The digital video recorder pioneer has fallen victim to Hollywood's bullying. With its demise go some of the best things about digital recording.
It's always a little sad when a company files for bankruptcy protection. Employees lose their jobs, and investors lose their collective shirts. The recent Chapter 11 filing by digital music and digital video recording (DVR) pioneer Sonicblue, however, is particularly sad because Sonicblue (SBLU) was the only DVR company that didn't cave in to the demands of the TV networks, offering a DVR with such innovative (and controversial) features as a 30-second fast-forward button and file-sharing.
Of course, those were the features that helped sink Sonicblue, provoking 27 media firms -- including all the TV networks -- to file suit against it two years ago. "The company was being bled to death by the lawsuit," says Greg Ireland, an analyst with IDC. Not long ago, Sonicblue CEO Greg Ballard said that the suit was costing the company $1 million each month -- a huge amount for a company that in its most recent quarter lost a total of $33.4 million on revenues of $67 million.
A recent IDC survey found that Sonicblue had about 5 percent of the total DVR market -- a market dominated not by Sonicblue competitor TiVo (TIVO) (although TiVo commands about 85 percent of the stand-alone DVR space) but by major satellite companies such as Echostar (DISH) and DirecTV, which have been shipping boxes with DVR functionality for more than a year. Of the 1.5 million U.S. households with DVRs, IDC estimates that two-thirds possess satellite boxes and the rest have stand-alone devices.
So what happens to the DVR market now that Sonicblue ceases to manufacture its Replay TV device? Both good and bad things. First, the good. As part of the bankruptcy arrangement, Sonicblue announced it had struck a deal to sell its Replay division to Japanese consumer electronics giant D&M Holdings, the parent company of audio equipment manufacturers Denon and Marantz, which won't inherit Sonicblue's legal troubles. D&M has the kind of marketing muscle and retail distribution that Sonicblue could only have dreamed about, and that might help increase consumer awareness of the category, which remains a top concern. This could help TiVo focus its attention on the more pressing threat: the further encroachment by satellite companies and the new DVR products set for release this year by major consumer electronics manufacturers such as Samsung, Sony (SNE), Thompson, and Toshiba.
And now for the bad news. It's unlikely that D&M will continue to include the Replay's advanced features, given their troubled legal history. "From a features set standpoint, the market loses something with Sonicblue's bankruptcy," IDC's Ireland says. "Removing Sonicblue from the mix removes the one player that confronted the media companies." And this is a real shame for consumers, since the actual legality of the features was never determined -- the case never went to court. In effect, the major media companies "innovated" through bullying, applying enough legal pressure to get rid of the features they didn't want included. The Electronic Frontier Foundation, which launched a countersuit on behalf of consumers for Sonicblue, is unsure whether it will continue with its legal efforts in the wake of the company's demise. "[Sonicblue's] bankruptcy sends a clear message to technology companies: You may not innovate without Hollywood's prior approval, on pain of enormous litigation expenses," EFF staff attorney Gwen Hinze said in a statement. And with conglomerates -- not small startups -- now battling it out in the DVR sector, it's doubtful that consumers will ever get the fair-use trial or the advanced features they deserve.
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