Rovi’s $720 Million Sonic Solutions Buy Expected to Close February

Rovi’s proposed $720 million acquisition of Sonic Solutions caps a long-standing partnership between the companies that picked up speed when Sonic acquired DivX earlier this year, Corey Ferengul, Rovi executive vice president of product management and marketing, told us.

Rovi, which expects to close the sale in late February, integrated its metadata services with Best Buy’s CinemaNow video download/streaming service, which was built on Sonic Solutions’ RoxioNow platform. It also had worked with CinemaNow, which was an independent company before Sonic bought it in late 2008. RoxioNow also is deployed in Rovi’s TotalGuide with Blockbuster on Demand and MediaMarkt’s service in Europe. Rovi, which changed its name from Macrovision, supplied copy protection for Sonic’s professional services business that provides DVD and Blu-ray authoring tools. Rovi also once weighed buying DivX, but wasn’t able to get “the right business structure,” Ferengul said.

"There were a lot of pieces, but when they bought DivX, that’s when things started coming together” and Rovi became interested in buying Sonic Solutions, Ferengul said. Negotiations with Sonic began in earnest after Sonic completed its $323 million purchase of DivX in October, Ferengul said.

Rovi will integrate Sonic management 3-4 months after completing the acquisition and will likely bring a more centralized structure to the combined company, Ferengul said. That could mean that the San Diego-based DivX division that Sonic created under Matt Milne after buying the company will be brought under Rovi’s headquarters in Santa Clara, Calif., Ferengul said. But how Sonic executives will be positioned within the combined company hasn’t been finalized, Ferengul said. Sonic has about 1,000 employees, he said. The merging of the companies is will generate $15 million in cost “synergies” in 2011, an amount that could hit $30 million by year-end 2011, Rovi officials said.

Further out, Rovi will merge the companies’ technologies, although the timing for completing the task hasn’t been set, Ferengul said. The integration will likely begin with Rovi’s audio and video metadata that it cobbled together through acquisitions of Muze and All Media Guide being combined with the RoxioNow platform, a task already begun with Best Buy’s CinemaNow, Ferengul said. RoxioNow also will be brought into Rovi’s TotalGuide electronic program guide, elements of which first appeared in Samsung LCD TVs this fall and are expected to be in 10-15 million products in 2011, Rovi executives told analysts Thursday in a conference call. While Sonic’s DivX TV video streaming service debuted in LG Electronics LCD TVs and Blu-ray players this fall, it will likely be combined with RoxioNow in the future, Ferenguel said. DivX, which was unveiled at CES last January, has about 140 “channels.” Rovi will maintain download agreements for DivX-based movies with FilmFresh.com, FilmOn, Warner Brothers in France, Play4film and other services. Lionsgate, Paramount, Sony and Warner Brothers have delivered DivX-equipped movies.

Sonic has forecast having RoxioNow in 30 million products by June 2011, a figure that isn’t expected to change with the sale, Sonic CEO David Habiger told analysts. The addition of RoxioNow will likely enable Rovi to expand the reach of its advertising platform that’s projected to generate $20 million in revenue this year. But the addition of RoxioNow won’t significantly increase Rovi’s ad sales until 2012 as the two companies spend much of next year integrating technology, Ferengul said. “TotalGuide will power RoxioNow,” which means “more transactions and more users” and “more advertising opportunities,” Rovi CEO Fred Amoroso said.

While Sonic and Rovi share many of the same CE customers including Samsung, Sony and LG Electronics, Rovi will bring RoxioNow into the cable market as a supplement to cable operators’ video-on-demand services, Amoroso said. Rovi, which has Cox Communications and Comcast among its customers, is expected to release a full version of TotalGuide to the cable market in late 2011. But it’s also making a “light” version of TotalGuide available as an upgrade to existing cable set-top boxes, company officials have said. The combination of RoxioNow and TotalGuide will “supplement” over-the-top services being offered through CE devices and cable STBs and will “create more demand” for VoD, Amoroso said.

Almost lost in the acquisition is Sonic’s Roxio media management software business that includes titles that are sold at retail and pre-installed in notebook and desktop PCs. Rovi will likely retain the business since it “drives a significant of profit” and has a “significant consumer following,” Amoroso said. Longer term, the Roxio software could be grafted onto Rovi’s cloud-based services, but there are no immediate plans to change current distribution, Ferengul said. Dell and Hewlett-Packard accounted for 9 percent and 7 percent of Sonic’s $$25.3 million of revenue in Q2 ended Sept. 30. Roxio consumer products, which includes software, posted $19.8 million in sales, which premium services, including RoxioNow, were $5.4 million.

In Sonic’s professional business, Rovi will likely consider making its MainConcepts H.264 codecs and encoding available for electronic content distribution, Ferengul said. Sonic inherited MainConcepts, which has sales and marketing offices in Aachen, Germany and engineering in Tomsk, Russia, in buying DivX. DivX bought MainConcepts in 2007.