Sonic Solutions (SNIC)
Sonic strikes a deal to buy DivX for $323 million. Sonic is a digital media distribution company that is best known for its CinemaNow service. CinemaNow allows visitors to buy and rent movies/TV content online. Sonic’s recent acquisition will give it the rights to a very popular digital video codec. The DivX codec helps users watch video content across various digital media players regardless of their operating system. CinemaNow has been around since 1999, so why is it just now deciding to implement the DivX codec?
Sonic strikes a deal to buy DivX for $323 million. Sonic is a digital media distribution company that is best known for its CinemaNow service. CinemaNow allows visitors to buy and rent movies/TV content online. Sonic’s recent acquisition will give it the rights to a very popular digital video codec. The DivX codec helps users watch video content across various digital media players regardless of their operating system. CinemaNow has been around since 1999, so why is it just now deciding to implement the DivX codec?
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CinemaNow seems to be preparing for a big charge in the online media industry. Sonic realizes that it needs to better promote CinemaNow so it can gain more customer traction. The first step to towards achieving this goal was CinemaNow’s recent partnership with Best Buy (BBY: Charts, News, Offers). The Best Buy arrangement helps position CinemaNow to better compete against iTunes and other media providers. Best Buy gives CinemaNow a “face-to-face customer” channel to compliment its online efforts. However, CinemaNow knows that expanding its product distribution to a brick-and-mortar distribution vertical is not enough.
The missing piece for CinemaNow is the DivX codec. CinemaNow’s previous video playback implementation limited the usability of its service. Prior to the DivX deal, CinemaNow used Windows Media to play its video content. As a result, users were restricted to that particular media player. CinemaNow needed to open up its product offering to a more universal playback method. Sonic wanted its CinemaNow content to be universally playable so that any customer could use its service. Sonic saw this potential with DivX. The DivX codec allows for CinemaNow’s videos to be played on nearly any media player while still adhering to the movie studios’ Digital Media Rights agreement. The CinemaNow service now has the playback versatility that accommodates almost any media player. It also enables CinemaNow to work with non-windows based computers, such as Macintoshes.
Sonic has a nice long term strategy in place to help grow its company, but that doesn’t make achieving the goal any easier. The CinemaNow game plan makes sense, and acquiring DivX was certainly a big step in the right direction. However, Sonic is picking a fight with the biggest bully on the digital media playground, Apple (AAPL: Charts, News, Offers). CinemaNow appears to be up for the challenge, but it has its work cut out for it. Sonic is hoping that the DivX codec will help level the playing field and give it the necessary edge to knock out its competition.
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This statement is incorrect:
“The missing piece for CinemaNow is the DivX codec. CinemaNow’s previous video playback implementation limited the usability of its service. Prior to the DivX deal, CinemaNow used Windows Media to play its video content”
CinemaNow has already been selling DivX movies for years now. This is nothing new.
http://divx.cinemanow.com/
The trick is as always, in this format or any other:
- Getting rights to distribute a VOLUME of content (like iTunes or Netflix)
- Getting rights to distribute the most popular (i.e. latest) content (like iTunes)
- Creating an appealing consumer offering (i.e. like the streaming service on NetFlix)
Getting these 3 “right” has always been CinemaNow’s challenge, before and after Sonic.
If they can get these right, they will be able to compete with the market leaders.