QUOTE AND NEWS
Benzinga  Sep 25  Comment 
DTS, Inc. (Nasdaq: DTSI), a leader in high-definition audio solutions and audio enhancement technologies, today announced availability of SiriusXM Internet Radio* on the DTS Play-Fi ecosystem. SiriusXM subscribers can now access their favorite...
SeekingAlpha  Sep 19  Comment 
By Soid Ahmad: DTS Inc. (NASDAQ:DTSI) is a technology company that belongs to the industry of application software. The company develops and markets technologies that enhance sound and audio experience. Its audio solutions enable recording,...
Benzinga  Sep 11  Comment 
DTS Inc. (Nasdaq: DTSI), a leader in high-definition audio solutions, today announced that it has acquired Manzanita Systems, the industry-leading developer of MPEG software solutions for digital television, video on demand (VOD) and over-the-top...
DailyFinance  Sep 11  Comment 
IBC: DTS Stand 2.B50 –DTS, Inc. (Nasdaq: DTSI), a leader in high-definition audio solutions, today announced the integration of the DTS-HD®decoder in the OnStream MediaPlayer+ from VisualOn, a leader in multimedia...
Forbes  Sep 5  Comment 
Polk and Definitive Technology have launched multi-room audio gear that uses DTS’s Play-Fi. Wireless speakers and soundbars will stream your music, and Pandora, Spotify, and more, throughout your house.
SeekingAlpha  Aug 22  Comment 
By Helix Investment Research: For more than 2 decades, DTS, Inc. (NASDAQ:DTSI) has been a part of most consumers lives without them ever knowing. Despite its status as one of the world's top manufacturers of audio recording, delivery, and playback...
StreetInsider.com  Aug 21  Comment 
UPGRADES SunTrust Robinson Humphrey boosts American Eagle Outfitters (NYSE: AEO) from Neutral to Buy and moves its price target from $12 to $16. Goldman Sachs raises International Rectifier (NYSE: IRF) from Sell to Neutral and moves its price...
SeekingAlpha  Aug 12  Comment 
DTS, Inc. (NASDAQ:DTSI) Q2 2014 Results Earnings Conference Call August 11, 2014 4:30 pm ET Executives Geri Weinfield – Director of Investor Relations Jon E. Kirchner – Chairman of the Board & Chief Executive Officer Melvin L....
TheStreet.com  Aug 11  Comment 
NEW YORK (TheStreet) -- Shares of DTS Inc. are higher by 6.44% to $20 in after-hours trading on Monday, after the company reported its 2014 second quarter net income was $7 million, or 41 cents per share, compared to a net loss of -$2 million, or...
SeekingAlpha  Aug 11  Comment 
The following audio is from a conference call that will begin on August 11, 2014 at 16:30 PM ET. The audio will stream live while the call is active, and can be replayed upon its completion. Listen now Complete Story »




 

DTS produces technology used in producing and playing audio for the entertainment industry. Since DTS' main competitor, Dolby Laboratories, became the audio standard for DVDs, DTS was only able to catch the tail end of the DVD growth wave. The advent of high-definition home entertainment, however, means that there is a new standard video format - Blu-Ray - which requires new audio standards. Unfortunately for DTS, Dolby's HD audio format is also required on Blu-Ray media, but so is DTS-HD Master Audio, and both will be found on every Blu-Ray disc. This means that the switch to high-definition home movies presents an opportunity for DTS to finally compete with Dolby on a level playing field. Furthermore, the company is seeing most of its sales growth in international markets like Japan and South Korea, where economic growth is fueling spending on luxuries like car-stereo systems. Though DTS has many competitors for its other licenses, its main opposition in the film audio market comes from Dolby Laboratories.

Business and Financials

DTS, Inc., is a provider of entertainment technology, products and services to the audio and image entertainment markets worldwide. It also provides image processing services to film studios to prepare and enhance film, television, DVD, and Blu-Ray content for presentation. It used to provide products and services to film studios, production companies, and movie theaters to produce, release, distribute, and play back digital multi-channel film soundtracks, pre-show entertainment content, subtitles, captions and descriptive narration, but it sold the segment in May of 2008 in order to focus on its audio technologies. Playback systems for DTS-formatted soundtracks have been installed in over 28,000 movie screens worldwide.

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DTS' revenue has increased steadily, but income has fluctuated because of increasing SG&A expenses.[1]
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DTS, despite being a U.S. company, earns most of its revenue in Asia.[2]



DTSI is a cutting-edge technology company, and so must constantly innovate in order to stay competitive; the company spends around 12% of its revenues on research and development.[3]

Trends and Forces

The Shift from DVD to Blu-Ray Means Dolby Will No Longer Have a Monopoly on Home Theater Audio

In 1995, Dolby, DTS's main competitor, saw its AC-3 adopted as the standard DVD audio format for countries adhering to NTSC television standards, while audio technology from DTS, was relegated to the position of "optional".[4] Since then, Dolby's revenues exploded, growing on the back of the DVD market, which grew from 2000 to 2005 at an annual rate of 66%[5]; since Dolby audio was the standard, people were more likely to purchase audio systems using Dolby-licensed technology, and the company saw revenues grow by almost 150% since 2003.[6] DTS, on the other hand, trailed behind, with revenue growing by just 50% since 2003.[7]

In 2006, consumer spending on home entertainment products, including DVDs, peaked at $24.3 billion.[8] In 2007, two competing video formats - HD-DVD and Blu-Ray - entered the home entertainment spotlight, sparking the "HD wars" and causing consumer spending in the industry to decline by 3.1%[9] as consumers waited to see which would win. In February 2008, however, Toshiba and its HD DVD format backed out of the battle after enough studios aligned with Sony's Blu-Ray that around 75% of new home releases would be in that format.[10] Since the new format has been standardized, spending has already picked up; in the first quarter of 2008, spending on DVDs and Blu-Ray films has increased 1% year on year, to $5.51 billion.[11]

The new Blu-Ray standard has the ability to hold both "lossless", high-quality audio and high-definition video, and consumers are going to want home-entertainment systems that take advantage of these new features. Unlike in 1995, when DTS's technology was rejected in favor of Dolby's, DTS-HD Master Audio compatibility is now required on all Blu-Ray media, along with Dolby's TrueHD and a standard digital coding called Linear Pulse-Code Modulation (Pulse Code Modulation was also required for DVDs). With DTS's audio coding technology mandatory in all Blu-Ray films, the company has a much better opportunity for growth. Consumers can now choose between Dolby-compatible DVD players and surround sound systems and DTS compatible DVD players and surround sound systems, unlike with DVDs, where not all DVD films/games supported DTS audio. Furthermore, hardware manufacturers now have a choice between audio formats, so DTS has a chance to compete with Dolby for licensing fees. In 2007, rentals and sales of DVDs fell 2%, and as more consumers adopt Blu-Ray, this decline will continue, meaning DTS' competitive position will improve over time.

DTS Sold its Digital Cinema Segment

The film industry is undergoing a transition in its most prominent venues: movie theaters. Most movies shown in theaters are analog, with projectors shooting images from rolls of film onto the screen. Slowly, however, digital cinema projectors and screens are proliferating. These theaters use digitized audio and video, rather than traditional film (think MPEGs instead of video tapes), and by the end of 2007, 5,500 of the world's screens had been converted to digital, up from 2,966 in 2006, 78% of them in the U.S. However, this is just 5.5% of the world's overall screens.[12] DTS sold its digital cinema business, which sells products and services for producing and playing the soundtracks, pre-show entertainment, captions/subtitles, and descriptive narration of digital films, in May of 2008, for $3.3 million to Beaufort California, Inc., a subsidiary of UK's Beaufort International Group PLC. The deal leaves open the possibility of DTS receiving $11.7 million over subsequent years, "under certain circumstances" (nor further clarification was given).[13] Since factors like digital piracy have cut into movie attendance, movie theaters have become less profitable; since 2002, the number of tickets sold in the U.S. has declined by over 150 million.[14] Thus in the short term it is unlikely that digital cinema will proliferate in the industry, but in the long term DTS may be missing out on a major growth opportunity as its key competitor Dolby profits from the conversion to digital.

DTS Rises with the Tide of the Home Entertainment Sector

DTS technologies are used in films that are shown both in theaters and in people's homes. As the home entertainment sector grows, so does DTS' revenues. DTS' new position as a licenser of the standard audio format for Blu-Ray allows it to take licensing revenue from both the film and video game industries, which will help it capitalize if the home entertainment sector continues its growth.

Technology Adoption in International Markets is Fueling DTS's Growth

From 2005 to 2007, DTS' revenue in Japan increased by about 37% and in South Korea increased by 71%, while domestic revenues decreased by 42%.[15] Domestically, the decline can be attributed to falling movie attendance and a declining DVD market, but the company's gains in Japan and South Korea can be attributed to each country's tech-savvy cultures. Blu-Ray was released in Japan in 2003, well before its commercial release in the U.S.[16] Furthermore, the car audio and personal computer sales for DTS both increased across the globe, as economic growth fueled car and PC adoption. From 2005 to 2006, DTS's car audio technology licenses increased by 81% and its PC technology licenses increased 20%, and from 2006 to 2007, its car audio licenses increased 45%.[17] As international economies grow, the market for DTS' technologies will expand, and the company's revenues will grow.

Competition

DTS' main competitor is Dolby Laboratories. In the past, Dolby was the standard audio formatting for DVDs, while DTS was relegated to an optionally supported position, but the growth of Blu-Ray means that Dolby no longer has a monopoly over the market for home theater audio and DTS can actually compete equally. Furthermore, while both Dolby and DTS are used by the major film studios for audio formatting in theatric releases, most of the films released in 2007 used DTS audio technology.[18]

Dolby vs. DTS in 2007
Revenue Operating Income U.S. Revenue International Revenue
Dolby[19] $482,028,000 $186,952,000 30% 70%
DTS[20] $53,073,000 $12,208,000 8% 92%


Competitors for DTS's other licenses include DivX, Sony, Philips, RealNetworks, Microsoft. Many of these companies are much larger than DTS, and have greater financial strength, allowing them to spend more on developing new technologies, marketing them, and enforcing their licenses and patents. Furthermore, as media becomes increasingly linked to the internet, Microsoft and RealNetworks have the advantage of being experienced in web media. These two companies, aside from being familiar with the existing technology for web entertainment, also develop well-known internet media systems (RealPlayer and Windows Media Player, respectively); if either of these companies develops new entertainment technology, they can package it with a new release of the media player, thereby integrating the technology into an already existing medium - an advantage that DTS does not have, as it would have to find a media system vendor to license its technology to.

Universal, a shareholder of DTS, often uses Dolby's technology in its films, especially its DVDs, though the proliferation of Blu-Ray could change this.




References

  1. DTSI 2007 10-K, Page 40
  2. DTSI 2007 10-K, Page 47
  3. DTSI 2007 10-K, Page 48
  4. BNET: "Dolby hails single DVD standard allowing worldwide use of Dolby AC-3; Disputes Philips's claims"
  5. Business Week: "End of the DVD Party?"
  6. DLB 2007 10-K, Page 39
  7. DTS 2007 10-K, Page 40
  8. AllBusiness: "Consumer Spending Reaches $24.3 Billion for Yearly Home Video Sales; DVD Players in More Than 82..."
  9. Video Business: "The format war cost home entertainment in 2007"
  10. Read Write Web: "Blu-ray Wins Format War - Much Longer HD Download Battle Lies Ahead"
  11. Home Media Magazine: 2008 Off to a Good Start
  12. Research and Markets: "Digital Cinema: Global and European Roll-out, Business Models and Forecasts to 2012"
  13. CNN Money: "DTS sells digital cinema business for $3.3 million"
  14. http://www.boxofficemojo.com/yearly/
  15. DTS 2007 10-K, Page 47
  16. Wikipedia: Blu-Ray Disc
  17. DTS 2007 10-K, Page 47
  18. DTSI 2007 10-K, Page 18
  19. DLB 2007 10-K
  20. DTSI 2007 10-K
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