Sonic takes on Apple with CinemaNow purchase

UPDATE: Plans to embed movie download service in PCs, phones, set-tops

By Jennifer Netherby -- Video Business, 11/19/2008

NOV. 19 | In a move that will pit it directly against Apple iTunes on digital movies, Sonic Solutions said today it is acquiring Internet movie service CinemaNow.

Sonic will pay $3 million for CinemaNow in an all-cash transaction, execs said during a Wednesday afternoon conference call with analysts. That is significantly less than the more than $40 million the movie company has raised in venture funding from Lionsgate, Cisco, Echostar, Menlo Ventures and others since its launch a decade earlier.

Last year, Blockbuster acquired CinemaNow competitor Movielink for the bargain price of $6.6 million. Both companies have struggled to grow the download business, which has yet to take off with consumers. Apple iTunes dominates the market, largely due to the iPod. 

Sonic chief financial officer Paul Norris said CinemaNow’s business isn’t growing, though the company expects that to change. CinemaNow generates roughly $1 million in quarterly revenue but is not yet profitable.

Sonic plans to aggressively expand the number of devices that CinemaNow’s service is embedded in, envisioning a movie service available on everything from PCs to Blu-ray Disc players to mobile phones to virtually any other device that plays video, all using Sonic software and technology for seamless playback.

“There’s an opportunity there to be a real viable alternative to Apple in the download space,” Sonic executive VP of strategy Mark Ely said. “If you want to download movies or download TV shows, Apple has a whole soup to nuts solution. The only problem is you have to have Apple software to make it all work.”

CinemaNow was one of the first Internet movie services to launch, originally formed by Trimark in 1999, before the film company was acquired by Lionsgate.

The movie service offers more than 6,000 movies through deals with every major studio. Sonic president and CEO David Habiger said during the conference call that the company hopes to double the number of movies available by next year.

Sonic will combine CinemaNow with its Qflix division to form a Premium Content Group, headed by Ely. CinemaNow president David Cook will stay on, as will other key members. Sonic also will maintain CinemaNow's Marina Del Rey, Calif., offices.

CinemaNow had already been repositioning itself from being a pure Web site service into a movie service embedded on a number of devices, including Archos digital devices and TiVo digital video recorders.

Sonic expects through its partnerships with consumer electronics companies to greatly increase the number of devices on which CinemaNow is embedded. Sonic believes having content also will make CinemaNow a more compelling partner for consumer electronics and device manufacturers in search of an easy solution to deliver movies and video to consumers.

Sonic partnered with CinemaNow earlier this year to include CinemaNow movies as an embedded service with Dell’s Qflix DVD burning drives. Sonic is trying to make its Qflix technology, which burns movies with CSS copy protection, the standard DVD burning format. So far, CinemaNow offers only 100 or so movies as burnable downloads, but the company expects to make the full CinemaNow library available for DVD burning.

Sonic had been considering starting its own movie service to feed its Qflix technology but started eyeing CinemaNow after partnering with the download service for the Dell drives, said Jim Taylor, senior VP and general manager of Sonic’s advanced technology group.

Going forward, the company plans to integrate CinemaNow into Qflix even more so that it’s offered as one-click shopping, Ely said.

Sonic had signed a deal with Movielink last year to offer download-to-burn movies before the site was acquired by Blockbuster. Taylor said Sonic is still open to working with Blockbuster, but he acknowledged that Blockbuster might not be interested in continuing given Sonic’s ownership of CinemaNow.

Ely said he hoped Sonic’s ownership of CinemaNow wouldn’t prevent it from continuing to work with companies in the digital movie space.

Paul Sweeting contributed