DivX and Xbox 360: A Potential Win-Win For Everyone

DivX (DIVX) followed up Tuesday night’s earnings report with a presentation at the JP Morgan SmMid cap conference. After having just undergone their quarterly confessional, I didn’t expect to hear any new information, but wanted to tune in anyway.

Luckily, I was rewarded when midway through the Q&A session, JP Morgan analyst Paul Coster coyly probed Kevin Hell about whether or not we were about to see DivX support on the Xbox 360. The question seemed to catch Hell off guard, and while his initial reaction was enthusiasm, there was something about his tone that suggested that Coster might be onto something.

Here is the exchange verbatim, but in order to appreciate the awkwardness of the exchange, you should really listen to the quote at the 24 minute mark of the presentation and make your own decision as to whether or not you hear a sense of urgency in Hell’s response.

Coster - “Just a minor point here, but there was a recent Microsoft (MSFT) conference where I believe their media extender now incorporates the DivX codec on it, is that correct? Can you confirm that and does that mean we’re soon going to see Xboxes with DivX on them?
Hell - “Yes! that, uh, we’re in discussions with Microsoft on that at this point in time, so I can’t go into any great detail on that. Um that is not a certified, that is not a certified or licensed product at this time.”

At that point DivX CFO Dan Halvorson jumped in and quickly changed the subject.

It was only a brief exchange, but after pretty much giving up all hope of seeing DivX on the Xbox, I found the news to be very encouraging. When I originally saw that Microsoft was going to support DivX on their media extenders, but not on the 360, I took this as a sign that negotiations were over and that Microsoft didn’t want to pay for their entire Xbox360 population. In retrospect, Microsoft may have really been engaging in the subtle art of negotiation.

In thinking about some of the leaked XviD/360 rumors over the past summer, I can’t help but wonder if Microsoft could have intended to leak this information, in order to gain leverage in their discussions. An Xbox that supports XviD, but not DivX, is a less then optimal experience for consumers, but the downside would be far worse for DivX than Microsoft. Could Microsoft have been flexing their muscles in an attempt to get a better licensing deal with DivX? I don’t have the answers to these questions, but I do have advice for both companies.

DivX - I know that you have responsibilities to your shareholders, but as a fan, I urge you to engage in some fiscal irresponsibility and give in to whatever Microsoft is demanding. DivX support on the Xbox is one of the top requests from your community and would make a killer extension for your codec. Don’t make us hack into our Xbox to get at the DivX love. The platform would give you instant access to millions of television sets and would energize your entire community.

Microsoft - Have you looked at how much cash you have in your bank account? Why are you even playing this game of chicken? We should have had DivX support years ago. Offering XviD, but not DivX would be a huge hassle for your customers and isn’t worth the money you would save on royalties. The publicity from adopting an open strategy would more than pay for your investment. Your strategy to treat media extenders differently from the 360 is an obstacle to mainstream adoption and one that should be abandoned. You should listen to consumers, even if it means overpaying DivX for their certification. With a consistent extender strategy and DivX support on the Xbox 360, you could crush the PS3 and create a more compelling reason for people to adopt your Media Center technology.

It’s hard to say how negotiations will turn out, but I have a feeling that it won’t take long to find out. The “Fall” update is rumored to be taking place sometime in December and if it doesn’t include DivX support, it will likely mean that these discussions broke down. If it does include DivX support, it will be a huge win for DivX, for Microsoft and most important, for their customers.

Comments

[Brother]

"With a consistent extender strategy and DivX support on the Xbox 360, you could crush the PS3"

Funniest thing I've read in years lol Someone should remind you of that in a few years time. The only way the 360 could 'crush the PS3' is if it suddenly got all of Sonys 2008 exclusives and their 100m+ fanbase.

[DavisFreeberg]

I'd argue that the Xbox 360 is crushing the PS3 right now. Forcing consumers to buy Blu-Ray was a huge mistake and one that is reflected in the weak sales on the console.

[Brother]

Te PS3 is selling as fast as the 360 did in its first year yet all of Sonys big exclusives haven't been released yet. Just look at the exclusive games due to be released on it next year:

Metal Gear Solid 4
Gran Turismo 5
Final Fantasy 13
Tekken 6
LittleBigPlanet
Killzone 2
L.A. Noire
The Agency
Coded Arms: Assault
Eight Days
FIA World Touring Car Championship
The Getaway 3
Red Dead Revolver 2
Heavy Rain
Infamous

compare that list to the 360s exclusives for 2008:

Banjo-Kazooie 3
Dance Dance Revolution Universe 2
Dogtag
Fable 2
Magna Carta 2
Mobile Ops: The One Year War
Ninja Gaiden 2
Too Human

The PS3 is doing as well as the 360 did at a far higher price and with no reason for people to buy it. You can argue that the 360 is crushing the PS3 all you like but you are wrong.

[Brother]

BTW the latest firmware update has given the PS3 the ability to recognise DivX & Xvid which it couldn't do before. It still cant play them but there was a DivX logo in one of the Home demos a while ago so it looks like it is coming with that.

The PS3 has already won awards (most prestigious one being the EISA award) for the quality of its media centre capability and this will of course improve on that. I wonder where this fits in with your predictions?

[Blyea]

I wonder why Sony's CEO would declare a stalemate then?
www.betanews.com/artic...

[Brother]

"I wonder why Sony's CEO would declare a stalemate then?"

What exactly is the relevance of that link?

The stalemate he is talking about is between BluRay and HD-DVD not the PS3 and 360. Try paying attention a bit more next time.

[Fritch]

Nothing invokes more bitter defensive debating prowess than vilifying a ‘fanboys’ console with brash claims of annihilation purely to support you plea for extra functionality. I have a 360 but I am not convinced that DivX support would weigh heavily in a prospective purchasers mind. Whilst the function would be great, the VME streaming encoding is a great work-around anyway. There’s quite a few high-profile exclusives missing from your list there mate;

Alan Wake

Lost Odyssey

Splinter Cell: Conviction

Project Offset

World in Conflict

Marvel Universe Online

Huxley etc.

Plus the ‘episodic’ content for GTA IV

I think there’s a lot more hype over the PS3 2008 line up because it’s largely dominated with sequels to existing franchises. Time will tell how well received they are.

[Brother]

You obviously dont understand the meaning of the word 'exclusive'.

Alan Wake, Lost Odyessy, Marvel Universe Online, Splinter Cell: Conviction, Project Offset and Huxley are all being released at the same time on the PC.

All of those PS3 exclusives are exclusive. Do you understand the difference retard?

Idiot.

The 360s 2008 exclusive lineup is rubbish compared to the PS3s.

[Fritch]

Nothing invokes more bitter defensive debating prowess than vilifying a ‘fanboys’ console with brash claims of annihilation purely to support you plea for extra functionality. I have a 360 but I am not convinced that DivX support would weigh heavily in a prospective purchasers mind. Whilst the function would be great, the VME streaming encoding is a great work-around anyway. There’s quite a few high-profile exclusives missing from your list there mate;

Alan Wake

Lost Odyssey

Splinter Cell: Conviction

Project Offset

World in Conflict

Marvel Universe Online

Huxley etc.

Plus the ‘episodic’ content for GTA IV

I think there’s a lot more hype over the PS3 2008 line up because it’s largely dominated with sequels to existing franchises. Time will tell how well received they are.

[DavisFreeberg]

<i>"Nothing invokes more bitter defensive debating prowess than vilifying a ‘fanboys’ console with brash claims of annihilation purely to support you plea for extra functionality. I have a 360 but I am not convinced that DivX support would weigh heavily in a prospective purchasers mind."</i>

I don't think that DivX support would cause 100% of the customers to buy it, but with an estimated 10% of the global population engaging in some form of p2p (closer to 20% for gamers), it would give them a good reason to choose the Xbox over the PS3. As far as PS3 support for DivX, I'm a skeptic. From what I understand, it looks like the PS3 activated the .AVI wrapper and not actually support for XviD or DivX. There's always a possibility that Sony is also in negotiations, but given their studio exposure, I think that they'd be reluctant to partner with the mp3 of video.

[Brother]

So why was there a DivX logo in the Home video at E3 where they were demonstrating how you will be able to show videos in your online apartment?

[DavisFreeberg]

I'm not saying that it's impossible for DivX to come to the PS3, but in my mind it's unlikely. It could have been that the DivX logo is the default image for when Sony can't read the file, but can recognize that it is a DivX file. From what I understand, the betatester that leaked the images still couldn't get the file to play. Right now, Sony does sell DivX DVD players in some of the international markets that have a high adoption rate for DivX, but they haven't released DivX DVD players in the US. If Sony was serious about DivX, I would think that they'd end this embargo before taking that kind of a step. Sony will always be a content owner first and that is why their gadgets are so proprietary. When the PSP came out UMD was doomed to failure from the start, but Sony insisted on pumping all kinds of money into it. When it comes to the PS3, they are pushing Blu-Ray. Somehow, it's hard for me to see the content side, opening up their architecture, in a way that they can't control. I'd love to be wrong, but am too jaded to believe that Sony will ever support an open digital platform.

[Brother]

Well I told you last week it was coming to the PS3 and you all sat their telling me I was wrong.

DivX has been confirmed for the PS3. HA HA HA HA!!!!!!

I dont want to say I told you so but hey... I just did lol

[Tom B]

DiVX is not a game changer for anyone. It is slowly being displaced by H.264. Just sell now and take a loss.

[Short Cable]

"As far as PS3 support for DivX, I'm a skeptic. From what I understand, it looks like the PS3 activated the .AVI wrapper and not actually support for XviD or DivX. There's always a possibility that Sony is also in negotiations, but given their studio exposure, I think that they'd be reluctant to partner with the mp3 of video."

Not only suported, but certified. And now they are going to make content availiable. Very sound strategy for Sony as far as BluRay, and the Game Console sales.

How many extra $40 to $60 games would they have to sell to cover about $1 for DivX certification on each console?