June 2, 2010 10:06 pm

Sonic to buy DivX in internet TV deal

Sonic Solutions said on Wednesday it was buying DivX for $323m in a deal that creates a significant force in digital content delivery in the growing internet TV market.

Sonic has been digitising and delivering video from Hollywood studios in a variety of formats to a wide range of devices and owns the RoxioNow [formerly known as CinemaNow] streaming movie service, available through internet-connected TVs and Blu-ray players.

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DivX’s video encoding and content protection has been shipped on more than 300m consumer electronics devices. Its DivX TV service, mixing internet content and streaming movies, is due to launch on LG Blu-ray players with integrated internet connectivity this year.

“We are going to combine DivX TV with the RoxioNow platform to bring a powerful content offering,” said Kevin Hell, DivX chief executive, in a Financial Times interview.

The companies are competing with hardware and software companies such as Google, Microsoft, Roku, Seagate, Sony, Vudu, Yahoo and Western Digital in offering internet channels and services that stream “over-the-top” of regular TV.

“This deal gives us a massive footprint on consumer electronic devices at a monumental time in the delivery of video, which is moving quickly to the over-the-top model and streaming - we’re here to capitalise on that,” said Dave Habiger, Sonic chief executive, in an interview.

The retailer Walmart bought Vudu this year in a deal it said would help its customers “migrate to a digital environment”. Its rival Best Buy has strong ties with Sonic and said in March it was re-engineering its stores to sell what it described as higher-value “invisible” digital products.

Retailers envisage selling subscription services for music and movies to enhance revenues from TVs and media devices that are increasingly becoming commoditised.

Sonic and DivX are listed on the Nasdaq market and Sonic’s offer, worth $9.83 a share, represents a 41 per cent premium to DivX’s closing price on Tuesday.

Sonic said it expected the deal to be accretive, potentially doubling its 2012 fiscal year earnings per share.

S&P analysts reiterated their “sell” rating on Sonic’s shares.

“While we expect Sonic to leverage these relationships in increasing the adoption of its video on demand technology, we doubt they are sustainable given changing video standards,” they said in a note.

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