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Rovi to Broaden Footprint

January 12, 2011

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Content guide and copy protection specialist Rovi Corporation will pay $720m in cash and stock to buy Sonic Solutions, a digital video processing and distribution provider. The deal is expected to be completed in Q1 2011 and will make Sonic Solutions a wholly-owned subsidiary of Rovi.

Sonic Solutions provide video software to consumers, including the Roxio suite of video creation and encoding software. Through content partnerships with Dell, HP and others they also provide the RoxioNow platform, a white-label, cloud-based video delivery infrastructure which enables access to movies and TV shows. The platform is available either through a range of connectable consumer electronics (CE) devices or via license arrangements with retailers such as Best Buy, Blockbuster and Sears. The purchase of DivX for $323m in June 2010 gave Sonic access to DivX's video codec software, which is currently licensed on over 350m CE devices.

Rovi, formerly Macrovision, focus on providing entertainment information to content and service providers, retailers and CE manufacturers. Their TotalGuide service, a white-label electronic programming guide (EPG), provides metadata on content for user interfaces. Rovi also generate revenue through the advertising that can be built into their EPG, and have video recommendation technology, through their purchase of MediaUnbound in March 2010.

providers, service providers, retailers and CE vendors all have an opportunity to provide access to over-the-top (OTT) content and stake a claim for video consumption. Video delivery platforms such as Netflix, iTunes and Amazon VoD seek to reach consumers directly, across all devices, whilst Google and Walmart hope to provide the internet TV interface of the future. However, attempts at such unification have yet to prove effective in either video delivery or user interfaces, and many CE manufacturers are developing their own products concurrently. Sonic have had some success embedding their video delivery infrastructure directly into CE devices, and expect to be present on over 30m connected devices worldwide by June 2011. On the other hand, whilst Rovi's EPGs have penetrated through to a wide range of devices, they have traditionally dealt more with service providers.

The acquisition of Sonic Solutions (and by extension DivX) equips Rovi with a digital footprint spanning hundreds of millions of CE devices. Within their existing deals Rovi profit from built-in advertising, and there is certainly an opportunity here for them to utilise this greater distribution network to enhance their advertising revenue. Moreover, with this broader footprint come established relationships with CE manufacturers, which Rovi will hope to nurture and expand upon.

Aside from existing relationships, Rovi also plan to develop RoxioNow as a white-label video distribution alternative for manufacturers and retailers alike. By embedding their EPG and search technologies within RoxioNow and driving the uptake of premium content, Rovi will create a more attractive product, particularly for CE vendors looking to expand their OTT offering. However, the deal is unlikely, in the short-term, to add value to Rovi's existing deals with pay TV operators, who have thus far been less keen to embrace OTT video.

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