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VIRAGE THIRD QUARTER REVENUES UP 111% YEAR-TO-YEAR AND 27% SEQUENTIALLY

Major League Baseball Advanced Media Selects Virage for 2001 Baseball Season

Quarter Closed with over 200 Customers Including Discovery Communications, Ferrari, Kraft Foods, Martha Stewart Living and MediaSet

SAN MATEO, Calif - Jan. 23, 2001 - Virage, Inc. [Nasdaq: VRGE], a leading provider of software and services that enable video for strategic online applications, today reported record financial results for its third fiscal quarter ended December 31, 2000.

Virage also announced today that it has signed a multi-million dollar agreement with Major League Baseball Advanced Media covering the 2001 baseball season. Major League Baseball Advanced Media, a separate business entity which is jointly owned by the 30 Major League Baseball clubs, holds the Internet rights to the approximately 2,500 baseball games played in a typical season. Under the terms of the agreement, Virage will provide Major League Baseball Advanced Media with the software tools and application services necessary to deliver searchable and interactive streaming-media game highlights to their web audience for the entire 2001 baseball season.

Third Quarter Financial Performance

Total revenues for the quarter were up 27% to $3.3 million from $2.6 million in the prior quarter ended September 30, 2000 and 111% over the same quarter last year, reflecting strong revenue growth in all areas of the business. License revenues increased 24% sequentially to $1.7 million. Service revenues totaled $1.5 million, an increase of 24% from the prior quarter.

Gross margins for the quarter improved to 32% versus 24% in the prior quarter, primarily attributable to the growth in the company's total revenues.

Pro forma net loss, which excludes $1.2 million of non-cash, stock-based charges, was $5.8 million, or $0.29 per share (based on 19.8 million weighted-average shares outstanding). This compares to a pro forma net loss of $5.8 million, or $0.30 per share (based on 19.2 million pro forma, weighted-average shares outstanding), for the prior quarter ended September 30, 2000.

Including non-cash, stock-based charges in accordance with generally accepted accounting principles, net loss applicable to common stockholders for the quarter was $7.0 million, or $0.35 per share (based on 19.8 million weighted-average shares outstanding). This compares to a net loss applicable to common stockholders of $7.1 million or $0.38 per share (based on 18.7 million weighted-average shares outstanding) for the prior quarter ended September 30, 2000.

"We're pleased with our performance in the past quarter given a more difficult business environment," stated Paul G. Lego, chairman and CEO of Virage. "In addition to our landmark deal with Major League Baseball Advanced Media, we've continued to expand Virage's business in several important areas. First, we continue to help customers such as MediaSet, Martha Stewart Living and Kraft Foods improve productivity in behind-the-firewall applications such as video content management, newsroom automation and corporate training and communications. In addition, we are helping established content providers such as BMG Entertainment and Discovery Communications invest for the future by leveraging their proven branded content on the Internet. These types of applications provide us with a solid foundation for the future."

Nine Month Operating Results

For the nine months ended December 31, 2000, total revenues were $7.8 million, double the revenues of $3.9 million reported for the same period last fiscal year. Pro forma net loss was $18.1 million, or $1.03 per share (based on 17.5 million pro forma, weighted-average shares outstanding), for the nine months ended December 31, 2000, versus $7.0 million, or $0.68 per share (based on 10.3 million pro forma, weighted-average shares outstanding) for the nine months ended December 31, 1999.

Including non-cash, stock-based charges in accordance with generally accepted accounting principles, net loss applicable to common stockholders for the nine months ended December 31, 2000 was $21.8 million, or $1.57 per share (based on 13.9 million weighted-average shares outstanding). This compares to a net loss applicable to common stockholders of $12.2 million, or $5.69 per share (based on 2.1 million weighted-average shares outstanding), for the nine months ended December 31, 1999.

Cash and short-term investments totaled $54.1 million as of December 31, 2000. Accounts receivable totaled $2.1 million, representing 57 days sales outstanding. The company had no debt as of December 31, 2000.

"We continue to have a strong balance sheet, including significant cash resources, favorable receivables' days sales outstanding, and no debt. This solid financial position will allow us to continue to execute on our growth strategies during this time of economic uncertainty," said Al Castino, CFO of Virage.

Other Third Quarter Highlights

Virage Customer Base Tops 200

During the third quarter, Virage added 28 new customers, bringing its total customer base to over 200. In addition to Major League Baseball Advanced Media, new media and entertainment customers include Danish Broadcasting Corporation, Discovery Communications, Martha Stewart Living, Mediaset and Sistema Brasileiro de Televisão. Corporate customers adopting Virage solutions in Q3 include Cable & Wireless, Ferrari Racing Team, Kraft Foods, Booz-Allen and Hamilton, and Primedia Workplace Learning. New customers in education include the Culinary Institute of America, University of California, Santa Barbara, and University of North Texas.

In Q3, Virage also announced that BMG Entertainment, the music and entertainment division of Bertelsmann AG, is using the Virage Video Application Platform to syndicate thousands of music videos on the Internet. Virage is providing BMG with its SmartEncode™ services and Syndication Manager 2.0 software, enabling BMG to make music videos available in streaming form to both internal and third-party syndication partners. The Virage platform will allow BMG to efficiently and securely distribute its valuable video content across the Internet.

Over the course of the quarter, customers launched 13 new Virage-powered sites including IDG World Expo, Lifetime Entertainment, Red Herring, Sekani (formerly FootageNow), TechTV and PBS Scientific American Frontiers. Scientific American Frontiers is the fifth in a series of on-going projects Virage has completed for PBS.

Strategic Partners Build on Virage Platform

Over the course of the quarter, many companies continued to adopt the Virage Video Application Platform in order to provide comprehensive streaming media solutions to their customers. In Q3, Virage grew its authorized developer and reseller programs to over 90 partners, including seven new international distributors.

Virage announced partnerships with CacheFlow, Cisco Systems and Network Appliance in order to provide cost-effective, end-to-end streaming media solutions to enterprise customers. These combined solutions will provide corporations with feature-rich, high-performance ways to publish, manage, access and distribute rich media on their intranets or extranets.

Virage also announced that Inktomi selected Virage to enhance the multimedia search capabilities within Inktomi® Search Solutions for portals, destination sites and enterprise customers. Virage will enable Inktomi to index and search video content throughout the Internet for its Inktomi Search/Media offering, which enables users to access an extensive database of multimedia files.

Vignette also joined forces with Virage to enable its suite of e-business applications to integrate video content. Vignette, Virage, Sun Microsystems and 12 other best-in-category partners established the eXtended Content Management (XCM) Alliance - a one-stop destination for companies looking for comprehensive content management solutions for building online businesses.

New Product Releases Expand the Virage Platform

Virage continued to enhance and extend the Virage Video Application Platform. At the Streaming Media West Conference, Virage launched Syndication Manager 2.0, a comprehensive system for flexible, secure and controlled distribution of video on the Internet. Syndication Manager allows companies, such as BMG, to share video assets with authorized partners while retaining control over their content. The application enables content owners to create custom packages of video content, assign business rules for distribution partners, and track usage patterns.

In December, Virage also released Virage VideoLogger® 4.5, the latest version of its award-winning video indexing software. Improving upon the powerful SmartEncode™ capabilities of its predecessor, VideoLogger 4.5 contains architectural enhancements that allow the Virage platform to expand further into the international market by supporting double-byte Asian languages.

Michael Lock Joins Virage as Senior Vice President of Worldwide Sales

In a separate release today, Virage announced the appointment of Michael Lock as Senior Vice President of Worldwide Sales. Most recently, Lock served as Vice President of Sales and Marketing for a division of Oracle Corporation where he built a new field sales organization, established both inbound and outbound call centers, created a partner selling channel and developed a $30 million e-commerce business by selling directly over the Internet. Lock has spent 15 years in the technology industry and has extensive experience in the areas of field sales, telesales, partner sales, Internet sales, marketing and general management.

Looking Forward

"While we are very pleased with our accomplishments last quarter, as we move into our fourth fiscal quarter, we clearly face a more difficult business environment," said Paul G. Lego. "As a result, we expect revenues for our fourth fiscal quarter ending in March to be relatively flat from our third quarter. Therefore, we expect revenues for the full fiscal year ending in March 2001 to be approximately double that of last fiscal year. Fourth quarter margins will contract somewhat from the third quarter due to the important investments we are making related to Major League Baseball in advance of contract revenues. However, we anticipate that these investments will result in significant revenues next fiscal year. In addition, we expect strong customer demand for such applications as video content management and syndication, newsroom automation, and corporate training and communications. We also expect to see our investments in Europe, Asia and Latin America over the last several quarters drive significant future international business. We believe these factors bode well for continued strong revenue growth in next fiscal year."

Virage's guidance on future quarters is as of the date it is given. Virage does not assume an obligation to update guidance, although Virage may from time to time choose to do so.

Virage Third Quarter Webcast

Virage management will host a webcast to discuss third quarter financial performance, operating and strategic developments and forward-looking guidance at 3:00 pm Pacific Time (6:00 pm Eastern Time) today, Tuesday, January 23, 2001. The webcast will be available live at www.virage.com/ir or www.streetfusion.com and will be available for replay at the same URLs through February 28, 2001.

Forward Looking Statements

This press release contains forward looking statements as that term is defined in Section 21E of the Securities and Exchange Act of 1934. Forward looking statements are denoted by such words as "will allow", "will provide", "we expect", "we believe", "we anticipate", "will result", "will contract", "bode well" and similar terms and phrases. Our forward looking statements are based on currently available information which management has assessed but which is dynamic and subject to rapid and even abrupt change. We assume no obligation to update such statements. Actual results could differ materially from those expressed or implied due to risks and uncertainties that affect our business. These risks include but are not limited to: the unpredictability of future revenues due to our short operating history and limited visibility into future demand on which to base our forecasts; the current uncertainty in our marketplace which may impact expected demand, customer selection criteria and sales cycle; our ability to execute on service and software deliverables and major customer contracts; our reliance on closing a large number of sales contracts near the end of each quarter; our dependence on purchases by our major customers; competition in all aspects of our business; our reliance on third party resellers and integrators for a significant portion of our revenues; our ability to hire and retain qualified personnel and the impact of our currently depressed stock price on employee retention; changes in our pricing policies or those of our competitors; our ability to expand into markets in Europe, Asia and Latin America; our ability to continue to develop new products and services to meet the rapid competitive cycles of our industry; risks in new business areas and strategic alliances and partnerships; slower economic growth generally, slower adoption of broadband technology, or cutbacks in information technology spending; and factors beyond our control such as power outages or work stoppages at key customers. The forward looking statements should be considered in the context of these and other risk factors disclosed in the company's filings with the Securities and Exchange Commision, including its Registration Statement on Form S-1, as amended, available online at www.sec.gov. All forward looking statements are based on information available to the company on the date hereof, and the company assumes no obligation to update such statements.

About Virage, Inc.

Headquartered in San Mateo, CA, Virage is the leading provider of solutions that enable video for strategic online applications. The Virage Video Application Platform transforms video into an effective online medium that is easy to publish, manage and distribute on the Internet or corporate intranets. The Virage platform provides content owners with the complete infrastructure for seamlessly integrating streaming video into business, entertainment and information applications. From ABC to Yahoo! over 200 customers across a broad range of markets have turned to Virage to help them improve production efficiencies and create new revenue opportunities with video. Contact Virage at http://www.virage.com/ or (650) 573-3210.

Virage and VideoLogger are registered trademarks and the Virage logo and SmartEncode are trademarks of Virage, Inc. Other company product and service names may be trademarks or service marks of others, and are hereby acknowledged.

Virage, Inc. Pro Forma Condensed Consolidated Statements of Operations

Virage, Inc. Condensed Consolidated Statements of Operations

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