Costa Mesa-Based Discovision to Be Sold to Japanese : Acquisition: Company’s portfolio of high-tech patents gives buyer Pioneer Electronics an upper hand in competing with its biggest Dutch rival.
International Business Machines Corp. and MCA Inc. said Thursday that they have agreed to sell Discovision Associates, a one-time high-flier in laser disc technology whose sole asset today is a large portfolio of patents, to Pioneer Electronics Corp. of Japan for $200 million.
The Discovision patents cover a number of basic optical storage technologies that lie at the heart of compact disc players, video disc players and optical storage devices used for some computer applications.
Discovision President James N. Fiedler said the Costa Mesa-based company had 1,400 patents and patent applications on file around the world and that all major manufacturers of laser disc systems--including international electronics giants such as Sony Corp., Hitachi Ltd. and Philips N.V.--were licensees of the firm.
A spokeswoman for Pioneer, the leading seller of optical disc systems in the United States, said the company will continue to license the technology to other firms. Pioneer is making the acquisition through two subsidiaries based in Long Beach.
Fiedler said that the company was not seeking a buyer but that Pioneer “offered a price we were not prepared to refuse.”
The price “is well worth it, based on the fact that Pioneer now has the rights to ‘x’ cents for every video disc, compact audio disc and computer disc,” said Linda Helgerson, editor of CD Data Report, a newsletter based in Falls Church, Va.
She added that Pioneer, which competes head-to-head with Philips, appeared to have achieved “a major coup” over its Dutch rival. Philips, based in the Netherlands, is credited with inventing many of the basic laser disc technologies, but the company agreed last year to pay “a significant sum” to license technologies from Discovision.
The sale of Discovision, a joint venture of MCA and IBM, marks the end of a long saga in which they proved unable to capitalize on an early technological lead in laser disc systems.
MCA, the Los Angeles-based entertainment conglomerate and parent of Universal Studios, got into the disc business in the 1960s with the purchase of a five small companies, including Gauss Electrophysics, which had developed the basic techniques by which signals could be etched into a plastic disc and read by a laser beam, Fiedler said.
MCA initially announced its revolutionary video disc in 1974, promising consumers an easy and relatively inexpensive way to view movies on their television sets at home. MCA formed joint ventures with Philips for home applications and with Pioneer for industrial applications, and in 1979--the same year the products were introduced on the market--joined with IBM to manufacture the discs at a plant in Carson.
But despite a reported $100-million investment by the two firms, the venture had technical and marketing trouble from the start. “They had a terrible quality problem, and they never licked it,” said David Lachenbruch, editorial director of Television Digest, an industry publication.
In addition, RCA Corp. came out with a competing technology for home movies, causing confusion in the market and slowing sales, analysts said.
At its peak in 1981, Discovision employed 1,000 people and had a large disc factory in Carson, but in 1982 the whole operation except for the patents were sold to Pioneer for an undisclosed sum. Today, Discovision only has 16 employees tending to its patents business. The Carson plant now produces video discs for Pioneer at the rate of 600,000 a month.
“The technology was ahead of its time, and it was very costly,” said Harold Vogel, an analyst with Merrill Lynch & Co. He said MCA may have missed a big opportunity but also had good reasons to sell given its lack of expertise in consumer electronics.
Lachenbruch noted that the video disc still has not become the mass market product that was once expected: Videocassette recorders have taken that niche, while laser players are aimed at those who insist on a higher-quality picture.
The emergence of compact disc players for music was also not anticipated, even though it is based on the same technology initially developed for movies.
Discovision has spent much of the last decade asserting patents rights over a broad range of technology that have been derived from the original optical disc technology, including not only audio discs but also CD-ROM discs, which many regard as the next-generation medium for the storage of computer data.
Next Inc., the computer company started by Apple Computer founder Steven P. Jobs, uses such an optical storage device.
Ultimately, Discovision succeeded in gaining royalties from the major manufacturers, with last year’s settlement with Philips marking a crucial breakthrough. Philips itself has licensed technology to many companies in conjunction with Sony.
And today, the optical storage industry is truly poised for takeoff. Some 14% of U.S. homes now have compact disc audio players. Pioneer expects its sales of video disc players to double to 200,000 next year, and computer laser discs are considered by most experts to have great potential.
New machines which can play any kind of audio, video or computer disc, in any format, are also expected to play a major role in driving the market, analysts said.
