The accidental entertainer

Why did you set up Shockwave.com as a separate company apart from Macromedia?

Macromedia and Shockwave.com are completely different businesses that have different cultures and customers, and require staffs with different skill sets. A software company like Macromedia sells software to developers, while an entertainment company like Shockwave.com tries to entertain consumers. The two are also at different stages in their respective development. Macromedia is a functioning, public company that is on a steep growth curve and spitting out lots of profits. Shockwave.com is an Internet entertainment startup, so we anticipate several quarters of losses as we invest for the future. Macromedia's operating income last quarter was 19 percent, but if you separate the two businesses, operating income for Macromedia rises to 27 percent. Separating the businesses makes the performance of each company clearer. Macromedia is even more profitable than people think, and the split gives more visibility to Shockwave.com's business model, which is more like that of MP3.com.

Spinning off Internet businesses seems to be a popular strategy these days. We've heard about the advantages -- Internet-style valuations, using equity to attract and keep talent. What are the pitfalls?

It's very difficult for companies to actually spin off their Web sites if those Web sites are fundamentally in the same business as the parent company. If you look at a brick-and-mortar company that sells toys and the Web business that is spinning off also sells toys, it's really hard. There are channel conflicts and both businesses are chasing after the same customers. With media companies you've got cannibalization issues, cultural issues -- a lot of issues. Hats off to them for trying, but it's a much more difficult corporate re-engineering.

In our case, the spin-off is easy and natural. Macromedia sells software. Our objective was to populate all the browsers with Shockwave and Flash content so we could sell more software. Those products just happened to really take off. Shockwave.com became an outstanding business opportunity that could not be overlooked. We're an accidental entertainment company.

Macromedia's Director still commands market share as a Web animation suite. But Director was originally designed for CD-ROM and video games, not for the Web. Some believe that Director may be vulnerable to a competitor coming in with a better product and that Macromedia needs to come up with a new high-end multi-media studio for the Web. What do you say to that?

While Director wasn't originally designed for the Web, it has been substantially updated. Usually when you ship a new version of software, sales are large in the first and second quarters. By the third quarter a lot of people have the product and sales start to drop off. The third quarter for the current version of Director, on the other hand, has been the biggest quarter in the whole cycle. Director has been the market leader for many years. The barriers to entry for a competitor are very high. There are 100 million copies of Shockwave running out there on Windows, Apple, I/E, Netscape, all these different environments -- and getting them all to run is no small feat. Our developer community is now over a million strong. There may be some product that comes along to compete with Director, but there are none now.

Have you ever visited Tom Winkler's scatological Flash animated cult site, Doodie.com?

I haven't really ... [turns to his PC and types in the URL] ... At a Macromedia/Shockwave.com all-hands meeting recently one of the engineers asked where we would draw the line on content. I asked people to put up their hands if they had seen the "South Park" movie. Almost every hand went up. "We're not going to do porno," I said, "and we're not going to do gambling. But we are probably going to do filthy humor." The place erupted into applause. [A Flash cartoon called "Shit n' Spin" downloads on Burgess' screen. A defecating naked man wearing ice skates spins like a top, poop flying in all directions.] Holy Mackerel! ... Well, you know, people love Joe Cartoon's "Frog In A Blender"!

• View blog reactions