Corporation. One on the Internet, the @Home Network subscriber can accesses Digital Sight/Sound's vir/Ual video
`& record slore. Additionally, Internet users other than @Home Network subscribers can also access Digital
`Sight/Sound's virtual video & record store, however, they will not be able to take full advantage of the 10 Megabit
`per second bandwidth offered by the @Home Network. Once in the virlual video & records/ore, the customer can
`browse through the menu of recording titles that can be indexed and cross referenced, select a recording, enter
`their credit card information for verification and payment, and "down load" the selected recording to their PC or
`Mac.
`
`Credit Card Payment - Digital Sight/Sound will utilize an Internet credit card verification, authorization, and
`payment sofiware system, such as Netscape's !store, or possibly one oiTcred by the @Home Network.
`
`Page 7 of 12
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`HIGHLY CONFIDENTIAL
`ATTORNEYS' EYES ONLY
`FINANCIAL INFORMATION
`
`98-0118
`000456A
`CO.\'FIDE\TIAL
`Pur.:;uant to ProtectiVe" Order
`Sig:hl5ound.c:om \'. :\':;I-: CJ\'. 9~-01 1 1'
`
`Confidential
`
`SST-025013
`
`Page 00010
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`

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`VIII. ENTERTAINMENT OPERATING SYSTEM
`
`ln mid 1996, Digital Sight/Sound plans to introduce to the market a copyrighted Entertainment
`Summary -
`Operating System to enhance the Digital Sight/Sound virtual video & record slore. The Entertainment Operating
`System is intended to electronically assist the customer in purchasing and playing music or movies, as well as,
`provide for copyright protection of music and movies.
`
`Browser Add-Oo - The Entertainment Operating System will append to the customer's Web browser and all
`purchases after the initial purchase will be initiated from Entertainment Operating System through their browser.
`
`Addressability - The first time a customer purchases from Digital Sight/Sound, they will receive a copy of the
`Entertainment Operating System in a format preventing duplication of music or movies they purchased. Each
`customer will receive an Entertainment Operating System with a unique "serial number" to identify or address that
`particular customer.
`
`Encryption - The customer's purchased recordings will be distributed with the customers unique serial number
`encrypted into the header of the recording pennitting playback only on the Entertainment Operating System
`specific to that customer.
`
`Digital Compression - The Entertainment Operating System will incorporate a robust digital compression
`algorithm, such as U1e 6:1 compression ratio offered by HARC-C, to speed up data transmission and reduce the
`load on tl1e customer's hard memory. Digital Sight/Sound plans to evaluate various digital compression algorithms
`and acquire the most suitable algorithm through a non-exclusive license arrangement.
`
`Player Functions - VCR/Compact Disk Player functions such as play; fast forward; rewind; pause; skip; and
`random play will be offered. Additionally, advanced sort and manipulate features will be included. The customer
`will be ab