Best Buy Ramping Up Promotion of CinemaNow Service, Sonic Says

Best Buy is “going to do promotions with studios, train their staff and have integration with theatrical releases,” Habiger said. “There will be plenty of things coming up and you can expect to see what you expect from Best Buy when promoting an important initiative that they have a strong stake in.” Best Buy will use “all the marketing vehicles they have” in promoting CinemaNow, he said. “It’s going to continue to ramp and different stores and different markets will see things before others,” he said.

Best Buy is backing CinemaNow in a “major way” as it seeks to become a “significant player in the premium content video delivery space,” Sonic Chief Financial Officer Paul Norris said. Best Buy will dedicate a section of each store to demonstrate CinemaNow, Habiger said. A Best Buy spokesman declined to comment. In addition to licensing Sonic technology, Best Buy lat fall purchased 670,000 shares of the company’s stock.

Best Buy and Blockbuster, which uses the RoxioNow platform for its Blockbuster On Demand service, are still in the early stages of deployment, Sonic officials said. Best Buy is marketing CinemaNow with LG’s BX585 3D-capable Blu-ray player ($429) and is expected to expand it to a range of products this fall, including a Funai-built Insignia Blu-ray model. Best Buy also is selling Samsung’s 3D-equipped BD-C7900 Blu-ray player with Blockbuster on Demand and Netflix ($399). Sonic also has agreements to deploy RoxioNow with Sears and Kmart this fall and additional pacts with set-top box suppliers Sezmi and Entone as well as SD card-based digital download provider MOD Systems. The expanded deployment of CinemaNow boosted the service’s attach rate in Q2 to 6.5 percent from 4-5 percent in the previous quarter, company officials said. About three million CinemaNow-equipped products had shipped by May, a month ahead of earlier forecasts, Habiger said. CinemaNow shipments will hit 20 million units by year-end and 30 million by June 2011, he said.

Sonic Solutions has a catalog of 27,000-30,000 titles, but 200-300 titles “make up the bulk” of the transactions, Habiger said. While purchases of TV episodes available on RoxioNow “continue to grow”, consumers “don’t pay for TV, but they do pay for theatrical release and that’s what is driving most of what you see in this industry” right now, Habiger said. Sonic, which has released 3D authoring and editing tools, expects 3D movies will be available on the RoxioNow platform by year-end, about a year behind the original target. “It really comes down to securing content and I think we are getting close,” a Sonic spokesman said.

RoxioNow plans to complete its purchase of DivX by late September, Habiger said. Some job cuts are likely as the companies combine operations, but consolidation won’t begin until the deal closes, he said. DivX is expected to keep offices in the San Diego area, Sonic officials said. DivX has 370 employees, having added 10 in Q2 for its DivX TV service, while Sonic has 550. Sonic incurred $1.6 million in Q2 in costs tied to the deal, while DivX spent $783,000, company officials said. DivX will launch its DivX TV service on two LG Blu-ray players this fall and is in “fairly deep discussions” with other CE manufacturers about including DivX TV in 2011 products, CEO Kevin Hell told analysts in a separate conference call. DivX TV, which is based on the RoxioNow platform, has increased its roster of content providers to about 140-150 from 70 at CES in January, Hell said. “DivX TV and RoxioNow fit quite well together and there aren’t any conflicts,” Hell said.

DivX also is expanding the distribution of online movies using its compression technology. Warner Brothers’ WBshop.com will start selling DivX-equipped movies in Germany this fall, expanding from an initial launch in France in April 2009. Divx-equipped film also will be available from a “major European retailer” this fall, said Hell, who didn’t identify the new partner. DivX will increase Sonic’s reach in cellphones. LG and Samsung are fielding the DivX-capable Ally and Galaxy S smartphones, Hell said. There are about 3,000 DivX-certified TVs, 60 percent of which can display 1080p, he said. There are also 200 SKUs of cellphones from a base of 70 models that contain DivX technology, Hell said. DivX also reached a 38 percent global install base in Blu-ray players in Q2, passing DVD models for the first time, he said. Much of DivX’s strength is in Europe. It has a 90 percent install base for DVD players in France, against 20 percent in the U.S., he said. DivX also has been expanding deployment of DivX Plus HD, which can deliver 1080p H.264 video in the MKV file format. Among the new licensees DivX Plus HD licensees is Hisense. China’s Skyworth also recently gained DivX certification for 32- and 47-inch LCD TVs and is working toward adding Plus HD technology to future models, a DivX spokeswoman said.

Sonic’s Q2 net loss narrowed to $1 million from $1.83 million a year earlier despite a decline in revenue to $25.4 million from $25.5 million. Consumer product revenue, which includes Creator software, declined to $20.4 million from $22.4 million on lower OEM and retail sales, the company said. Premium content revenue, which includes RoxioNow and Qflix, rose to $5 million from $3.1 million a year earlier. Gross margin edged up to 70 percent from 69 percent. DivX’s Q2 net loss widened to $2.8 million from $2.3 million as it incurred $783,000 in expenses related to the proposed sale to Sonic. Revenue jumped to $19.5 million from $15.2 million as technology licensing rose to $16.8 million from $13.7 million. Media and other distribution services, which includes DivX’s distribution pact with Google for Chrome, increased to $2.6 million from $1.5 million.