ReplayTV, Rio Find New Home

Japan's D&M Holdings will take the digital video recorder and MP3 business units -- including the Replay TV and Rio brands -- off SONICblue's hands for $36.2 million.

D&M Holdings, parent of audio equipment makers Denon Ltd. and Marantz Japan, won the business units in an auction of SONICblue's assets in the U.S. Bankruptcy Court in San Jose, Calif. Tuesday. D&M said it expects to close the deal in about 10 days.

Santa Clara, Calif.-based SONICblue filed for Chapter 11 Bankruptcy protection in March, after bleeding cash for more than a year. The firm, best known for its first-of-its-kind MP3 players, had managed to forge a non-binding agreement with D&M Holdings, parent of audio equipment makers Denon Ltd. and Marantz Japan.

But the firms were unable to finalize the asset purchase agreement ahead of the deadline set by the bankruptcy court, leaving the assets' fates to the whims of the auction.

Additionally, D&M plans to use the new assets to expand its North American presence. The firm said it will establish a new digital development group under D&M Holdings U.S. The new subsidiary, Digital Networks North America (DNNA), will be charged with creating strategy and new core technologies that will make the ReplayTV and Rio brands leaders in the "emerging entertainment-based home networking market."

"Both the ReplayTV personal video recorders and Rio portable compressed audio players are innovative products that have won numerous coveted industry awards," said Tatsuo Kabumoto, chief executive officer and president of D&M Holdings. "We will leverage the intellectual property and the excellent engineering talent from the ReplayTV and Rio businesses across our D&M brands while positioning these businesses to be more profitable."

The asset purchase is the second step in D&M's plan for entertainment-based home networking. In 2002, the firm picked up San Francisco-based Mediabolic, creator of an embedded software platform for entertainment devices. D&M has already been at work integrating the platform with products from its Denon subsidiary, and plans to release the new products later this year.

For SONICblue, D&M's acquisition marks one of the final stops in the firm's decline. Once a darling to Wall Street and consumer device fanatics, the firm admitted last January that it was considering putting itself on the auction block.

With bad elements seemingly at every turn in the latter half of 2002, that concession followed a November 2002 filing with the Securities and Exchange Commission, in which the firm said it had a debt of $335.5 million. In September, the firm slashed 25 percent of its work force a month after President and CEO Kenneth Potasher was canned over a loan dispute with the company's board of directors.

That problem and the layoffs sandwiched positive news in the form of a patent suit settlement with digital recorder rival TiVo. But SONCIblue spent the better part of two years fending off lawsuits, most notably with its ReplayTV brand, which manufactured a dual deck VCR that media giants CBS, NBC, Viacom and Disney said infringed on their s. That suit was also settled.


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