Sonic Foundry Outlines Long-Term Company Strategy

In a Reuters interview conducted today, Sonic Foundry, Inc. (AMEX: SFO) Chairman and CEO, Rimas Buinevicius, outlined the Company's long-term strategy and broadening product development effort. The effort involves an expansion in product development, marketing, and wider distribution for the purpose of capitalizing on increasing opportunities in the Internet and the media production markets.

Buinevicius described a strategy which involves taking the core elements of its media production software and expanding and refining the capabilities to meet the needs of a growing base of customers interested in creating, sharing, and distributing their audio and video content. This product development effort will continue to build a loyal following in the "prosumer" segment (audio and video professionals), while driving Sonic Foundry's technology to the general user through consumer retail and OEM sales efforts. In return, customers will continue to reap the benefits of price/performance gains offered by the Company's high performance non-proprietary Windows software product family.

Buinevicius stated, "Whether you're interested in creating music, recording to CDs, or capturing your Camcorder video for editing and delivery over the Internet, Sonic Foundry has tailored a product offering which is unmatched in the industry. Sonic Foundry continues to build on this early success by innovative product evolution which continues to grow our business. This involves a strategy focused on organic growth, strategic partnerships, and technology acquisition and licensing. One key example involves the Vegas technology effort which is centered on bringing media production tools to three distinct markets: the Internet, the audio/music production market, and the video/broadcast markets."

The Internet and Vegas Technology Effort

The Vegas technology effort resulted in the joint announcement on November 9, 1998, with Microsoft of the Beta release of the Windows Media On-Demand Producer (WMODP). The WMODP will be distributed by Microsoft to the growing number of both novice and professional Internet web developers seeking an easy to use authoring tool for assembling audio, video, and metadata for Internet and Internet applications.

Sonic Foundry retains the technology rights to the software used to create the WMODP and plans an exclusive upgrade program to those interested in greater performance and features. It is anticipated that an upgrade product will be offered initially in an electronic form and will be distributed from the Sonic Foundry Web site during the first half of 1999.

In addition to its Internet focus, audio, video, and broadcast production remain the focal points of the Vegas technology effort. Sonic Foundry expects that the first Beta release of Vegas, expected also in the first half of 1999, will meet the multitrack editing and production needs of audio, video, and broadcast professionals worldwide.

ACID[TM]

The ACID product line continues to be a rapidly growing area of business for the Company and continues to build the Company's brand in the consumer retail channel. The initial launch of the ACID consumer line includes ACID Music, ACID Rock, and ACID DJ, all priced under $99, as well as the ACID PRO product sold primarily in the professional audio market.

Over time, the strategy for ACID involves expanding distribution to the general consumer through OEM relationships and retail sales. As the user base grows, the Company expects to see residual sales through the sale of loop libraries, the sound elements which allow users to build custom songs. The Company's strategy involves combining elements from its other products to create hybrid products which meet the needs of the Internet and digital content creation markets.

Buinevicius commented, "ACID represents a true revolution in music making by allowing both musicians and non-musicians alike to create quality royalty-free music for both professional use or simply for sheer enjoyment. The marketing and education effort behind this product is still in its infancy as users continue to learn all about the powerful features offered in this remarkable program."

Digital Content Creation

The digital content creation (DCC) market as related to CD-R and DVD-R media represents another strong area of research and sales opportunity for Sonic Foundry. Through the Company's CD Architect[TM] product, the Company has managed to bring a software authoring tool to market designed specifically to write audio and music to CD-R media. This rapidly growing market segment offers numerous opportunities for the Company as well as offering strategic partnership opportunities. In the latter half of 1998, Sonic Foundry announced key partnership deals with both Hewlett-Packard (HP) and Smart and Friendly, two of the leading CD-R manufacturers in the world.

Sonic Foundry is joining forces with the leaders in the DCC market to bring affordable media production tools to the market as DVD technology grows in significance. The Company expects DVD-R technology to evolve in 2000 and remains committed to investing in this technology to support this market's growth.

Marketing and Distribution

"It's certainly true that the Internet now offers an unprecedented opportunity for software companies to reach and target specific customers based on their primary interests and needs," said Buinevicius. "We are greatly encouraged by the activity of our Internet site and the ability to generate sales as well as convey useful and timely information."

Sonic Foundry plans to continue the investment in Internet selling and marketing efforts. This effort involves expanding lead generation through third-party relationships and banner advertising. It also involves building and supporting the direct relationship the Company maintains with its growing number of registered users.

Continuing the process of building traditional direct, distributor, and vertical channel programs also remains a key focus for the Company. By building the distribution network and continuously exploring alternative forms of distribution, the Company is managing to diversify its selling and marketing opportunities while continuing to build its brand recognition. To help in this effort, the Company recently signed distribution agreements with Ingram Micro (IM), the world's largest wholesale distributor of computer products, as well as Navarre (NAVR), a leading distributor of software, music, and home video products.

The effort to build brand recognition is further supported by sales of Sonic Foundry's products through third party OEM bundles. One example of this includes an OEM contract signed with Creative Labs (CREAF), makers of the Sound Blaster series. Through inclusion in this product bundle, Sonic Foundry is able to reach thousands of users worldwide.

Information contained in this release, other than historical information, may be considered forward-looking in nature; as such, it is based upon certain assumptions and is subject to various risks and uncertainties which may not be controllable by the Company. To the extent that these assumptions prove to be incorrect or should any of these risks or uncertainties materialize, the actual results may vary materially from those which were anticipated.

SOURCE: Sonic Foundry, Inc.

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