Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Peter Halt – Chief Accounting Officer

Fred Amoroso – Chief Executive Officer

James Budge – Chief Financial Officer

Analysts

Ralph Schackart – William Blair & Company

Sterling Auty – JP Morgan

Ingrid Chung – Goldman Sachs

Rob Stone – Cowen and Company

Ben Swinburne – Morgan Stanley

John Vinh – Collins Stewart

Andy Hargreaves – Pacific Crest Securities

Jeff Rath – Canaccord Genuity

Mike Olson – Piper Jaffray

Jim Goss – Barrington Research

Rovi Corporation (ROVI) Q3 2011 Earnings Call November 8, 2011 4:30 PM ET

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Rovi Corporation Third Quarter 2011 Earnings Release Conference Call. At this time, all participants are in listen-only mode. Following the presentation, there will be a question and answer session, and instructions will be given at that time. (Operator Instructions)

And as a reminder, this call is being recorded today, Tuesday, November 8, 2011. I would now like to turn the call over Peter Halt. Please go ahead, sir.

Peter Halt

Welcome ladies and gentlemen to Rovi Corporation’s third quarter 2011 earnings conference call. I’m Peter Halt, and I’m joined today by Fred Amoroso, our CEO; and James Budge, our CFO.

Before we discuss our results, which were released earlier today, I would like to start with some housekeeping items. First, I would like to remind you that all statements made during our conference calls that are not statements of historical fact, including but not limited to statements regarding the company’s forecast of future revenues and earnings, the integration of the Sonic acquisition, as well as business strategies and product plans, constitute forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Actual results could vary materially from those contained in these forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in our Form 10-Q for the period ended September 30, 2011 and other filings with the SEC that are filed from time to time.

Second, our results released earlier today, as well as our discussion on this call, include non-GAAP adjusted pro forma information, which exclude as applicable non-cash items and items that impact comparability examples of such as items include amortization, equity-based compensation, and discrete tax items and the tax effect of all non-GAAP adjustments.

Depreciation expense, while a non-cash item, is included in adjusted pro forma operating results as a proxy for capital expenditures to demonstrate recurring cash-based earnings. Adjusted pro forma combined company information assumes the Sonic Solutions acquisition was effective on January 1, 2010.

Adjusted pro forma reconciliations for historical results, including Sonic Solutions, are in our press release. We have presented in our discussions, adjusted pro forma combined company information because this is how we have and will evaluate our business.

We believe that this presentation may be meaningful to our investors in analyzing the company’s results of operations. This presentation is not intended to be a substitute for our financial results presented in conformity with the Generally Accepted Accounting Principles in the United States, and investors and potential investors are encouraged to review the reconciliation of adjusted pro forma financial measures included in our earnings press release.

And as a final piece of housekeeping, the webcast of this conference call will be available on our Investor Relations webpage until our next quarterly earnings call.

I would now like to turn the call over to Fred.

Fred Amoroso

Thank you, Peter. And thanks everyone for joining us today for our quarterly conference call. As you may have seen in our earnings press release, we grew adjusted pro forma revenue to $196.5 million in Q3.

Similar to previous quarters, our business continued to grow due to new license agreements, increases in device shipments that incorporate our products or are licensed under our patents, the continued conversion of analog TV subscribers to digital and advertising growth. When combined with operating efficiencies, this resulted in a 19% year-over-year increase in adjusted pro forma EPS to $0.63.

I’m pleased with our successful financial results, as well as with the significant progress we have made securing customer wins for our new solutions across our verticals. I’ll discuss our progress in more depth shortly, but first James will review some of the financial metrics. James?

James Budge

Thank you, Fred. As Fred mentioned, we grew adjusted pro forma revenue to $196.5 million in Q3. Revenue on our service provider vertical, which is primarily comprised of IPG products and patent licensed to cable satellite and telecom companies, grew 13% year-over-year to $74.5 million in the third quarter.

This growth was driven by the continued conversion of analog subscribers to digital, the addition of new international licensees and growth in our service provider product revenues.

It's worth noting that our service provider product revenues rose 36% quarter-on-quarter, marking the fifth consecutive quarter of 20-plus percent product growth. The strength in products was achieved by improved pricing on contract renewals, continued convergence of SARA guide to Passport, new applications and advertising.

Subscribers worldwide receiving a license to Rovi-provided set-top box based IPG rose to $133 million at the end of Q3 2011, up from $126 million in Q3 2010. Excluding prepaid licensees, primarily Comcast and Dish, total Rovi licensed subscribers are now approximately 92 million versus 87 million in the year ago period. Subscribers receiving a Rovi-provided set-top box based IPG either a Passport or i-Guide rose 22% to $18 million at the end of Q2 2011.

Adjusted pro forma revenue in our CE vertical, which includes guidance products and patents licensed to device manufacturers DivX and ACP for hardware was $88 million in Q3 2011, up 16% from $76 million in Q3 2010.

As we continued to benefit from growth in shipments of IPG-enabled devices, as well as robust DivX growth. However, consistent with the trends from prior quarters, growth was partially offset by declines in our analog product line such as ACP.

This decline has been a headwind that we have discussed for quite a while now. However, to put a final point on it, we expect the impact of ACPs decline going forward to be much more significant and we believe we are nearing the end of meaningful revenue contribution from ACP.

Adjusted pro forma revenue for our consumer software and other vertical, which includes the Rovi Entertainment Store, data licensing, entertainment and Roxio offering, with $34 million in Q3 2011, down 16% from $41 million comparable period last year.

The drop off is attributable to the decline in demand for analog ACP for entertainment product and the more rapid than anticipated decline of the Roxio consumer software business.

While we continue to have high expectations and believe the end markets are significant for both the Rovi Entertainment Store and data licensing. We anticipate any growth from these businesses will largely be offset by the continued decline in our analog ACP for entertainment and Roxio consumer software offerings for the next 12 months.

Turning to adjusted pro forma profit measures. Cost of goods sold totaled $32.9 million or 17% of revenue. SG&A totaled $37.4 million or 19% of revenue and R&D totaled $38.6 million or 20% of revenue. Our high operating and earnings margins were due primarily to operating efficiencies, including early synergies from the Sonic Solutions transaction.

SG&A expenses declined 18% year-over-years. We continue to realize synergies in SG&A and other operating costs. As mentioned on the last call, we expect annualized synergies to be closer to $40 million versus our initial expectation of around $30 million.

Turning to our balance sheet. The principal amount of debt at quarter end was $1.1 billion. During the quarter we paid $28.4 million in connection with the conversion of what was left of the 2011 converts.

In addition, we purchased 3.1 million shares of common stock and as we indicated we were near the time of the transaction, we have now fully offset the issuance of the shares associated with the Sonic Solution’s acquisition.

As indicated in our 10-Q filing today, our Board of Directors recently authorized a new $400 million stock buyback inclusive of the amount remaining under the prior authorization. To add to what we have already completed to date. Cash and investment balances at the end of September were nearly $500 million.

With respect to the 2012 outlook, let me provide some directional revenue trends for next year. In our services provider vertical, we expect growth in the low to mid-teens range once again in 2012.

The positive trends remain intact, we believe we’re well-positioned for subscriber gains from continued analog to digital conversion, extensions of customers from patent to product licenses at higher values, SARA to Passport conversion, international growth and expanded licenses to cover online and mobile fields of use like the Comcast, Cox, Charter, Cablevision, Rogers and Videotron deals entered into in 2011.

While we have made excellent progress to-date in signing TotalGuide wins for the service provider market. We do not expect those solutions to roll out into market in any scales such that they will contribute meaningful revenue until late 2012 or early 2013.

On the CE side, I’m pleased with our recently announced multi-year license agreement with SARA for Rovi guidance solutions including our TotalGuide and products and Rovi Cloud Services offerings in North America and Europe, and our G-Guide product in Japan.

This deal follows last quarter’s announcements of TotalGuide deals with Panasonic and Toshiba, while these deals are great news regarding the acceptance of our TotalGuide Solution. I would caution that based upon the pace of roll outs from our major customers. We do not anticipate significant CE related TotalGuide volumes until late in 2012.

Additionally, we anticipate the difficult global economy will persist as a challenge for the CE industry throughout 2012. Also the impact of the natural disaster in Thailand and its impact on the supply chain for hard disk drives could limit near-term revenue growth for CE digital products and patent offerings.

And as previously mentioned we expect a meaningful drop off in ACP revenues which we expect to only contribute about one-third of the revenues in 2012, that they are expected to contribute in 2011. As a result, we anticipate CE revenues for the full year 2012 to be flat when compared to expected 2011 CE revenue.

Finally in our consumer software and other category, we expect data licensing to continue to benefit from customer additions and expanding licenses with existing customers. We also expect the Rovi Entertainment Store show strong growth as we increase the number of major retailer storefronts and expand our platform internationally.

However the trend, the strength of the Rovi Entertainment Store and data offerings will be offset by the less strategic ACP for entertainment and Roxio declines. Continued weakness in optical media sales, the shift away from laptops towards tablets and a contraction in shelf space for this product category weigh heavily on our Roxio software offering. While Roxio is a strong product, it is clear that the overall category is challenged and we expect it will contract further in 2012.

When you add it all up, this means we expect 2012 pro forma adjusted revenues to grow in the mid to high single digits. It's worth noting however that when we look at the business without the declining analog and Roxio products we expect growth in the low to mid teens range next year.

In regards to our full year 2011 outlook, some of these business and pressures namely accelerating analog and Roxio declines in near-term CE industry weakness will have an impact on 2011 results.

So, while we are maintaining our adjusted pro forma revenue estimates of between $770 million and $810 million for 2011, and continue to expect 2011 adjusted pro forma EPS estimates of between $2.35 and $2.60. At this point, we expect to be close to the low-end of those ranges for 2011.

And now, I’ll turn the call back over to Fred. Fred?

Fred Amoroso

Thank you, James. At this point, I’ll review the quarter and some recent business highlights. In CE, we continue to benefit from the digital TV upgrade cycle, device sales fueled by price reduction and consumer desire for increased functionality most notably connectivity.

Our strategy to take advantages of this connected trend over the long-term is of course, through our TotalGuide Solutions and Rovi Cloud Services, which include our advertising, metadata and search and recommendations services, as well as our Rovi Entertainment Store offering. These offerings will address the consumers’ desire to search, discover, acquire and playback content from both broadcast and on-demand sources.

In terms of wins, as James mentioned earlier, we signed a multi-year license agreement with Sharp for Rovi guidance solutions including our TotalGuide products and Rovi Cloud Service offerings in North America and Europe and our G-Guide product in Japan, as well as a license to our IPG patent portfolio for next generation Sharp digital televisions, players and recorders worldwide.

Sharp is the number one consumer electronics brand in the Japan market with approximately one-third market share. When you add Sharp to our existing licensees in that market, we now have over three quarters of the Japanese market licensed under our patents and/or deploying G-Guide.

We will be working with Sharp on product rollout plans and we hope to see devices incorporating our products and models released to the public in late 2012 or ’13.

I also expect both Panasonic and Toshiba to begin shipments late next year of devices including our TotalGuide Solution. I feel comfortable in saying that the traction for TotalGuide and Rovi Cloud Services is strong and I expect it to continue to strengthen.

Elsewhere, we launched the G-Guide application for the iPad in the Japanese market and it was the best selling app on the apple app store in Japan during its first week in release and has been a top selling entertainment app for almost two months now.

Additionally, with Hitachi, we launched the Hitachi branded iPad app at C-TEC that schedules recordings and operate as a remote control to change the channel on the Hitachi’s TV and DVR products.

Turning to DivX, demand for this product line continues to be strong. Adjusted pro forma revenue for emerging devices like digital televisions and Blu-ray devices grew year-on-year almost 100% and adjusted pro forma revenue for mobile devices grew almost 700%.

We also saw revenue from DVD players grow 7%. Overall shipments of DivX license hardware devices grew about 42% year-over-year and approximately 570 million devices are now enabled by our DivX technology, further demonstrating the strong demand for our DivX branded offering.

We also entered into some notable DivX customer agreements during the quarter. We signed agreements with Panasonic covering digital televisions, Blu-ray and DVD’s in pioneer for DVD, Blu-ray and in car video products.

We also launched DivX plus streaming at the IFA consumer electronics show in September. DivX Plus Streaming is adaptive bit rate streaming solutions, which means it works by detecting a user bandwidth and CPU capacity in real time and adjusting the quality of the video stream accordingly. The result is very little buffering, fast start time and a good experience for both high-end and low-end connections.

DivX Plus Streaming provides secure streaming delivery of a feature rich premium digital entertainment experience to connected devices including HDTVs, Blu-ray players, smartphones, game consoles, PCs, Max and cable set-top boxes. It is the first ever DivX profile that delivers a high quality DRM protected video stream over the Internet.

The other secure adaptive bit rate streaming technologies on the market today are not delivering the high quality experience that consumers have come to expect with their physical media. The consumer experience today often consists of long waits for a movie to start less than perfect HD quality and clumsy fast-forward and rewind.

DivX Plus Streaming solves these problems with its support of 10 ADP HD fast video start, trick play features like smooth fast fast-forwarding and rewind, and the ability to support subtitles and multiple audio tracks.

DivX Plus Streaming when implemented in conjunction with Rovi Entertainment Store, also provides the ability to resume playback across devices enabling consumers to pause the movie in the living room and finish watching it at their local coffee shop on their iPad or laptop.

We expect to have DivX Plus Streaming implemented in our Rovi Entertainment Store early next year with device rollouts following thereafter.

On the IP licensing front, in connection with entering into the shop agreement, I mentioned earlier, we dismissed our existing USITC litigation, as well as litigation in Japan and Germany. We always prefer entering into mutually acceptable commercial terms and are pleased that Sharp entered into a multi-territory agreement including licensing and our IPG products.

In our Service Provider vertical despite the slowdown in growth for basic video cable subscribers in North America, our fundamentals remain positive as digital subscribers continue to grow. Our subscriber growth also includes international, where we are benefiting from both lower relative digital penetration and are growing penetration through new licensees.

We also demonstrate a progress across several key initiatives, for example as James noted earlier, we grew our Service Provider product revenues by 36% year-over-year in Q3. This was attributable to subscriber growth of 22% as we completed more SARA to Passport conversions, improved pricing when we renew agreements and the up-sell of incremental applications to our customers, including Remote DVR recording, multi-room DVR, switched digital video support, EBIF User Agents and others.

Well, i-Guide and Passport growth drives results today. These solutions will also provide the platforms upon which to transition customers to future offerings. On this front, we have made significant progress with our TotalGuide solutions for service providers.

Last quarter, I mentioned several key customer win including our two light house accounts for TotalGuide xD and TotalGuide for set-top boxes, Austar Communications and BendBroadband.

While only having a couple of 100,000 subs, these two operators are well respected within the industry for being on the leading edge of technology trends. I also mentioned subsequent customer wins with Charter, Suddenlink and Cogeco in Canada.

Today, I'm very pleased to report that we’re making solid progress towards deployment on these fronts. Of particular note, our TotalGuide xD deployments with Armstrong and Bend are progressing on schedule. Integration testing is complete. Trials have commenced and we are expanding to verify scalability prior to commercial deployment.

We are on scheduled to launch TotalGuide xD before year end and as for TotalGuide for set-top boxes, I’m pleased to report that we achieved a significant milestone this quarter. The product is code complete and on schedule for delivery to BendBroadband for field trials early in 2012.

In parallel, we are in the initial phase of deployment preparations with Cogeco, Suddenlink and Charter validating the underlying prerequisite enables that includes the EBIF User Agent and Remote DVR application. We also continued to make progress adding new customers including recent wins with [Bacai] and Blue Ridge Communications.

In a market where customers are reluctant to commit to new products on spec, TotalGuide progress to-date is notable and validates the need for such an offering. The product key selling points, which I discussed at length in our last quarter’s call that is brand control, cross-platform extensions and deployment efficiencies across both legacy boxes and new platforms are clearly resonating with our Service Provider customers.

However, for many operators the proof remains and the putting as they say, which means that they will likely reserve commitment until they see TotalGuide deployed in the filed by other operators. As I have said before, to this end we’re in good shape.

We are confident that our strategy to develop the product in phases and work with targeted lighthouse accounts will greatly accelerate conventional cycles getting total guide to market and thus accelerating the process of signing additional new customers.

It is also important to bear in mind that while operators are keen to migrate to next gen guide. There are still a tremendous amount of low-end set-up boxes, which will remain deployed with Rovi’s legacy guides for years to come.

While TotalGuide will target some of these low-end devices, others won’t be able to handle the advance capabilities. To avoid the untenable cost to replace all of those boxes with new hardware in a short to mid-term, we anticipate service providers opting for a low-cost solution.

We expect this will typically mean investing to add incremental functionality through the apps I mentioned that we have had tremendous success and up selling to operators, namely Remote DVR recording, multi-room DVR, switch digital video support, EBIF User Agent and others. And when added on top of the legacy IPGs, Service Providers can additional mileage out of their existing investment in these low-end boxes.

This has the potential to result in the widespread deployment of multiple incremental apps across the vast majority of these older set-up boxes, which equates to steady incremental revenue source during the transition period to next generation guides such as TotalGuide.

Also as I mentioned earlier and as I have discussed on pervious calls, it is important to remember that our legacy guide and many of these applications are essential enablers for the TotalGuide family of guides.

This means we’re creating demand for our products in two ways, fulfilling needs related to enhancing the legacy set-up box experience, plus creating pull-through for the TotalGuide family of products.

Ultimately, I’m confident operators are increasingly viewing our solution as a long-term answer to retain customers, grow revenues, control branding and minimize cost and disruption, while increasing speed to market.

While today, we’re focused on small to mid-sized operators, who don’t have internally developed solutions. We’re hopeful that over time, larger service providers will opt for our premium offering that provides not only IP, but also our next generation guide.

I really think that it’s important to reemphasize, notwithstanding the Charter in the marketplace about competitive offerings that as we deliver on our development milestones, I believe the confidence in our offering will only increase.

Overall, I’m pleased with the progress we have made with Service Providers and I would expect additional wins with sizable customer for next generation guide platforms in the near future. Hopefully, this puts into perspective where we sit in the industry versus other options and a potential for this business to continue to drive our results.

Moving on to our data business, we signed renewal agreements with Tesco, U.K.’s largest retailer backed by MTV and Microsoft, which expanded its relationship in licensing Rovi’s entertainment data into a broad range of products, technologies and properties.

We believe this latest agreement with Microsoft covering Rovi’s movie, music, television and video game data is a testament to the strength of the Rovi’s global data coverage and reinforces our role as a leading provider of premium entertainment metadata.

Additionally, we are starting to see our data add value with new developing areas with Deezer in Europe and T-Mobile in the U.S. signing agreements to power their mobile music services.

Finally, it’s proven the power of not just our capabilities in the provision of curated metadata, but also the services, which we have developed to run on top of our data offerings. We have renewed and expanded our agreement with Terra Networks, Latin America’s largest online media company and Motorola for use of our recommendations technology.

Turning to the Rovi Entertainment Store, I’m pleased with the number of recent positive developments including progress with studios, retailers and device manufacturers. On a studio front, we are powering the only current web-based retail store supporting an ultraviolet enabled locker service.

Additionally, the UV functionality we will be providing later this year, we’ll expand beyond PCs and Macs to IOS and Android based devices as well. On the UV front, we are clearly an early leader, being one of the first companies to sign agreements with Digital Entertainment Content Ecosystem or DECE.

DECE, which is also known as the ultraviolet alliance is a consortium of major Hollywood studios, consumer electronics manufacturers and retailers in technology vendors, including Rovi.

DECE is chartered to develop a set of standards for the digital distribution of premium Hollywood content. We are also one of the few companies to sign up for multiple UV roles. Rovi signed DECE agreement, paroled as a retail service provider, a locker access streaming provider, a download service provider and as a client implementer. We are also actively negotiating UV and legal DVD copy agreements with most of the major studios and thus are on the cutting edge of defining these distribution rights.

In terms of our retail partners, we recently added significant functionality to best buys offering by providing flash access streaming to the Mac and PC, launching the cinema now service on the PS3 and adding HD content to the PC in conjunction with Intel insider.

The result of this activity is that we are now enabling approximately 56 million store fronts on connected devices. Regarding device distribution, this past quarter saw a milestone with the first international distribution of our Rovi Entertainment Store service on CE devices with Best Buy Canada going live on Samsung, Blu-ray players and TV’s in Canada.

And speaking of international distribution and retail partners, we anticipate announcing an agreement with one of the largest consumer electronics retailers in Europe. We expect specifics to be jointly announced later this quarter. This will be an important deal as operating white label store fronts for large consumer electronics retailers is a key driver for the Rovi Entertainment Store success.

Consumer electronics retailers are key to getting in front of the consumers with a right brand and combined offering, which can include gift cards or other promotional items with the sale of connected devices, which include the Rovi Entertainment Store powered branded storefront.

This can meaningfully increase storefront activations. We believe a retailer with the size and marketing cloud of this European retailer can not only get significant device distribution but also have much higher activations success than many other similar service offerings.

One word of caution on the Rovi Entertainment Store though. As we’ve said on several occasions since we acquired the RoxioNow business as a part of the Sonic Solutions acquisition, we need to invest and have been investing.

In fortifying this offering and bring it up to the standards required to scale beyond the current customer base. As you can tell from our success to date the Rovi Entertainment Store platform is an exciting offering and stirring up a lot of interest.

However, our ability to meet the demand for this platform and our existing ability, excuse me, and our existing customers expectations remains dependent on our continuing to increase its functionality as we did this past quarter and bring the service closer to carrier class performance and scalability.

Overall, while the Rovi Entertainment Stores are sort after standalone offering, more importantly it is also a part of our total customer solution fitting in with our TotalGuide and data offerings.

We are now actively talking with many of our service provider customers about providing them a private label VOD system leveraging the Rovi Entertainment Store platform to enable cable subscribers to access TV and VOD entertainment virtually anywhere through IP-connected devices. The solution is a cost effective end-to-end platform that offers content preparation, cloud hosting and multi-format IP delivery, as well as support for subscriber authentication.

This offering will first come to market as part of a TotalGuide xD, which is currently in field trials and will be in production before the end of the year. TotalGuide xD will provide our service provider customer streaming video service, which provide consumer access to all of the networks provided in their cable subscription, as well as the Rovi Entertainment store powered VOD solution.

And for advertising, our success story on this front continued in Q3. Our key advertising performance indicated is continued to show sharp increases across the board, including new advertiser growth and new campaign launches. We continue to expand our advertising footprint.

The Rovi Guide footprint has grown significantly year-over-year driven in large part by significant launches from Cox Communications in key advertising markets. Sales of connected televisions and increased Internet connectivity rates are driving healthy distribution growth on our connective platform lead by our partners, Samsung and Sony.

For example, in Q3, Sony launched the Rovi Ad network on connected Sony Bravia television sets sold in Canada adding significant scale to our CE footprint there. Our third party distribution relationships also continued to grow providing a meaningful lift in our advertiser footprint year-over-year.

Finally, our advertising footprint continues to grow. We believe we’re well down to path to an advertising footprint of over 50 million homes by year-end. Distribution isn’t the only foundation, we are building to sustain continued accelerating growth moving forward, enhance functionality and measurement are also key elements for our future growth and we make great strides in these areas too.

We continue to push to ensure that we delivered advanced functionality to our advertisers that allow them to engage with their customers on a deeper level than their traditional 30 second television advice. The first of this advanced functionality is geographic targeting across our entire footprint. This capability allows an advertiser to deliver different creative to different geographic areas.

For example, an auto advertiser may run a convertible ad to sunny states, while turning in SUV ads to colder states. Furthermore, advertisers can also target their creative based on physiographic trades of the given geographic area such as culture, necessity, lifestyle, interests and social status.

The second function that we continue to advance is request for information. In addition to executing request for information using QR codes or SMS texting, the Rovi ad network now allows advertisers to capture e-mails and utilize click to call from the remote control. Video also remains a critical function within the Rovi Ad Network.

In Q3, we launched a number of campaigns that included both video with in a microsite and pre-roll video before advertiser’s interactive experience. This also underscores one of the Rovi’s core value propositions, our expensive creative capabilities. Our creative theme has built thousands of advertiser campaigns and interactive experiences across all of our distribution partners.

Our final functional advancement is the expansion of our ad inventory. In Q3, our Rovi Ad Network became the first to sell the advertising space on Samsung's Smart TV homepage. This ad unit was a result of technical integration between Rovi and Samsung and delivers significant impressions for advertisers.

Measurement remains critical to demonstrating the value of the Rovi Advertising Network to agencies and clients. This quarter we added in Touch in Houston and Cox Cable in Telstra to our service provider footprint giving us measurement in 16 markets representing over 380,000 set-top boxes. The data from these boxes validate that guide usage is now up to 90% of viewers on a weekly basis with visits per day having increased to 15 visits daily and total time engaged to 17 minutes per day.

As to our consumer electronics footprint, we now have access to real-time metrics from connected Samsung and Sony television sets and Blu-Ray players. The results show that impressions are growing on average by 13% a week and click through rates on ads average over 1% and have run as high as 10% for a campaign compared to internet click through rates of less one-tenth of 1%.

The combination of detailed measurements, additional scale and advanced functionality continue to drive advertiser wins for us in nearly every category. The all important conventional advertising business showed an impressive 82% year-over-year revenue growth in Q3.

The number of conventional ad campaigns rose 120% in Q3 and the number of conventional advertisers grew 350% year-on-year. We continue to grow key conventional advertiser categories, such as domestic automotive with a launch of campaigns for LinkedIn and KX and KZ brands and foreign auto with Volkswagen.

The financial category also grew with the launch of quick in loans and liberty mutual. Pharmaceutical also continue to grow with multiple advertisers. Other notable Q3 conventional advertiser wins include Axe Body Spray, Victoria Secret and ProActive.

In Q3, we finalized the integration needed to enable commerce transactions in our CE footprint. While we have been executing contextual commerce campaigns using toll free numbers and website, this next generation commerce campaign will allow consumers to make purchases directly from their remote controls.

Microsite will allow consumers to shop for multiple products and then enable them to purchase merchandize without having to go to the phone or a website. We have a number of advertisers lined up to deploy this feature and see this becoming an increasing revenue stream for us.

International expansion for advertising sales also continues to drive. Last quarter, I spoke about the debut of our advertising platform in the U.K. Regarding that opportunity, I am proud to say, we’re off to a very good start. We closed the new deal with Channel 4 and added Mini and Lego to our list of advertisers. I continue to believe the advertising business is a tremendous opportunity for us and I anticipate we’ll demonstrate even greater growth in this area next year.

As you can see despite the long forecasted drop-off in our analog products, the anticipated declining market for our consumer software products and the short-term headwinds for our CE vertical, we have many reasons to be optimistic about the future. Our business today remained quite strong and I believe the future is bright.

On that note before I close I want to reiterate one point James made and that is that when we look at our business without the analog and Roxio products, we expect growth in the low to mid teens range next year, that is something to be excited about. I’m very proud of where this company is today and where it is going.

As we discussed in May, I’ll be leaving by the end of next June. Now withstanding that end date, our business has attracted many qualified candidates inside and outside of Rovi and I expect my replacement will be named by CES. I look forward to seeing this company continue to grow as it realizes the opportunities it is so well positioned to pursue. Speaking of CES, we will host a brief investor presentation in the afternoon on Thursday January 12th and I hope to you see all there.

With that, I’ll turn the call back over to Greg to see if you have any questions. Greg.

Question-and-Answer Session

Operator

Thank you very much. (Operator Instructions) And our first question does come from the line of Ralph Schackart with William Blair & Company.

Fred Amoroso

Hi Ralph.

James Budge

Hi Ralph.

Ralph Schackart – William Blair & Company

Hi, fellows. Couple of questions, Fred if I can start with you if that’s all right. Just in terms of total guide rollout for MSOs you threw lot of information out but I think you said something long line you have some sizable wins in the future just want to confirm that.

And then two, can you just confirm that there is actual deployment going on as we speak for total guide with HD or will be by year-end in that we’ll see travel start in 2012 sort of ramps for the year?

Fred Amoroso

So TotalGuide xD will be deployed by end of year into the marketplace. We’ve made great progress and actually feel really good about all the testing that’s been done by our customers so far. There will be, I’m confident in the increasing opportunities that our sales team has with the MSOs around TotalGuide.

And so I expect as we announced a couple of new customers today that will announce more in the future as well. And my expectation is, based upon us being code complete with the TotalGuide for the set-top box now that we will start seeing deployments in 2012, although as you know within the MSO environment, it takes quite some time to actually get this rolled out within their infrastructure.

Ralph Schackart – William Blair & Company

And can you just give us a general sense and some sense the tender of the conservation as it relates to deployment platform pricing, where is pricing coming up in those conversations vis-à-vis sort of deployment and sort of technology architecture.

Fred Amoroso

So, look the technology and architecture, we start off with xD, it’s a companion app, it sets has allowed to set up multi-room DVR, Remote Record and channel tuning. So it’s a great companion app and as we said, it’s going to be extended into the IOS, as well as Android environment. So a lot of them are linking that to create a brand outside of just there in the home TV environment.

We’ll also be adding the Rovi Entertainment store in to those platforms to create the broader experience using TotalGuide that we believe will be a great capability of bringing that back into the set-top box and TV experience within the home. James will comment on the pricing.

James Budge

Yeah. I mean pricing hasn’t been too much of an issue. It always obviously is an issue when you’re dealing with sizable customers, but given all the capabilities, Fred just mentioned as compared to the current offering, which is a primary guide in a television environment add lot of value and we would certainly expect the pricing to go up considerably than it has in deals that we’ve done so far.

Ralph Schackart – William Blair & Company

James one more and then I’ll turn it over. In terms of TotalGuide and the guidance for 2011, vis-à-vis 2012, will there be TotalGuide revenue, NCE and some sort of fashion in 2011 and would you give us a sense sort of ballpark where you think the TotalGuide device forecast will be for 2012 within CE?

James Budge

Yeah. I mean there already has been TotalGuide revenue in 2011 and there will continue to be some in 2012. Some of the devices that you’ve seen out there with some of the early wins we announced with Samsung and others last year are coming in now in 2011, we will continue through 2012 some of the most recent ones the Sharp, the Panasonic, Toshiba, those are falling and to be really late next year.

It’s not early 2013. So there will be certainly some devices that will have TotalGuide that would add to our revenue streams. I’m not keen on giving your prediction where the devices would be amount the devices but it will certainly be higher next year than this year.

Fred Amoroso

Remember Ralph that our accounting takes these device numbers in arrears. So, once they are actually out there, it’s really a quarter after before we would be able to recognize that revenue anyway.

Ralph Schackart – William Blair & Company

Good point, Fred. Just one more James, just sort of big picture them for the changes in guidance, ACP basically getting pulled out of 2012 within CE and DVD business, rock your softness declined and packet software business, but Rovi now or the Roxio now is still showing growth as well as DivX, is that a good way to sort of summarize that?

James Budge

You got it. The only other one I’d add in there is the challenging macro environment to the CE industry.

Ralph Schackart – William Blair & Company

Of course.

James Budge

But the primary, the two primary ones of those, one as you named which would be the much slower or much more increased decline in the Roxio business as we as the ACP business.

Ralph Schackart – William Blair & Company

Okay. Thank you.

Operator

And our next question does come from the line of Sterling Auty with JP Morgan.

Fred Amoroso

Hello, Sterling.

Sterling Auty – JP Morgan

Hello guys. To help us get our arms around kind of the tale of two cities they have here, in terms of the ACP can you give us some sense of what you think the ACP business in total will look like in 2011, so we can apply that kind of one-third for 2012?

Fred Amoroso

Yeah. It’ll be around $60 to $70 to $80 million in total spread between a little bit on the entertainment side of our business which is in the other category and the majority of which is in the CE area. In total it's about $70 to $80 million and as you know it as we said in the script, it will be about a third of that in 2012.

Sterling Auty – JP Morgan

And can you do those same in terms of at least kind of characterizing the legacy Roxio piece for 2011 and are you comfortable given the pace of how you think that’s going to tail offs?

Fred Amoroso

Not as comfortable. I think we've been pretty clear on the ACP business and its decline, we had generally expected Roxio to be about a flat business year-over-year and it will definitely be declining as we move forward.

Sterling Auty – JP Morgan

But can you quantify at least how big that revenue steam is?

Fred Amoroso

Yeah. Sure. For 2011 it’s probably in the $75 to $80 million range.

Sterling Auty – JP Morgan

Okay. And last question, I will jump back into queue. Now that you've got a slower top line looking to next year, how do you plan on managing the expenses both in the fourth quarter and moving forward through that environment? So how should we think about not with specific margin guidance, but just from a high level?

Fred Amoroso

I think we are going to shake out this year, if you just through your numbers, you’ll probably see us run at the operating margin level, which is the key bottom line number we look at it, probably in the -- around 41%-42% operating margin this year and that’s probably going to be pretty consistent next year.

Sterling Auty – JP Morgan

All right. Thanks guys.

Operator

And our next question does come from line of Ingrid Chung with Goldman Sachs.

Fred Amoroso

Hi, Ingrid.

Ingrid Chung – Goldman Sachs

Hi, hey guys. Thanks for taking the questions. So, actually a couple of questions. First, in terms of the macro softness for 2012, what are you assuming for connected TV sales growth and overall device growth? And then secondly, you are talking about the VOD solution for cable, I was wondering who are you’re currently infield trials with? I mean, are you going to be targeting Tier 2, MSOs for this and I have one more follow-up.

Fred Amoroso

Lauren do the connect devices and I will talk about the trials.

Lauren Landfield

Yeah. I mean our connected devices, we certainly expect growth, it’s been a good growing area for us in 2011. We expect that to continue again in 2012 albeit, maybe not as fast as what might have been projected six to 12 months ago.

The overall category, the primary device type we are talking about is the Digital Television, the overall category is challenged by connected TVs, in spite of that we have actually been going okay. We do expect growth -- I’ll probably not give a percentage here, but certainly we’re expecting more growth in connected TVs than for the overall TV category.

James Budge

On device side, Bend and Armstrong, we expect to be making, where we are making great progress we expect Bend to be in trials with xD before the year end. We’re working on deployment of the set-top box with some of other customers.

We are already in some of the companies that we’ve announced this Tier 2s and you could argue whether the Tier 1s, we announced Charter. As one of our TotalGuide early customers, we announced Cogeco in Canada. Each of these are in Tier 2 or Tier 1 areas, and there are other conversations going on with Tier 2 customers now in addition to the small ones.

Ingrid Chung – Goldman Sachs

Okay. Great. Just, so my last question is, in terms of your patents around general video search and discovery, I was wondering, if they also cover voice. For example like, Apple series or anything Google might roll out to compete.

Fred Amoroso

They’re primarily over video, there is -- we got to be a little careful here, because the patents cover the ability to find search discover really any of the content, whether it happens to be music or video it covers that. So it’s really over not restricted to content type, they’re not restricted to platform, they are fairly broad.

Ingrid Chung – Goldman Sachs

Okay. Got it. Thank you.

Fred Amoroso

You’re welcome.

Operator

And our next question does come from line of Rob Stone with Cowen and Company.

Fred Amoroso

Hey Rob.

James Budge

Hey, Rob.

Rob Stone – Cowen and Company

Hi guys. You had talked before Fred about getting to TotalGuide agreements with service providers, passing a total of $10 million subs or so by the end of the year. And you said you expect more agreements in the coming months. Is $10 million still a good number or is that higher or lower now, you’re thinking?

Fred Amoroso

Well, I think that number is very good. Remember that’s customer signed up not deployed in the field, which we always said was going to take quite some time. If you remember early on, we said that we’re going to pull-in TotalGuide by a full year for SP because we saw the service providers actually more interested in changing their environment then we thought earlier. We thought that would be something they would really focus on in 2012 and so we accelerated by about a year our development plans for TotalGuide for SP.

Rob Stone – Cowen and Company

My second question is on service providers. The segment revenue was kind of flat quarter-on-quarter. Where there any puts and takes there in terms of one offs or unusual items between Q2 and Q3 versus -- revenue for the base business?

James Budge

Yes. There are couple of things we had in Q2 is this reminder any deal we do of size whether it’s service provider, CE is going to have a catch up element to it and they’re more of those on the service provider side in the second quarter than in the third quarter, so we had pretty much, that pretty much explains it.

Rob Stone – Cowen and Company

Okay. That was a perfect evaluate to my next one James, which is did you have in CE for Q3 any catch ups?

James Budge

Sure. I mean Sharp was reasonably sized deal for us similar to the Toshiba and Panasonic and pervious quarter Sharp would have had a sizable catch up. We haven’t really disclosed what those numbers are and don’t intend to felt, I just believe that Sharp was of size in the quarter and certainly helped on the CE side of the business.

Rob Stone – Cowen and Company

So that offset some of the background CE weakness we have been hearing about?

James Budge

Yeah. You got it.

Rob Stone – Cowen and Company

Right. Accounts receivables were up, a good bit sequentially is that also related to sort of the one off stuff?

James Budge

Yeah. You get some big deals towards the last two to three weeks of a quarter. And you are not going to collect that revenue or collect that deal before the end of the quarter. So it will all be collected, we don’t have any challenges with our receivables here.

Rob Stone – Cowen and Company

Okay. While we are trying to put these various pieces together on the new revenue guidance, how should we think about DivX contribution this year and next?

James Budge

Yeah. DivX had a good year. It’s probably up 15% to 20% this year, probably close to $90 million to $100 million this year. And we expect it will continue to do well for us next year and of course it’s just the overhang of ACP.

Rob Stone – Cowen and Company

Right. Thank you very much.

James Budge

Yeah.

Operator

And our next question does come from the line of Ben Swinburne with Morgan Stanley.

James Budge

Hi Ben

Ben Swinburne – Morgan Stanley

Hi guys, good afternoon. Just going back to the CE guidance to flat, I’m just trying to this one is square that. As it would seem with even a flat shipment market for digital televisions, I’m not sure if that’s what you are assuming or not, growth in customer wins now sharp and you mentioned this even Panasonic growth in connected devices and how they grow in pricing. I’m just surprised that you’re assuming a flat year at CE, is there some variable that I’m missing there or is there a potential legroom or conservatism to the outlook.

James Budge

Well on Sharp, I think I made some comments earlier, but Sharp, Toshiba, Panasonic probably don’t come out with any meaningful device units that include our capability until the nearly end of the year, if not beginning in 2013.

Ben Swinburne – Morgan Stanley

Okay.

James Budge

And when you have $40 million to $50 million of ACP being locked up from year to year at -- you can have a reasonable growth expectation, which we do but that’s in the face of ACP significant decline.

Ben Swinburne – Morgan Stanley

But you are -- to be clear, you’re not assuming road wide shipment declines in ’12 on digital television, sorry?

James Budge

No, we’re being cautious, but no we’re not assuming a decline.

Ben Swinburne – Morgan Stanley

Okay. Great. On Roxio, Fred you talked about investing in the business, I’m just wondering if you could sort of help us out and size that and whether or not that’s still, a profitable business for you guys next year, if it’s a sort of transition year for that business?

Fred Amoroso

Yeah. I assume when you’re talking about the Rovi Entertainment Store.

Ben Swinburne – Morgan Stanley

Yeah.

Fred Amoroso

Yes. So I think we might have mentioned this last quarter if not to make the point again. We probably were trending towards close to $50 million of synergies on the side transaction, but we’ve piped about $10 million of that back into the Rovi Entertainment Store this year and we’ll continue to do so over the next few quarters to get it to the carrier class.

So, certainly there is some immediate near term investment that we expect to make and we think there is a great growth opportunity in the future. Notwithstanding investments we needed to make to prop up the capability, it is -- it did grow this year. It grew nicely, and we expect it to grow significantly again next year. Unfortunately, it should come off pretty small base that doesn’t move the needle that much.

Ben Swinburne – Morgan Stanley

Okay. And the last question just on UltraViolet issue, you guys mentioned in your prepared remakes and you said you’re working with the industry on the digital copy process, I heard numbers like $10 billion DVDs on-shelf in the U.S. or in basement wherever they are heading in these days, any comment you can make -- give us in sort of the revenue model for your role in that process. Assuming it’s successful. It would seem like there is a descent opportunity there if you’re primary supplier of the technology?

James Budge

There is. It’s a small number. If you remember where we were with ACP, it’s a cents per disc, you should think about it in the same domain as cents per disc on the legal DVD copy and you are right, there are literally billions of DVDs that are already out there that people can for relatively low charge is the way the current models are being developed by the studios and convert into a electronic environment and store it digitally.

Ben Swinburne – Morgan Stanley

Thank you.

James Budge

You're welcome.

Fred Amoroso

Thanks, Ben.

Operator

And our next question does come from the line of John Vinh with Collins Stewart.

Fred Amoroso

Hello John.

James Budge

Hello, John.

John Vinh – Collins Stewart

Hey, guys. Thanks for taking my question. Follow-up question on the Sharp deal, I was wondering if you could help us think about -- how do we think about modeling the Sharp deal going forward, if you obviously look at this TV that sharp ships between the U.S., Japan it’s a pretty sizable number. And I’m thinking in terms of the different components that i-Guide, TotalGuide and IPG. How do we think about that going forward?

Fred Amoroso

Well, to your point there is a biggest supplier in Japan and have significant distribution in Europe and even in the U.S. So it took pretty big deal on a worldwide basis. If probably we have comparable economics to Samsung or Sharp or Sony deals that we’ve talked about in the past.

John Vinh – Collins Stewart

Okay.

Fred Amoroso

And started about a few dollars that device.

John Vinh – Collins Stewart

Okay. And on the IPG front, are there any sort of meaningful variances in pricing on IPG in the U.S. versus Japan that you get on that deal?

Fred Amoroso

Not really, it’s pretty comfortable.

John Vinh – Collins Stewart

Okay. My follow-up is the TotalGuide service provider, you mentioned that you wouldn't expect any sort of meaningful revenues until late next year. I’m wondering has there been any sort of change and expectations in the revenues there, either on your part or on your customer's part in terms of their deployment plans?

Fred Amoroso

So we’re going to have TotalGuide average de-revenues in early next year and throughout next year as customer sign up with that deployment that will be dependent upon customer uptick because depending upon how many customers have iPads and they want to connect their iPads as remote devices to their cable subscription model is how we’ll get paid for that.

So that will start at the beginning upon initial deployment and we said for Bend that's going to be the beginning of the year. And we are working on a number of other customers concurrently. As far as total guide for set-top boxes that will wind up being deployed in the field more towards the end of 2012 than at the beginning of 2012.

The numbers, just going back to what I said earlier, are being advanced over what we thought, which would be primarily, we thought would be in development of Total Guide for SP in ‘12 and we are actually code-complete already in ‘011.

John Vinh – Collins Stewart

Got it. And then last question from me. And I will jump back in the queue, on the SARA conversion, can you help us refresh our memory in terms of how far long we are in the SARA conversion process?

Fred Amoroso

Yeah. It's about 8 million and 8 million to 9 million homes in total, we are probably about 60% to 65% of the way through it.

John Vinh – Collins Stewart

Okay. Thank you.

Fred Amoroso

Yes.

Operator

And our next question does come from the line of Andy Hargreaves with Pacific Crest Securities.

Fred Amoroso

Hey Andy.

James Budge

Hello Andy.

Andy Hargreaves – Pacific Crest Securities

Hey, thanks. Can you, sorry just as a refresher, you said $75 to $80 million earlier was that just for the Roxio software business or was that a couple of different things?

Fred Amoroso

That was just Roxio software.

Andy Hargreaves – Pacific Crest Securities

Okay. And then can you update us at all on and your targets for revenue for advertising have those changed at all in the 2012 outlook?

Fred Amoroso

Not a lot. Maybe trimmed slightly, just given the advertising market ahead, but not meaningful enough trim that’s highlighted. And we do expected to generally come close to doubling again next year and that’s off of a base this year of around $30 plus million. So you would be expecting it to be in the range for next year.

Andy Hargreaves – Pacific Crest Securities

Okay. Thank you very much.

Fred Amoroso

Yep, all right.

Operator

And our next question does come from line of Jeff Rath with Canaccord Genuity.

Fred Amoroso

Hey Jeff.

James Budge

Hi, Jeff.

Jeff Rath – Canaccord Genuity

Hi guys. Just a couple of follow-ups here, just expanding on DivX strength, Fred you talked about tying DivX more and more I guess DivX Plus Streaming to the Roxio Entertainment or sorry, yeah, the Roxio Entertainment store?

Fred Amoroso

Rovi Entertainment store.

Jeff Rath – Canaccord Genuity

Yeah. Rovi Entertainment store, sorry.

James Budge

Okay. All right.

Jeff Rath – Canaccord Genuity

How meaningful is that into developing the design wins or creating the design wins today or is that something that we can look for to contribute more meaningfully going forward, like is that something that’s being discussed with your CE partners today or is that something that’s really just in the early innings.

Fred Amoroso

So, we’ve started discussing it with our, the industry whether it’s retailers or CE partners, as we have started to come out with this product. When you talk and you mentioned about how significant it is, I don’t care who the provider is today whether it’s Netflix Amazon or anybody else that’s there.

If you go in and you download depending upon your pipe and how big it is and the movie and whether you’re into an HD environment or not, a couple of things is that it typically takes long load time to start the beginning part tends to be buffered, so you’re not watching the clean movie like the experience if you put your DVD in your player and you just it play.

And so the ability to automatically identify the bandwidth that you’re operating under the CPU power that you’re operating under is a huge capability to automatically adjust the load and playback speed to give you a smooth experience, that’s first and foremost.

The second thing is as everybody is trying drive for and you heard us announce some wins and increasingly expected wins internationally with electronic streaming and download. The ability to add multi-language support, the ability to add sub titles, the ability to also add on an worldwide basis full trick play.

So as smooth of a rewind and fast-forward capabilities as you have on your devices in an electronic environment those are huge pluses that come from DivX and get built into Rovi entertainment store, I think make us quite unique in the market.

Jeff Rath – Canaccord Genuity

Great. Just a couple of more if I may, Fred or James you haven’t talked about Latin America as it relates to sort of the base IP licensing opportunity. Is that an opportunity for Rovi going forward and if it is how you are approaching that opportunity?

James Budge

We do have patterns in Brazil, Mexico and some other areas Puerto Rico that we have been able to monetize little bit in the past not huge numbers where we had highlighted, but reasonably sized numbers.

There’s the bigger opportunity there is really on the product side that we saw great product like we have with I think we have about $3 million passport subscribers in Latin America and recognizes only about 15 million to 20 million digital subscribers in all of Latin America, we have a meaningful number of those.

So that the opportunities there are that side as well as Advanced Guide capability included in digital televisions other devices that ship into Latin America market and that’s where the -- really where the bigger opportunity is.

Jeff Rath – Canaccord Genuity

Okay. And then just a final question from me, Fred previously you have talked about sort of a third bucket of customers for your base IP. I know you’ve called them Internet or mobile service providers and the flagship customers were Comcast and Apple. As you think about 2012, just early stage, are you expecting further wins in those categories in 2012, or how are you thinking about that opportunity today?

Fred Amoroso

Absolutely, if not 2011. The web and mobile patents the way we referred to them are as applicable to web properties as they are to service providers, who want to extend their distribution into a 3-Tier environment and it’s not just -- Comcast who do come out, Rogers do come out, Cablevision to come out, Cox, Charter, a number of, I mean we expect that rollout to continue across both service providers and web properties.

James Budge

I think, Jeff if you look at totality of that opportunity as far as signups with meaningful customers do to, we’re probably about 40% to 45% of the way through the opportunity?

Jeff Rath – Canaccord Genuity

Great. Thank you very much.

Operator

And our next question does come from the line of Mike Olson with Piper Jaffray.

Fred Amoroso

Hi, Mike.

James Budge

Hi, Mike.

Mike Olson – Piper Jaffray

Hey. I just have one quick one. You guys talked about multiple TV manufacturers potentially shipping TVs with TotalGuide late next year. So the tangible impact in the model might not be felt until then or maybe earlier 2013. But at CDS you think will be able to kind of determine what you use will be built with TotalGuide, in order words, I guess will CES provide a roadmap for help take the opportunity could be enrolled, will you be able to see how deep in the various manufacturers product line TotalGuide will be is that time or will be not until later in the year that we see which TVs are shipping with which technologies?

James Budge

It’s a good question Mike. So, let me try and thread the needle on this a little bit. First of all, as to what manufacturers might actually be showing it’s CES, we really don’t get permit to that, that’s up to them and they a lot of them got those as highly competitive secretes.

So, I can’t really tell you what the show in CES or not. I expect my belief is that all of them will have some level of demonstration around connected capability. That said the ones that have signed on and licensed TotalGuide, I think we’ve been pretty open about.

So, certainly Sony and Samsung, which we have said on number of occasions, Toshiba, Sharp, Panasonic all have signed on and committed licensed TotalGuide. So my expectations is, it depends on where they are in their development cycles with many of them having perhaps one cycle a year as opposed to two going through their development manufacturing process, which is what causes the delay it actually getting it on store shelves.

Mike Olson – Piper Jaffray

Okay. Thanks very much.

James Budge

You’re welcome.

Operator

And we have time for one more question. And it does come from the line of Jim Goss with Barrington Research.

James Budge

Hello, James.

Fred Amoroso

Hey, James.

Jim Goss – Barrington Research

Hi, how are you? I had a couple more questions about DivX with the notion that you’re getting 1080p and fast start and this Adaptive Bitrate Streaming, it sounds like an advanced process with. I presume the same DivX efficiency, will that address some of the data package and battery life usages issues we’ve faced and will it also enable high quality audio, for example if you’ve been pursuing deals with DTS and Dolby to incorporate 5.1 surrounds in the streams?

James Budge

We do have relationships with DTS and Dolby and varying of their products have been implemented into our technology as well. So I do expect that the improvement in the audio as we are monitoring bandwidth and CPU usage that will work not just for video, it’ll work for audio as well.

So, personally I think that a key part of what we do is we’ll actually look for and integrate as we’ve done basically with all of the acquisitions we’ve done, the ability to take the varying components of companies and technologies that we’d buy and make more value out of them.

You mentioned DRM, I’ll just highlight for one thing DRM, really other than wide wand which is owned by Google and Windows DRM, which is owned by Microsoft, DivX DRM, it really be the only other DRM that is available and I think one of the key advantages for us relative to the whole industry in the ecosystem is we’re Switzerland, we are neutral and us having a footprint into devices is critical.

So if I submit altogether to answer your earlier question about battery life, as we become more efficient in deployment, yes, the opportunity is for us to reduce the power requirements associated with CE devices and ultimately it should make the batteries extend on a longer basis.

Jim Goss – Barrington Research

And, sort of follow-up, but does this also give you monetization opportunities beyond the traditional licensing fees and hardware such as, can you do a deal with a Netflix or some other company with streaming service and creating more efficient package, so that they get around some of the issues that they have been dealing with in terms of cable system starting to charge for tiered streaming and data packages?

James Budge

So the short answer to question is absolutely. And if you really look at the key value propositions of Rovi in addition to our patents of metadata, another key part is the position that we have the ecosystem. So, we don’t -- while we enable storefronts on the devices, I mentioned in the script of 56 million storefronts on devices, a key part of that is, we could enable that storefront for really any of the retailer that might be out there completely operating in an electronic non-physical space, so, yes we have that capability.

Jim Goss – Barrington Research

All right. Thanks very much.

Fred Amoroso

Thanks, James.

James Budge

Thanks.

Operator

And at this time, I would now like to turn the call back over to Fred Amoroso, for any closing comments.

Fred Amoroso

Well, thank you. And thank you all for joining. Was probably my last earnings call. Look one other things, I just wanted to highlight and underscores, we have done lots of different acquisitions. And as you could see in this one, as we have done with many others in the past, we identify what the strategic value of acquisitions are, the different components and products and we integrated, we enhanced them, we develop them and we become much more capable in the advances that we make within the products.

Our acquisition of Sonic is no different than that. Just as we did with the Gemstar, there were pieces that we bought that were more strategic than other pieces being less strategic. And that’s the way it is in any acquisition, you can’t get 100% of everything absolutely aligning with our core strategy.

So, if we look at the business, as I said in my prepared remarks, I’m absolutely excited at the position we have in the marketplace and how we are driving our solutions into service provider and CE. And yes, we have the headwinds associated with something that we knew from the first day I walked in the door, which is ultimately a declining analog business that was going to go away.

And so now we space that in 2012 and so ACP is on a tremendous decline. Roxio because of the market shifts and the movement from PCs to tablets and the shift into electronics, create say, less of a demand for that part of the marketplace. And so, candidly we are seeing the biggest issues associated with our changing guidance due to the less strategic parts of our business. The core strategic parts of our business are as strong and we are making as much progress as we’ve always said that we would make.

I’m still excited enormously about the Rovi Entertainment Store advertising, our product growth and service providers, five quarters of consecutive, in excess of 20% growth and in products and our CE, all other manufacturers that was taken in total guide. It's exactly what we've been saying all along in all of our earnings calls. And so my expectation is the future of Rovi is tremendously bright. I think we are absolutely aligned with the changes that are going on in the marketplace. And I'm sure that it will be an exciting time to continue to talk to you about all the progress we are making as a company. Thanks so much for joining us.

Operator

Thank you. Ladies and gentlemen this does concludes the conference for today. If you would like to listen to a replay of this conference you may do so by dialing either 303-590-3030 or 1800-406-7325. You will need to enter the access code of 4477103. Those telephone numbers once again are 303-590-3030 or 1800-406-7325 with the access code of 4477103. Again, we do thank you for your participation. You may now disconnect your lines at this time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Rovi's CEO Discusses Q3 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts