) will be providing its hi-definition surround audio solutions to
the French telecom company Bouygues Telecom's Bbox VOD, a video on
demand service. DTS's new partnership with Bouygues Telecom will
facilitate Bbox to offer an enriching sound experience.
According to research firm IMS Research, the video on demand
("VOD") market is gaining traction in North America and Europe. The
study estimates that North America will account for 33.1% of VOD
revenues by 2016 and will be followed by Western Europe with a
30.5% contribution. The Asia Pacific is projected to account for
25.7% of VOD revenues.
Another study by market research firm Nielsen states that the
video on demand market has increased 84% over the past year. Given
the encouraging trends, we believe that the demand for high
definition audio will also gain traction as every service provider
would try to provide its customers with an enriching audio and
Thus, DTS stands to gain in the long term. Moreover, DTS' sound
solutions are included as standards set by Advanced Television
Systems Committee ("ATSC"), Alliance for Telecommunications
Industry Solutions' ("ATIS") and Digital Video Broadcasting
("DVB"). These organizations set voluntary standards for digital
broadcasting and IPTV.
We believe that DTS's investment in the network connected
business will help it to gain significant market share going
forward. This, coupled with higher penetration in the Chinese
smartphone market and incremental revenue from the acquisition of
SRS labs, will drive top-line growth in 2013.
Of course, the volatile macroeconomic environment and sluggish
consumer spending will remain headwinds for Blu-ray sales in the
near term. We also believe that the strong growth of network
connected devices will eventually cannibalize the sales of
DVD-based products and Blu-ray sales.
Further, the company faces significant competition from
Dolby Laboratories Inc.
) and privately-held THX Limited, which remains a headwind going
Thus, we remain Neutral on DTS over the long term (6-12 months).
Currently, DTS Inc. has a Zacks #3 Rank, which implies a 'Hold'
rating in the near term.
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