Purchase plan upsets Virtual partner

By PETER GRIFFIN

Internet graphics company Virtual Spectator's Australian acquisition plans have upset its partner, Animation Research, which fears the deal would breach a licensing agreement between the two companies.

VS yesterday confirmed it was in negotiations to buy the sports graphics division of Pineapplehead, a Melbourne company that produces graphics to go with TV coverage of golf, cricket, horse racing and football.

The deal is subject to Virtual Spectator successfully raising $1 million through joining the unlisted securities market and attracting funding. Pineapplehead would take a stake in VS and remain listed on the Australian Stock Exchange, focusing instead on its video editing product distribution business.

But the deal cuts too close to the bone for Dunedin company Animation Research, which has a licensing deal with VS giving it exclusive rights to deliver TV graphics for a wide range of sports. Pineapplehead is one of its main competitors.

A move into television by buying a competing Australian company could breach that agreement, said Animation Research managing director Ian Taylor.

Director of technology and Pineapplehead founder Peter Lamb said negotiations with VS should be wrapped up within a couple of months. He did not know what Virtual Spectator's contractual arrangements were with Animation Research, but pointed out that VS was already involved in TV graphics.

"They already have a TV component with the World Rally Championship, and everything we do is related to television."

Taylor warned that investors looking at buying into Virtual Spectator should know exactly what they'll be getting for their money.

He said the TV graphics seen by America's Cup audiences were supplied by Animation Research, not Virtual Spectator as many people thought. VS took care of the web graphics only.

The confusion seems to stem from both companies continuing to use the Virtual Spectator brand as they pursue diverging areas of business.

"The Virtual Spectator that most people know is the one that's on television, and we deliver that entire product; they don't have anything to do with it," said Taylor.

Virtual Spectator's chairman, Neville Jordan, said a purchase of Pineapplehead did not necessarily mean VS planned to renege on its agreement with Animation Research.

"Our strategy will become apparent over time. No one should be getting too anxious at this stage," said Jordan.

Taylor also questioned the VS business model, claiming the company had attracted only 33,000 subscribers paying US$24.95 ($45.30) to view the Louis Vuitton and America's Cup races online.

"When we were at Virtual Spectator we said target 100,000 subscribers and if it's hard to do with the America's Cup it's going to be harder to do it anywhere else."

Jordan disputes that subscriber number but will not release official figures.

If the Australian deal goes ahead, VS will be picking up a loss-making business.

In the year to June 2002, Pineapplehead lost A$6.3 million ($6.76 million) on revenue of around A$20 million. Some A$1.1 million of the loss came from the sports division.

This financial year, Pineapplehead anticipates revenue of A$10 million, only A$1.5 million of it from the sports division.