Sonicblue to Buy ReplayTV for $120 Million

Two years after spurring a revolution in digital music, a leading maker of MP3 players announced a deal Thursday to buy ReplayTV Inc., a move the MP3 giant hopes will similarly stoke the fires of the digital video revolution.

Sonicblue Inc., whose groundbreaking Rio digital audio devices have come to symbolize the changes sweeping the music industry, sees the same kind of opportunities in the digital video recorder made by ReplayTV.

“We want to develop new kinds of video products, new kinds of video services,” including novel ways to buy, organize and view TV programs, said Andy Wolfe, chief technical officer for the Santa Clara, Calif.-based company.

The deal--a stock swap worth more than $120 million--came two months after Mountain View, Calif.-based ReplayTV abruptly changed business models, ended production of recorders and started looking for either a new round of funding or a buyer.

Replay’s software records video on a high-capacity hard drive rather than removable tapes, which enables people to pause, rewind and play back programs as they are broadcast. The company’s video-insertion technology also helps advertisers show commercials to only those viewers most likely to buy their products.

Although relatively few consumers have bought the recorders developed by ReplayTV and its main competitors, TiVo Inc. and Microsoft Corp., many industry analysts expect the technology to fundamentally change TV. The new storage devices not only give consumers more control over what and when they watch, but they also enable new kinds of video-on-demand and video-rental services.

In addition to its line of digital audio products, Sonicblue also makes products to connect digital devices into home networks. With Replay’s video-recording software, Sonicblue will be able to supply consumer electronics manufacturers, cable TV companies and consumers with all the major pieces of a digital home entertainment system, said Steve Shannon, a ReplayTV. vice president.

Analyst Larry Gerbrandt at research firm Paul Kagan Associates said the deal is a sign of the momentum building toward home servers--devices that receive and store all of a family’s audio and video entertainment.

“When you realize that people have TV programs stored on hard drive . . . and people have their music library stored on the computer hard drive, it only makes sense that at some point those two things converge,” he said.

Under the proposed deal, Sonicblue will obtain all of privately held ReplayTV and assume its debt in exchange for 16 million shares of common stock, options and warrants. Sonicblue’s stock closed at $7.50 on Thursday, down 19 cents on Nasdaq.

Sonicblue also said Thursday that it has agreed to acquire Sensory Science Corp. of Scottsdale, Ariz., for $8 million. Sensory Science makes video and audio products, including digital TV sets and VCR-DVD units.