May 7, 2010 / 10:32 PM / 10 years ago

Sonic Solutions tries to level DVD playing field

* Shares gained more than 400 percent in 12 months

* $43 billion global market

By Alex Dobuzinskis

LOS ANGELES, May 7 (Reuters) - In a field of entertainment occupied by Goliaths, Sonic Solutions’ SNIC.O chief executive thinks his company has a David-like ability to wean consumers away from DVDs.

And some investors seem ready to declare the company a winner. Sonic’s shares have skyrocketed more than 400 percent in the last 12 months from $1.95 to close at $10.99 on Friday. It has traded as high as $14.02 in the past two weeks.

U.S. consumers spent $636 million buying and renting movies and TV shows online, according to Adams Media Research. That is less than 4 percent of combined revenues of $6.5 billion in rentals and $10.9 billion in sales, a figure that is shrinking but still dominates home entertainment.

Globally, the research firm puts the DVD market at about $43 billion.

But some major Hollywood studios have imposed a one-month delay on DVD releases for Coinstar Inc’s (CSTR.O) Redbox rental kiosks and mail-service Netflix Inc (NFLX.O) — that does not apply to digital content providers.

Sonic Chief Executive Dave Habiger believes the rules stifling DVD rental chains combined with the deals he has made with North American retailer Best Buy and electronics and appliance makers LG Electronics Inc (066570.KS) and Samsung Electronics (005930.KS), will jumpstart his company’s business.

“We’re in the early innings of this game, this is the second inning of a baseball game,” Habiger told Reuters this week. “The game will be over in a year-and-a-half, maybe two.”

CLOUD MOVIE WATCHING

Sonic is developing a Web-based infrastructure that lets studios and retailers sell copies of movies and television shows directly to consumers.

These movies and shows are stored in the “cloud” — a server away from a users’ computer — and consumers can watch them on any Web-connected device with the help of a login and password.

This summer, Best Buy Co Inc (BBY.N) will promote digital delivery of movies, starting with a marketing push of DVD players and TV sets equipped with Sonic technology. It is the culmination of a partnership with Sonic announced November. [ID:nN03483081]

LG and Samsung have used Sonic’s technology in more than 1 million televisions and DVD players.

“I don’t care if it’s a shiny disc, I don’t care if it’s a chip in your brain or if it’s a cloud,” he said, but so-far reluctant consumers will turn to digital.

Habiger said his California-based company’s move to build a “cloud” that serves as an online repository of media content for consumers jives with similar efforts such as Walt Disney Co’s (DIS.N) fledgling KeyChest plan. [ID:nN05120565]

Sonic runs the cloud-based Roxio CinemaNow online movie and TV distribution service, and Habiger said it could partner with Disney on its plans to develop KeyChest.

The company is already working with other Hollywood studios in trying to tackle issues such as consumer fraud.

But there’s formidable competition ahead.

Sonic, which has a $325 million market capitalization, competes against Apple Inc’s (AAPL.O) iTunes store for digital downloads, and against Netflix (NFLX.O) for streaming.

But he said what sets Sonic apart is that it remains in the background and allows its movie studio and retail partners to take the lead in dealing with consumers.

“I think we will be one of the major players in the delivery of content. (Sonic) will be number one or two in delivery,” Habiger said. (Reporting by Alex Dobuzinskis: Editing by Leslie Gevirtz)

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