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Analyst: Looking for Consumer Adoption of CinemaNow

15 Mar, 2010 By: Erik Gruenwedel

Merriman Curhan Ford analyst Eric Wold, initiating first-time coverage of Sonic Solutions, March 15 said the Novato, Calif.-based company will primarily rely on PC-based technologies for revenue until greater consumer adoption of its Roxio CinemaNow movie-downloading software emerges.

Wold, who maintained a “neutral” stance on the stock, said Sonic’s base digital media management products will provide a solid cash flow base as CinemaNow adoption through partnerships formed with retailers and consumer electronics manufacturers matures.

“At this point, we prefer to wait for either a more attractive entry point and/or some additional signs that consumer adoption of its embedded product is accelerating with the additional consumer electronic devices reaching the market,” Wold wrote in a note.

Sonic said it sold more than 1 million units of Roxio CinemaNow software through 2009.

The analyst, who also covers Netflix and Redbox, said Sonic’s market share in PC-based shipments increased from 46% to 57% in 2009.

Wold said wider consumer adoption of CinemaNow will be predicated on association with premium third-party brands, including CE manufacturers’ Internet-enabled TVs, Blu-ray players, mobile devices, and retail/brand partners such as Blockbuster and Best Buy.

“Consumers are more likely to use a product from a trusted brand, which would drive adoption,” he wrote.

Indeed, Best Buy is expected to launch a digital media store in May utilizing CinemaNow.

In addition the analyst said ongoing tweaking of release windows by studios, including releasing movies on cable VOD ahead of DVD/Blu-ray, could significantly impact CinemaNow.

“We believe these shifts [should they become more widely utilized by studios] could cause consumers to more widely utilize VOD,” Wold wrote.

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