Posts tagged ‘Rovi’

CinemaNow, Technicolor Become Enablers

TechicolorCinemaNow and Thomson’s Technicolor (NYSE: TMS) just announced a partnership to provide an end-to-end platform for online content delivery to consumers. CinemaNow will contribute its studio-licensed content and a storefront, while Technicolor will provide encoding, encryption, rights management, and content delivery services. (I hadn’t known until now that Technicolor runs its own CDN, but it does.)

The platform will extend all the way from content origination to consumer devices. The press release mentions CinemaNow partners such as Samsung, Archos, Dish Network, and HP as providing compatible hardware for the platform.

What isn’t mentioned is the engine “inside” that will make this work at the device level. I’m sure Macrovision (NASDAQ: MVSN) is in the mix, as it already has deals with CinemaNow and Samsung for its Macrovision Connected technology. Presumably Dish/Echostar set-top boxes will get the Connected treatment also, which is certified DLNA compliant.

CinemaNowThere are advantages to the middleman model, especially in providing a mechanism to drive digital living technology into more electronics gear. But is it a long-term solution?

Making it easy for anyone to become an online content retailer will lead to… well… lots of online content retailers. Most of them poorly differentiated and few with any staying power. And when the customers dry up, where will the middlemen be?

Imagine the early days of television, except with dozens of TV networks. If they had all broadcast the same programs, or nearly the same, how many of those networks would have survived? Sort of like Internet video portals today. Home video delivery will be no different.

I think to succeed as an online retailer will require one of two things:

  1. Exclusive content. Not really in the best interests of the content providers, who want as broad a reach as possible and who are tired of being restricted by their distribution partners.
  2. Something to make the channel sticky. My best guess remains either unsurpassed ease-of-use (e.g. iTunes) or most likely some form of social networking. DivX’s Stage6 had a fair amount of success here.

Those few online retailers that get the formula right will probably try to disintermediate the enablers. Or the middlemen will acquire the portals. Or both. (Me? I’m a big fan of horizontal separation.)

In the meantime, look to partnerships such as this one to facilitate the home viewing transition from discs to a full media download market.

Disclosure: I have no position in any of the stocks mentioned here.

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April 16, 2008 at 7:31 pm 2 comments

Blockbuster: Driving Off A Cliff?

The Hollywood Reporter had a story last week that Blockbuster (NYSE: BBI) will soon announce a movie rental set-top box. Everyone who has written about it has noted it will compete against–among others–Apple TV (NASDAQ: AAPL).

That’s true, if you can call “eating dust” a competition.

To the extent such dedicated set-top boxes ever catch on (and I have doubts), Apple TV is Lightning McQueen to Blockbuster’s Mater. Apple is in the hardware business, you can bet it’s in this race to win. Frankly I doubt it even cares that much about the movie revenue. But those rentals are Blockbuster’s raison d’etre.

Blockbuster still seems like a deer caught in the headlights, and has been playing follow the leader with Netflix (NASDAQ: NFLX) for some time. This recent development simply copies the deal Netflix announced with LG Electronics awhile back. While I wouldn’t go so far to say it is doomed (yet), Blockbuster needs a serious strategy tune-up.

First it has to rid itself of the retail store “boot”. For too long Blockbuster has focused on driving traffic to its locations, which it naturally feels obligated to earn money on. But this is the digital age, and despite trying desperately to leverage them, Blockbuster’s locations aren’t the assets it thinks they are. Instead of trying to earn a return on real estate, Blockbuster should have been shedding stores. I understand the real estate market was pretty good last year, probably a great time to divest. Oops.

This is the same mistake Toys-R-Us made, dipping its toes into the on-line pool but afraid to jump in until it was too late.

Blockbuster does have some options left. The purchase of Movielink gives it a leg up in on-line delivery. Going to market with its own STB is a mistake, however. First, it’s not at all clear there would be much demand for the box; just look at Vudu. Second, Blockbuster doesn’t exactly present a compelling co-branding opportunity for CE manufacturers. And depending on the arrangement, the costs associated with such a move could easily outweigh any additional revenue generated.

Far better to package Blockbuster-to-the-TV as a service. True, Apple and TiVo (NASDAQ: TIVO) aren’t likely to sign on. But it could partner with multiple CE manufacturers who can build home media transfer capabilities into their DVD or Blu-ray players, using technology from the likes of DivX (NASDAQ: DIVX) or Macrovision (NASDAQ: MVSN).

These solutions (perhaps not so coincidentally called “Connected” by both firms) are licensed to CE manufacturers, vendor neutral, and built-in at the chip level. Movielink gets films to the PC, and “Connected” easily gets them to the DVD or STB, without requiring an additional box. In fact, DivX has a good relationship with LG already–wouldn’t surprise me to see Netflix go with DivX Connected on an LG box instead of with a branded version.

This makes even more sense when you consider the other advantage Movielink brings to Blockbuster: a partnership with Sonic Solutions (NASDAQ: SNIC). Sonic’s Qflix is the only legal way to burn a studio DVD remotely, which allows Blockbuster to say goodbye to much of its costly inventory. It will soon be feasible to download movies to PCs and then burn them at home. (The disc is dead, long live the disc.)

Blockbuster still has a chance in this race, but it had better get out of first gear. Fast.

Disclosure: I don’t hold positions in any the stocks mentioned in this article.

April 12, 2008 at 8:03 pm 2 comments

MacroStar: Vision or Hallucination?

This morning Macrovision (MVSN) reported it has completed the divestiture of its software business, including the FLEXnet and InstallShield product lines, raising $200M. With the previously announced sale of its games unit to RealNetworks (RNWK), Macrovision is well on its way to completely transforming its business. What remains is to consummate the merger with Gemstar/TV Guide (GMST).

The company believes that with the cash raised from these recent sales, it has reduced the amount of debt needed to finance the Gemstar purchase by nearly 20%, to just $650M. Expect to see a good portion of this remaining debt retired early, as Macrovision spins off non-strategic portions of Gemstar once it’s folded in–notably the TV Guide print business, which I believe is orthogonal to MVSN’s core strategy. This could significantly shorten the loan payback on the purchase from the 2011 date CFO James Budge originally estimated.

That all assumes, of course, that the deal goes through. Many Gemstar shareholders were none too happy when the merger was first announced in December. Ditto many Macrovision investors, who either did not understand or did not believe the vision management articulated. I would argue Budge and CEO Fred Amoroso did a poor job of explaining it at the time, using lots of effusive, scripted prose but leaving behind what felt like a distinctive snake oil residue.

However, there is a method in the madness here, a bit more visible now that extraneous bits have been spun out. The key is to understand Macrovision’s three key constituencies: Hollywood studios, consumer electronics manufacturers, and cable companies (MSOs). Traditionally, the studios paid for copy protection, manufacturers licensed the tech for VCRs and DVD players, and MSOs paid to ensure compatibility between studio copy protection and their headend gear. Great high-margin cash business. All good.

But a year or so ago, Macrovision acquired Mediabolic, which gives it technology to enable (copy-protected) video transfer between PCs and multiple devices within the home. Say, to cable set-top boxes. They have already signed Scientific Atlanta (CSCO) as a customer, and I believe either Motorola or NDS is also on board.

Next, they bought All Media Guide, which provides metadata for video and music. By acquiring Gemstar, Macrovision gains television guide info–again, metadata. MVSN can now license both algorithms and information to device manufacturers and cable companies, while helping Hollywood protect its content wherever it is transferred. In the bargain, consumers would get a seamless home video capability.

Your existing set-top box becomes a media hub. Can you say “AppleTV“? I knew you could.

Arguably, Macrovision has made some missteps with its strategy in the past. The software business had low margins relative to MVSN’s licensing unit, and games was pretty much a bust. But unlike many firms, it has been fairly quick to recognize errors and dispose of losing businesses. And this vision, however poorly spelled out by management, feels right.

Based on April 1 closing prices, and assuming no change in the original terms, the Gemstar deal is now valued at about $2.22B, 21% below the original $2.8B figure but slightly above the current market cap. This compares to a 9% drop in the S&P500 over the same period, and largely reflects the poor reaction of traders to both sides of the deal. The SEC just declared the S-4 effective and proxies are being mailed out. As both boards are already signed up (including Rupert Murdoch, with 41% ownership), it looks like the merger will go through.

Given the margin expansion that will follow the spin out of the poorer performing Software and Games units, Macrovision may be somewhat undervalued, even allowing for the anticipated share dilution. But for Gemstar investors who believe this vision could become reality, there’s substantial upside post-merger if the firm can execute properly.

Disclosure: Author holds no positions in either Macrovision or Gemstar.

April 2, 2008 at 9:26 am 3 comments

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