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Sonic CEO: Connected Consumers Watch Four VOD Movies a Month

9 Nov, 2010 By: Erik Gruenwedel

Consumers with connected devices in the living room are watching about four transactional video-on-demand (VOD) movies a month, according to Sonic Solutions CEO Dave Habiger.

In a call following the Novato, Calif.-based company’s quarterly financial results, Habiger said the data is based on a consumer purchasing at least one VOD transaction per month for three consecutive months. He said the pattern, which is up 136% up from last year, makes that consumer likely to watch four VOD movies per month going forward.

Habiger said digital distribution of movies through the Internet continues to encroach upon packaged media, underscored by Sonic’s RoxioNow transactional VOD software, which is currently embedded in about 6.5 million connected devices (as of Sept. 30), excluding video game systems and PCs.

Sonic expects that number to reach 30 million devices by June 2011.

RoxioNow is embedded in third-party HDTVs, Blu-ray Disc players, digital media adapters, and mobile handsets from manufacturers, including HTC, Insignia, Integra, LG, Magnavox, Memorex, Onkyo, Panasonic, Phillips, Samsung, Sharp, Sony, Sylvania, Toshiba, Western Digital and Vizio, among others.

“We are starting to see a category of customers develop that are using us as their weekly movie new release store,” Habiger said. “Once someone goes through the effort of setting up an account and buy or rent a movie, it is rare that they decide never to buy or rent again.”

The CEO said that in the most recent quarter consumers overwhelmingly (90%) opted for rentals compared to electronic sellthrough (10%), but he expects the ratio to move closer to 80/20 going forward as users become familiar with the concept of digital lockers.

Sonic is a partner in the rollout the Digital Entertainment Content Ecosystem’s virtual storage system called UltraViolet, which is set to launch in the near future.

“What drives electronic sellthrough is the digital locker,” Habiger said. “When people begin to understand that the locker links them to other connected devices you would tend to see increased interest in owning the title.”

Habiger said Sonic remained on track to deploy one or more RoxioNow-powered movie download “stores” in upwards of 95% of Internet-connected Blu-ray Disc players and connected TVs over the next several years.

“We are reasonably confident that there is a fundamental shift taking place in the industry, namely that not only are consumers behaving differently toward home entertainment, but content holders have a particular incentive to go [toward digital distribution] because they make more money,” he said.

Habiger said he believes there will be from 60 million to 120 million connected devices in households (including mobile phones) by 2012, with Sonic realizing from 10% to 20% attach rate for RoxioNow.

He said Sonic has benefitted in part by riding Netflix’s coattails as the subscription service embeds its streaming service in hundreds of CE devices, in addition to promotions and coupons offered by 12 retail partners, including Best Buy and Sears, which use RoxioNow to power proprietary download services.

Habiger said Netflix has done a good job educating the consumer about streaming.

“If Netflix goes on the box, we know our attach rate is a lot higher than if it is not on the box,” Habiger said. “If you are really going to get consumers to move to a digital model, it has to be easy and reasonably priced.”

The CEO said there exists a growing consumer base that owns a connected device and is only now discovering its ability to access content from the Internet.

“When they bought this Blu-ray player, they had no idea it could connect to the Internet and would stream a movie to them in six seconds on the TV,” Habiger said.

Finally, Sonic posted a second-quarter (ended Sept. 30) net loss of $2.6 million, compared to a net loss of $206,000 during the previous-year period. Revenue fell 4.6% to $25.3 million from $26 million last year.



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