Sonic Solutions’ Buy of DivX Will Deepen Ties with Movie Studios, CE Makers
Sonic Solutions’ proposed $323 million purchase of DivX will deepen its ties with movie studios and CE manufacturers while creating a portfolio of services from professional software development tools to video download platforms, industry officials said. The deal is expected to close in late September. DivX shareholders will get $3.75 per share in cash and 0.514 share of Sonic stock per DivX share, the companies said. DivX shares gained more than 26 percent Wednesday, closing at $8.79. Sonic shares fell more than 9 percent and closed at $10.71.
The deal will create a combined company with $250 million in revenue by fiscal 2012 and bolster RoxioNow’s presence with CE manufacturers, many of which built the DivX video compression codec into their DVD and Blu-ray players, digital TVs and cellphones. DivX has been gaining support for DivX Plus HD, which can deliver 1080p H.264 video in the MKV file format and is compatible with DivX Plus software that shipped in March.
Among DivX’s major customers is LG Electronics, which is building the DivX TV streaming service into its NetCast Internet service for LCD TVs. Samsung accounted for 13 percent and Sony 12 percent of DivX’s $70.6 million in 2009 revenue. DivX and new owner Sonic also will likely benefit from Google TV. DivX has a licensing agreement with Google. Google pays DivX fees based on successful activation of Google products, including its Chrome browser, with DivX software. DivX has been installed in more than 300 million CE devices, CEO Kevin Hell said.
RoxioNow, created from Sonic’s 2009 acquisition of CinemaNow, has shipped in 3 million products including TiVo DVRs and will be in 30 million by June 2011 apart from the DivX purchase, Sonic CEO David Habiger said. The activation rate for RoxioNow in CE products in which it’s “actively marketed” has grown to 5 percent from 3-4 percent this year, Habiger said. RoxioNow is in some products that have been available in “low volumes” and haven’t been “actively marketed,” he said.
"This union makes overwhelming strategic sense,” Habiger said. “It puts us in a much stronger position” as the markets for video download services and their deployment in CE products grow. “It will accelerate the creation of a complete end to end solution,” he said.
DivX’s codec and DRM has been cleared for use by five major studios, including Warner Bros., which uses it to deliver DivX-based movies in France. DivX movies also are available in a range of other services including Filmfresh.com in the U.S. ERG (Belgium and The Netherlands), FilmOn.com (U.K.) and Play4Film (Italy). Paramount Direct in the U.K. has sold a USB drive loaded with a DivX-based Star Trek movie that can be plugged into a TV for playback. Sonic’s RoxioNow will likely be retrofitted on “some” of DivX’s installed base of 300 million devices, Habiger said. DivX also had more than 500 million downloads of its software, DivX 7 and DivX Plus HD, which is replacing it. It expanded its business to include H.264 technology with the acquisition of MainConcepts in 2007.
Despite its acquisition of DivX, Sonic will remain “format agnostic” and will keep a “master cloud of digital file formats and DRM,” Habiger said. The merger will likely give the DivX format access to a range of new customers including Best Buy, which is expected to launch a RoxioNow-based video download service this month. RoxioNow also is deployed with Blockbuster on Demand, a service that has driven adoption of the format by providing “attractive marketing offers,” Habiger said. Sonic’s ties to Best Buy will become “deeper and stronger as time moves on,” he said. Best Buy bought more than 600,000 shares of Sonic stock last fall.
It wasn’t clear how many DivX employees will join Sonic. Hell, Chief Financial Officer Dam Halvorson and General Counsel David Richter will work with Sonic on completing the sale, but won’t remain in their current positions, a Sonic spokesman said. DivX had 106 employees in 11 countries as of Dec 31. Sonic had 518, including 314 in R&D, according to its most recent 10-K. DivX stockholders will own 35 percent of the combined companies’ capital stock. Two members of DivX’s board will likely be appointed to Sonic’s board at the close of sale, the Sonic spokesman said.