Razer acquires audiovisual icon THX as it explores growth beyond the games industry

Razer, the company that develops hardware and services for gamers and the world of gaming, has made an acquisition to catapult it to more platforms and more people: The company has acquired THX, the legendary audio and video quality assurance company that was originally founded by George Lucas as part of Lucasfilm.

Razer’s CEO Min-Liang Tan said in an interview that the terms of the deal are not being disclosed. But as part of the purchase, 33-year-old THX will be “spun out” and operated as a “startup,” recapitalized by Razer; run independently of it under existing management, led by Ty Ahmad-Taylor out of San Francisco; and focusing on developing new things.

Currently, THX employs 50 people, including a number of top audio and graphics engineers and scientists; the plan will be to ramp up those numbers both at the HQ and in other offices in countries like China to tap into the growing market there for films, tech and any other content that could be improved with better audiovisual quality.

THX has been through a few ownership phases since being founded in 1983, and the only one of those where a price was publicly attached to the company was when Creative Technologies, a Singaporean company, acquired a 60 percent stake from Lucasfilm reportedly for $8 million in 2002, implying a valuation of a mere $13 million.

That price was never confirmed, and when I mentioned it to Min, as Tan is known, all I got in response was: “2002 is not today,” and a laugh. (By the time of the Razer acquisition, Min said that Creative Technologies no longer was the majority owner; a PE firm was. Min declined to give specifics about the shareholders involved.)

Razer itself has disclosed at least $125 million in funding, with investors including China’s LianLuo (Beijing Digital Grid), Intel and Accel. It’s currently valued at $1.5 billion, but has never been public about its revenues or other metrics. This is Razer’s second acquisition, after it purchased gaming startup Ouya’s software, technology and development teams in an all-cash deal in 2015.

You may not know exactly what THX does today, but chances are you would recognize the company’s famous “Deep Note” warp clip at the start of a movie, which indicates when a film has been through the THX treatment. This is the 2015 remastered version:

[youtube https://www.youtube.com/watch?v=M3lO9Dt3kjA&w=560&h=315]

THX was started as a special audio division at Lucasfilm when the company was working on Return of the Jedi and Lucas wanted to ensure that the sound in theaters was just as the sound engineers had intended it to be. THX was a quality assurance system that essentially highlighted a whole range of features that a theater needed to have in place; it also provided a crossover circuit as part of the standard.

Fast-forward to today and the company still focuses on HD quality, but now it works in a range of other environments that span both audio and video. THX Live for performances, for example, is being used as part of Beyoncé’s Formation world tour.

Razer sees a parallel between the kind of work that THX does and Razer’s own position that it holds as a high-end brand in the gaming world.

“We’ve been fans of THX for a long time, from the time of the Star Wars legacy and how George Lucas created it,” Min said. “THX has one of the biggest brands when it comes to movies or music. Audio files, films, we think of the THX brand in audio as akin to what Razer is in gaming.”

The company, Min added, has a “huge library” of IP in the audiovisual space, which Razer hopes to use toward more and better gaming content and other products. “There is a lot of potential to extend it into newer areas that interest us, like virtual reality and live streaming,” he said.

One area, for example, is in developing the acoustics that make virtual reality environments ever more realistic: noises that sound like they are coming from around the very room you might be sitting in. “We’re looking forward to the opportunity to work with their designers and engineers,” Min said.

Razer had looked at a number of other audiovisual companies when it decided to focus and ramp up in this area, but when it learned that THX was an option, “It was pretty much a no-brainer for us,” he added.

But while Razer will tap into THX to develop its business, THX itself will also continue to build its own standalone projects. “We are focused on our core business,” Ahmad-Taylor said. That will mean business development deals with a number of other companies, some of which will potentially compete against Razer itself.

Ahmad-Taylor pointed out working with the competition is a part of THX’s history and how a lot of the film industry has always worked: “We were owned by Lucasfilm and Disney and had no problems working in the distribution chain,” he said. “We are agnostic with respect to platform.”

The film industry connection will also be interesting to Razer, given the ever-growing connection between hit film franchises and their gaming components.

For Razer, the challenge now will be to make sure that as it continues to make new investments, the company does not lose sight of its core market, or of the focus that has helped it grow to where it is today. There will be yet more external forces on Razer on the horizon: The acquisition comes on the heels of Razer announcing zVentures, a new fund to back startups in areas that are considered strategic for Razer, which is initially capitalized with $30 million.

The THX deal is not a part of the zVentures enterprise, Razer tells me, although going forward it may be via zVentures that THX receives further investment, which means it could also be a fundamental partner to whichever startups Razer backs in the future.