Sonic Solutions (NASDAQ:SNIC), the company currently known as Roxio's (NASDAQ:ROXI) latest remix, looked to reposition itself as a digital music pure play. With all the buzz surrounding digital music, Roxio's move has at times been portrayed as shedding its unwanted software division and leaving purchaser Sonic Solutions with what seems like a peripheral band member. We've looked at what Roxio gets out of this -- now it's time to consider this move from Sonic's point of view.
With the impending purchase of Roxio's software division, Sonic will see immediate benefit to its top line -- an area that caused some concern during yesterday's earnings release. Software sales made up $18.1 million of Roxio's revenue for its recently concluded third quarter. The growth in revenue may not be organic, but neither is it too forced -- Roxio's online sales of CD recording products complement Sonic's business very well.
Yesterday was also the announcement of a long-term agreement between Sonic and Scientific-Atlanta Inc. Under the deal, Scientific-Atlanta is licensing Sonic's AuthorScript CE for some of its digital video recorders (DVRs) under development. These new DVRs would allow users to burn previously recorded shows onto DVD, freeing up hard disk space for other shows and making their recordings more portable. Deals like this will give Sonic a nice share of the lucrative DVR business. Scientific-Atlanta's competition will not want to miss out on this feature, and as the most widely licensed DVD software engine, AuthorScript will most likely be their first choice.
While providing tools for creating digital media may not be as chart-topping as selling digital music, it is still a fast-growing business. Sonic Solutions experienced earnings growth of 337% in its last fiscal year, and net income for the first six months of this fiscal year is 81% higher than the corresponding period a year ago. Services like Apple's (NASDAQ:AAPL) iTunes and Tivo's (NASDAQ:TIVO) hard disk recorders allow consumers to acquire digital media; on the other end of the spectrum, Sonic gives users the ability to manipulate and store it in CD or DVD form. Investors interested in digital media should not neglect the flip side of the disc by excluding Sonic Solutions when considering companies for their playlist.
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Fool contributor Tim Goh does not own any stake in the companies mentioned.
