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Tessera Acquires DTS

September 2016 by Michael Karagosian

Tessera, a successful licensing entity known for its face recognition technology and semiconductor packaging technologies, announced plans to enter the media space through the acquisition of DTS. The acquisition is positioned as a merger under a new but yet-to-be-announced company name. The DTS brand will continue under the new company.

That DTS would be interested in a buyer is not a surprise. A pure-play audio company has a limited future. It’s a problem faced by both DTS and Dolby, and each addresses it in a different way. Dolby has expanded into video through acquisitions that led to the development of Dolby Vision and Dolby Cinema. DTS significantly expanded its footprint in audio markets through its acquisition of companies such as SRS, the originators of MDA, and iBiquity Digital, the originators of HD Radio. But these acquisitions won’t take DTS beyond audio and into new areas. The Tessera acquisition accomplishes this, in an innovative manner that will one day either be viewed either as a boondoggle, or having incredible insight.

The deal could be innovative in that face recognition and audio technology cross paths in personal consumer products, a relatively new market that can be argued is underserved. Licensing a suite of technologies to serve this market makes sense. One can imagine consumers presented with the ability to generate personal videos with 3D sound, with the ability to view and listen to the videos on personal devices and on headphones, for example. It would also invite the acquisition of other intellectual properties that address more innovations for personal devices. Tessera also boasts unique semiconductor packaging technology that is in high demand, which could lead to bulk licensing deals for not only the algorithms employed, but the manner in which technology is built.

But such synergies could also be intangible, which is where this deal could go bust. On the surface, Tessera and DTS have little in common, other than the desire of each to grow. The acquisition will have rough edges. Tessera is an extremely efficient organization, generating 3x revenue per employee over DTS. Extending the comparison, Tessera also generates approximately 50% more per head than Dolby. In an email to employees, Tessera CEO Tom Lacey anticipates approximately $15M in “cost savings-related synergies,” and it’s not hard to predict where those savings will come from. The risk is that cutbacks within DTS could disrupt current operations.

DTS’ cinema program is unlikely to experience significant change. DTS should be expected to continue its licensing program for the MDA renderer in cinema audio products. A side benefit of the acquisition could also be a BOD that is friendlier towards DTS’ engagement in cinema, leading to deeper efforts by DTS in the cinema space, including a more effective branding program. But to grow in cinema, DTS also needs to aggressively pursue adoption of its tools and rendering engine in mixing studios, an area where insight into the future of this deal could come to light. Will the new company embrace its own content-generation products to support media technology licensing, or will it stick to the program and remain a pure licensing operation?

The offer to acquire DTS will expire in February 2017, indicating that Tessera and DTS expect to close earlier.

In full disclosure, at the time of this writing, I consult to DTS. All of the statements in this report are solely mine and based only on publicly available information.

Filed Under: Sound Tagged With: DTS, Tessera

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