After On2 Technology got sold to form the basis of Google’s Codec technology, it was only a matter of time before DiVX, a fierce rival US codec business, would be bid for. DiVX was once associated with piracy purely because it gave away a free codec which pirates universally used to re-encode video. But in recent years DiVX has provided Google with its own studio approved DRM, as well as acquiring MainConcept, the German codec writer who’s H.264 version can work with Adobe Flash video as an alternative to the VP line of codecs offers by On2 Technology.
DiVX has also heavily marketed the idea to DVD chip vendors that their devices should be able to decode DiVX files, a move that has given it a huge installed base among consumer electronic devices.
DiVX and On2’s fates have been intertwined for the past 7 or 8 years, often being compared to one another, despite DiVX having vastly greater revenues, and a wider variety of businesses.
Google paid $106.5 million for On2 in the middle of last year, and given that DiVX is still cash rich with reserves of $135 million and revenues still rising, at $23 million last quarter, Sonic Solutions, which announced it had acquired DiVX yesterday, was always going to have to pay substantially more, especially given that it is almost the size of Sonic itself. The deal was valued at around $323 million based on the two companies existing share prices when the deal was announced, and DivX stockholders will get cash and stock equal to $3.75 in cash and 0.514 shares of Sonic common stock for each share of DivX they hold. It is likely that DiVX shareholders will 35% of the final stock in the combined company.
The combination of the two businesses makes it a powerhouse in video delivery. One is an established Codec play, and which has planted the ability to view DiVX content into some 300 million devices ‘ a combination of 8,500 models of digital TVs, DVD and Blu-ray players, and 80 different mobile handsets. While the other is semi-dominant in DVD manufacture (alongside Sony) and has its own online film service bought from CinemaNow and also runs the back end of the Blockbuster service based on the old Movielink business, once owned by a cluster of studios.
The deal is expected to close in September 2010, and needs the approval of both boards, but the upsides are such that they are bound to give it, especially as this could become a ‘go to’ business for studios to take content to both DVDs, the web and also directly to CE devices. To add to that DiVX is already in the internet content business and its web properties have more than 12 million unique visits each month.
The acquisition is expected to be accretive to Sonic profitability, potentially doubling fiscal year 2012 earnings per share the company said.
This is all about putting the Sonic DiVX combination in pole position to drive the publishing of Over The Top Video.
Dave Habiger, president and CEO of Sonic Solutions said, ‘The combination of Sonic and DivX promises to be the foremost provider of platforms, tools, and technologies for the efficient delivery of premium video entertainment to virtually any type of consumer electronics device. We expect DivX’s deep technology and broad deployment in the CE and mobile areas to give us significant leverage as we expand and enhance our RoxioNow premium entertainment platform.’
The current Sonic management team will lead the combined company, but take on key executives from DivX including the CEO and CFO at first, but only until the company integration is complete.