NextLevel forms alliance with Sony

NextLevel Systems announces that Sony is taking a 5 percent stake in the company as the two form an alliance to distribute a digital set-top box.

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On a roll with partners and investors, NextLevel Systems said today that electronics giant Sony is taking a 5 percent stake in the company as the two form an alliance to distribute a digital set-top box with Sony's logo slapped on the front.

The deal, valued at $188 million, marks the latest cash infusion into NextLevel, which is widely regarded as a leading manufacturer of cable set-top boxes in the United States.

In mid-December, nine cable operators agreed to buy $4.5 billion worth of the company's products over the next few years. In a separate deal, Tele-Communications Inc. said it would provide NextLevel with a proprietary security system in exchange for a 10 percent stake in the company. All told, NextLevel issued 26 percent of its stock in those deals.

Today's deal with Sony builds on that momentum. Whereas in December partners agreed to pay $15 per share for NextLevel stock, the Japanese electronics giant will pay $25. At the same time, NextLevel, which is changing its name to General Instrument, will gain proprietary Sony technology in an effort to become one of the most recognized brand names in consumer electronics.

"To have a Sony name affixed to a General Instrument product is a badge of honor," said Susan Radd, a NextLevel spokeswoman. "We can combine our cable expertise with their brand awareness and deliver an advanced product that consumers know and trust."

Sony spokesman Rick Clancy said the deal demonstrates the company's commitment to providing products that are networked, a phenomenon--called "convergence" by some--that has yet to fully materialize but that many analysts say is inevitable.

"We think the digital cable set-top box is going to hold an important gateway role for the home network of the future," said Clancy. "[NextLevel] is the major player in the U.S. cable television industry."

Nevertheless, the steep price Sony agreed to pay for its stake in the company took at least one analyst by surprise.

"It sounds like Sony must be desperate to protect its turf in the convergence area," said Van Baker, director of consumer research at DataQuest. Still, he said, a partnership with a set-top box company is crucial for Sony if it wants to secure a position in the networked world.

"The opportunity is clearly there, as we move towards digital cable and digital broadcast, for the set-top box to become a hub in the networked household," Baker said, adding that today's deal, as well as those announced last month, are a major victory for NextLevel as it tries to raise capital and accelerate the implementation of digital television.

"[NextLevel]" is looking to raise some capital, and, by virtue of selling the stock, they're not only getting capital, but they get partners," he said.