Monday, October 4, 2010

Can Encounter Technologies Quiet the Concerns Surrounding, Return Stock to Brighter Days

Undoubtedly the goals of Encounter Technologies (Pink Sheets: ENTI) are lofty, especially as they relate to their video uploading, editing, sharing and viewing site, but investors have voiced concern over the viability of these ambitions and shares in the video technology company have tumbled since hitting a six-month high of 0.0850 in May, crashing down to the 0.0004 over the past week.
Sparking much of the concern among investors has been the number of press releases the company has issued over the past few weeks; each proclaiming positive steps the company is taking yet seeing little in terms of improved share prices. Many of those releases have directly, or indirectly, focused on the advancements of MusicMatrix and its potential to generate, in their words, “major success.” That success would come from videos from the world’s largest music companies, record labels and musicians as well as from users who can “participate in music video editing competitions in order to win prizes and recognition.”
Back in May ENTI announced it had started production of television commercials to promote MusicMatrix, an aggressive marketing campaign that would “reach over 44 million households per month June through December 2010.” Networks carrying the commercials would include MTV, MTV2, ESPN, BET, Spike and about 23 others, in total broadcasting 842 :30 to :60 second advertisements. In addition, the company would also target specific Internet networks and social media outlets with the focus on attracting the 18-25 demographic.
That announcement was followed by another release the next day in which ENTI announced they had “delivered proposals to agents which represent such artists as Lady Gaga, Souljah Boy, Justin Beiber, Snoop Dog, and Black Eyed Peas” for artist spokesperson deals related to MusicMatrix. More than three months later ENTI announced they had finalized negotiations toward securing musician Ne-Yo as their premier spokesperson. While Ne-Yo is certainly a respected name in the music business and has a strong fan base his name wasn’t among those listed back in May, a list that was comprised of the most marketable musicians today.
Taken at their word, these releases indicated that MusicMatrix was indeed on the right path yet the site has, according to, failed to take off with the 18-24 demographic, an age group that is “under-represented” at the site. Time spent on the site has also dropped off significantly, falling from an average of nearly eight minutes per user in June to under a minute in September. Perhaps most troubling for investors is the membership of MusicMatrix which, according to skeptics, appears to be dominated by “dummy accounts” created by the company.
For the optimistic investor the MTV Music Awards will be airing this week and with a traditionally strong viewership an advertisement for MusicMatrix could spark some interest and generate membership to the site. ENTI has not disclosed any information regarding plans to advertise during the airing and with their penchant for press releases this could be a bad sign for shareholders.
Trying to figure out where the money to advance MusicMatrix is coming from is another issue all together. In April ENTI announced gross revenue projections for their Video Sales Platform (VSP) product line for the quarters ending Dec. 31, 2010, March 31, 2011, June 30, 2011 and September 30, 2011, stating they believed they would gross $11,664,000 in revenue and sell over 12,960 video products by that Sept. date. That same press release announcing the projections offered no specific packages or details that supported the projected figures.
Sticking with MusicMatrix, a July press release from ENTI informed investors that the company had entered discussions with various music labels to address the potential streaming of concerts on the music hub. Then CEO Rick Dibiase stated that streaming live concerts had been something that was considered since the beginning, calling it “a highly desirable, cost-effective means of achieving additional revenues while bringing concerts to worldwide audiences.” As for the feasibility of such a venture Dibiase said “We already have relationships with some of the largest music companies in the world and we’ll be talking to smaller labels as well, in line with setting up or contracting larger servers for high bandwidth capabilities. A streaming concert can easily take in some impressive numbers for the site if you look at the stats.”
While the ideas are there for MusicMatrix the practicality of such ventures may be a bit further off.
Less than three weeks after this July announcement Dibiase stepped down as CEO and was replaced by Strategic Rare Earth Metals CEO, Anthony Dibiase. According to the board executives the move was a “beneficial step to accommodate the company’s precipitated growth in Q3 which is expected to continue through 2011.” The new CEO went on to say “Our main focus in moving forward will be to work to identify any areas within the company that need improvement to compliment our evident strengths and recent success, toward exponentially enhancing these attributes. That said, we are in tune with shareholder sentiment and are performing this move, for the most part, to organize the company toward increased transparency and accessibility as well as market confidence and appeal.”
More action from ENTI followed as they announced the hiring of The Britto Agency to “ensure maximum market position for its online interactive music video sensation, MusicMatrix.” Dibiase said the move was “a significant step for MusicMatrix and one I’ve thought for quite some time would bring tremendous value and added potential,” an interesting statement from somebody who has been the CEO for a week.
Making things more difficult for ENTI to establish credibility among investors was last week’s debacle concerning the company’s released podcast in which it was said Anthony was being interviewed by the Wall Street Journal. The podcast went into detail regarding the WSJ’s August readers, circulation and its overall reputation, all information that helped spike the buy volume in the stock. The only problem was that Dibiase was not interviewed by the WSJ but by a Wall Street reporter, a significant error and one that many investors felt may have been staged.
With so many press releases being churned out by ENTI announcing planned discussions, a potential spokesperson, future ventures, etc. it’s difficult to see where the value lies in this company. While the ideas that appear to be driving MusicMatrix are solid the practicality behind their implementation remains suspect, especially due to a loss in investor confidence.
ENTI has a 200 day moving average of 0.0047 and a 50 day moving average of 0.0009 as can be seen in the chart below:
ENTI Chart 090910
ENTI Chart 090910

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