Sonic SNIC conf call.
While the movie studios suffer from declining sales, within the industry and fueled by the decline is a growing emerging internet-to-TV industry which is fast becoming mainstream, thanks to cooperation between studios, CE manufacturers, retailers, and technology providers.
Sonic is one of the best positioned technology providers --their deal with Best Buy is enormously positive, and potential good is the deal to power digital Blockbuster movies-- and they also have their own retail storefront CinemaNow. That is why I continue to follow them, and believe they could become a massive homerun stock. They don't meet the criteria of this board, but since it has been a bit slow, and a few have shown interest, here is the latest from today's conference call. If this drops for whatever reason one may want to consider it for some risky money:
Call info:
1. Roxio Consumer revs down slightly, pricing pressure, reflective of general market.
2. Premium revs up, but still small, and breakout not given. Includes CE licensing.
3. On over 1 million devices as of the end of Dec. On track to meet 3 million by June, and 30 million by June, 2011 based on agreements in place and those they are highly confident will be in place but aren't yet done deals.
4. Attach rates up strongly, but holding back on giving info. Blended attach still very low for this qtr of around 4%. Some devices attach rate "much much higher".
5. Marketing issues still in experimentation by studios/retailers, which could be a factor in the eventual attachment rate.
6. Big plans with Best Buy, with 'goal' of being on every internet connected device they sell.
7. All signs are that the studios, retailers, and manufacturer are all highly supportive of enabling the added flexibility of internet-TV streaming.
8. Continuation of significant announcements to remain about the same as in the last 6 months.
My comments:
1. Roxio Consumer market is a mature industry. IMO not an important part of the future stock price or company future--EXCEPT as it pertains to industry connections, which are VERY important to Sonic. However, it is important to the short term stock price and this positive earnings report could help it.
2. I'd like to know the attach rate for the Blu-Ray devices. That's the big seller and going to hit the bottom line the most and soonest in the premium segment. I still think exponential rates are coming, but the feedback so far isn't for a homerun even if they get on 30 million devices. This could be fodder for skeptics.
3. Rentals comprise 80% of the usage by consumers of the streaming service. This is subject to much variation as different models of usage and ownership are examined. It is critical that IF the buy now play anywhere model is only moderately successful, that they can power the rent-now-play-now segment of the digital marketplace. Fortunately, the studios have strongly signaled that digital rental comes before physical rental of new releases. And, fortunately for Sonic, they are powering new release digital rentals, and are not competing head to head with Netflix for that market.
4. We will continue to see some great announcements. Will it be enough to keep consistent moves up? Market woes aside, I think it could since each announcement will increase belief in the premium segment of those who are already shareholders, AND add to the belief for others who are not. Demand vs supply.
Lastly, the company keeps saying they are a technology and tools provider, which of course they are. However, this call reinforced in my mind the importance that those they are suppling the tools for are successful--that digital sales and rentals using the CinemaNow platform increase exponentially and become a significant market share of the movie industry. For the most part, being a tools provider only becomes significantly profitable if those using the tools have a successful product. While there was no mention of cable companies on the call, their role as partners and as competition would logically seem to be critical factor in the digital streaming attachment rates, so continues to be an area of great relevance.
I think Sonic will win big because all they players support what they are doing, AND the public will want to use their technology. Just remember that despite some very positive signs, the proof is not yet showing up.
ted |
