Sonic Foundry Sells Entertainment Business to Delux Media Services, Sets Sights on Rich Media Market

Sonic Foundry, Inc. (NASDAQ: SOFO), a leading digital media softwaresolutions company, recently announced it has closed on the sale ofassets comprising its entertainment industry-based business to DeluxeMedia Services, Inc., a leader in motion picture capture and control,production facilities and services, for approximately $5.6 millioncash, including an estimate of net working capital. Sonic Foundry'sentertainment business includes its digital media conversion, encodingand distribution products and services for companies in the television,motion picture and entertainment industry.

Together with the money it expects to receive from Sony PicturesDigital for the sale of its desktop software business (see releasedated May 2, 2003), Sonic Foundry will use the approximate $24 millionproceeds to pay off debt and fund the company's operations movingforward. The sales mark the completion of the company's efforts toraise cash from the sale of business assets.

All of the approximately 80 Sonic Foundry employees, currentlyworking at the company's Toronto- and Los Angeles-based operations,will be impacted by the sale, although, the majority of them areexpected to transition to Deluxe going forward.

Regarding the next chapter in Sonic Foundry's evolution, Chairmanand CEO Rimas Buinevicius said, "The company's focus has been evolvingto rich media content creation, management and distribution over theInternet with Web streaming and distribution solutions, such as ourproven Media Site Live™ product." Media Site Live is a Webpresentation system Sonic Foundry introduced in 2002 that is used for awide variety of enterprise communication applications, such as distancelearning, corporate training and webcasting.

"We timed our transition to focus exclusively on the rich mediaenterprise market as we began to see greater applications for ouradvanced technologies," Buinevicius explained. "Our proprietaryofferings and expertise in the areas of indexing, navigating andinterpreting rich media content are the principal foundations thatdefine the rich media database of the future. Products, like MediaSiteLive, help create the content for these databases, while our follow-onofferings will focus on enhancing and improving the workflowconsumption and interpretation of rich media."

With the announced pending sale of its Sound Forge®, ACID®and Vegas® series of software titles, along with its completedsale of entertainment media products and services, Sonic Foundrycontinues its bold business strategy that will take it into new marketswhile, at the same time, leverages the very creative and innovativeroots that formed the genesis of the company's founding in 1991.

"Sonic Foundry always has represented technical innovation, freshideas and taking an unconventional approach to software design thatresults in intuitiveness and ease-of-use for the end-user," addedBuinevicius. "Those ideals, and that passion, will continue as thefoundation from which we move forward with products like our Webpresentation system, MediaSite Live™ and other rich-mediasolutions we develop for the enterprise. While there's a bit of sadnessin letting go some of our past products and history, there's also arenewed sense of excitement and commitment in the company."

Sonic Foundry has been executing on its long-term growth strategysince it acquired Pittsburgh-based MediaSite in late 2001. MediaSite'ssophisticated digital media indexing and management capabilities wereborn out of a four-year Carnegie Mellon University research effortfunded by major government agencies, including DARPA, NSF and NASA, aswell as by commercial organizations, such as CNN, Intel, Boeing,Microsoft, Motorola and Bell Atlantic. Recently, Sonic Foundry has beendeveloping more solutions for the enterprise, securing a number ofprominent customers throughout the education, corporate and governmentmarkets.

"We also are investing in research and development related to theinterpretation and further enhancement of rich media," Buineviciusexplained. "A significant portion of this research is based on patentedtechnologies, defined as Integrated Speech, Language and ImageProcessing (ISLIP). ISLIP provides the construction of meaningfulindices to enable the simple and quick search and retrieval of richmedia." ISLIP was recognized in 2001 by MIT Technology Review as one ofthe top "Ten Emerging Technologies That Will Change The World."

Buinevicius added that Sonic Foundry has integrated another patentedtechnology related to "video skimming" that provides users with thecapability of reviewing rich media faster than in real-time. Withcontinued funding being received from government entities, the companyis actively working toward further commercialization efforts andapplying its results to broader opportunities in the rich media market."We believe the outcome of our research and application efforts willadvance the art of 'meta-tagging' (identification and extraction ofaudio, visual and textual cues) as well as 'video data mining'technology. Together, these technologies help form the fundamentalbuilding blocks that will foster the use of media within databases,"Buinevicius said. "This advance will allow users to produce and consumerich media content at a more personalized and interactive level."

The markets Sonic Foundry is pursuing are expanding dramatically.Jupiter Media Metrix indicates that enterprises will spend about $567million on internal streaming media projects by 2005 – with aprojected total market size of $2.8 billion. Massachusetts-basedInternational Data Corp. (IDC) reported that in 2003, half of allInternet traffic will be made up of audio and video streams. Over thenext few years, it is expected that the vast majority of Internettraffic will be comprised of media streams.

"There is enormous growth opportunity and we have the technology tohelp us build the solutions the market will need," Buinevicius said."We hold firm to our belief that rich media will be the next majormarket of the continuing Internet revolution."

About Sonic Foundry®, Inc.

Founded in 1991, Sonic Foundry (NASDAQ:SOFO) is a leading providerof desktop and enterprise digital media software solutions. Itscomplete offering of media tools, systems and services provides asingle source for creating, managing, analyzing and enhancing media forgovernment, business, education and entertainment. Sonic Foundry isbased in Madison, Wis. For more information about Sonic Foundry, visitthe Company's Web site at www.sonicfoundry.com