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
the asset purchase agreement ahead of the deadline set by the
bankruptcy court, leaving the assets’ fates to the whims of the auction.

D&M said the assets it won in the auction include inventory, receivables,
intellectual property and capital equipment. The company said it will also
take over “selected contractual relationships and liabilities.” D&M did
note that it intends to keep all ReplayTV customers and will design,
manufacture and distribute a line of ReplayTV and Rio products.

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

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 copyrights. That suit was also settled.

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