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Faced with losses and tough competition from much larger companies, Sonic Foundry has agreed to sell its desktop audio and music production product family to Sony Pictures Digital for $18 million in cash and the assumption of certain liabilities and obligations, the companies announced Friday.

The deal involves a handful of Sonic Foundry products: its Acid music production software, the Vegas multitrack audio and video editing system, and the Sound Forge audio editing program. Sony will continue to sell these products after the deal closes, probably after the shareholder meeting in June.

Sonic Foundry has about 190 employees, approximately 70 of whom will transfer to Sony once the deal is complete.

Next Projects

Sonic Foundry will continue operations, focusing on Web-based, rich-media presentation and database software, says Rimas Buinevicius, chair and chief executive officer of Sonic Foundry. The company's MediaSite Live Web presentation and streaming video software product, on the market for about nine months, is the first in this new series, he said.

Besides the Sony deal, Sonic Foundry has a $6 million agreement in the works to sell its Media Services unit, which performs digital media restoration and encoding work, Buinevicius said. He did not disclose the buyer involved in that deal, which has not been made final.

After closing the desktop and Media Services deals and paying down debt, Sonic Foundry will have about $15 million in cash to continue operations, Buinevicius said. On Thursday the company reported a net loss for its second fiscal quarter, ended March 31, of $2.1 million, compared to a net loss of $2.9 million for the year-earlier quarter.

Sonic Foundry found it difficult to compete with larger companies such as Apple, Adobe, and Avid Technology, which publish competing software, Buinevicius said.

"Anyone who knows this industry knows that it's tough to fight the whales; they have big marketing budgets," Buinevicius said. "Their products do similar things, and without a big marketing budget, it's hard to get the message out to users about the types of things your product does that are different from what products from the big whales do."

The company's desktop software line was bringing in about $15 million in annual revenue, he said. MediaSite Live sales have a run rate that amounts to about $2 million yearly. The company is eager to explore emerging markets that the bigger firms do not dominate.

Familiar Technology

Sony had already worked with Sonic Foundry before reaching the agreement to buy its desktop line.

Sony Pictures Digital's Screenblast Movie Studio and Screenblast Music Studio video and music mixing software are based on Sonic Foundry technology, says Don Levy, vice president of communications for Sony Pictures Digital.

"What we're seeing is a marketplace moving toward an increasing amount of personal media creation, with people becoming more and more fluent at digital media and skilled at producing digital video," Levy said.

Though Levy stressed Sony's interest in the expanding mass market for video editing and production, he also said the company intends to keep selling versions of the Sonic Foundry products aimed at professionals using high-end music and video tools.

"Sony has tremendous respect for the Sonic Foundry technology, and maintaining and expanding on it," Levy said. Sony Pictures Digital manages digital production and online assets of Sony Pictures Entertainment and is a subsidiary of Sony Corporation of America.

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