Davis Freeberg

DivX Offers Low-Tech Help to Hollywood Partners to Expand Reach

My understanding of how the technology works is that consumers have a couple of different options when it comes to playing it back. Just about any laptop or computer should be able to play the file as long as they've got the DivX codec installed. If not, the codec is bundled on the stick itself and consumers can install if from there. If you happen to own a DivX DVD player (prbly 40 - 90% of all DVD players support DivX depending on where you go) then a consumer can transfer the film to their computer, burn it on their own DVD disc and then play it there. If you happen to have a USB supported DivX device like the PS3 or some of the television sets that let you plug a memory stick right in, then you should be able to play the movie right off the stick. Most of the more recent gadgets will support this implementation which will help it drive mainstream adoption. If consumers could only burn it DVD, it would limit the popularity to the early adopters.

As far as my comment on Blockbuster goes, they certainly could use DivX USB movies as a way to differentiate their kiosks from Redbox and/or to drive Blockbuster branded sales at other retailer's locations, but the way things are currently positioned, content is moving from packaged media to a direct download/streaming system and in that system companies like Blockbuster and Netflix may be positioned, but companies like Wal-mart stand to lose a bundle in media sales in the process. USB movies may not be the perfect solution but it could be an entirely new revenue stream for consumers who just aren't interested in DVDs anymore.


On Nov 20 09:36 AM Coney wrote:

> Does the DivX memory stick work with only computers and not television
> sets? We tech-trogs who buy DVD's, play them on our television sets
> not our computers. The bread-and-butter customers for retailers like
> Blockbuster will want playback on their television sets. Would TV
> widgets resolve the problem?
>
> In your last paragraph you write that the DivX would be a weapon
> "against Blockuster". Blockbuster makes its money on DVD rental and
> sales, and would appear to be the biggest beneficiary in shoring
> up their brick-and-mortar retailing by using the DivX memory stick
> while transitioning to mail and straight to TV sales channels.<br/>
>
> Excellent article.
>
> Robert

DivX May Be Over Before It Finishes What It Started

I'm not sure what being long or short would have to do with any of the issues raised in my article, but I've never held a position in DivX one way or another. I do think their technology is pretty cool though and would like to see the company move past this and succeed.

New DivX Hook-Up with Matroska to Provide Enhanced Video Experience

Thxs for the comment Rassoodock, I'm glad that you've enjoyed my posts, it's fun for me to track the company. You raise an interesting point re: Sony. I keep listening to Sony interviews in order to get a better sense of their strategy, but still can't figure out whether or not they are planning a DivX video store or if their plans are to try to cut out all middlemen. Seems to me, that they could just as easily make a video store using the VC-1 codec that Blu-Ray uses.

Here is a link to an interesting interview with Sony's CTO discussing their plans. Other than making it painfully obvious that he doesn't understand what the digital revolution is all about, the video raises more questions than answers re: their plans for DivX and Netflix. From his description one would think that he's talking exclusively about a DivX download program, but his protectionist comments lead me to believe that they didn't learn anything from the walkman fiasco.

www.beet.tv/2008/06/so...

Anyway, I found the whole interview discouraging because it reaffirmed that Sony is going to fight tooth and nail to protect their oligarchy on content, but would interested in hearing your own conclusions from watching the video.

Is DivX Just a Troubled Kid?

@Tom - I think that you are mistaken about H.264 being a "codec", it's really a format standard for high quality video that anyone can license and support. This difference is subtle, but important. H.264 would be comparable to Mpeg4. Even though anyone can support Mpeg4, DivX has was able to build a business around their certification because there is so much confusion over what Mpeg4 really is. By creating the DivX brand, they've made it easy for consumers to know that their files would play on a CE device without having to worry about the technical specifications. Moving forward, we'll see more devices support H.264, but because most consumers don't know anything about video formats, there is a need for a brand name to tie it all together. This is why Apple has used Quicktime as a wrapper around their H.264. They don't want consumers to be worried about whether or not the content will play, they want it to be seemless for them.

With so much confusion over H.264, DivX is in a great position to grow their brand around the format. As we move forward, I expect that DivX certification will eventually mean that both Mpeg4 and H.264 is supported and since Apple is a notoriously closed system, it creates an opportunity for independent companies like DivX to help fill this void. If Steve Jobs would open up his DRM to companies like Toshiba or Samsung, then h.264 Quicktime could be a threat to DivX, but somehow I don't see them allowing other gadget makers to muscle in on their monopoly over the content. In the past, better formats like Betamax did fail, but that was only because they were dependent upon the mainstream media's approval in order to get access to the content. Since the H.264 and Mpeg4 pirates don't seem too concerned about asking for permission, it allows DivX to continue to build their brand around these standards, even though Hollywood hasn't come to their senses yet.

Is the Breakdown of Stage6 the Beginning of DivX's End?

The paradox between the heart and the mind is a big part of why I've been so fascinated with DivX to begin with. It's a conflict that really goes beyond my feelings on DivX and is at the center of almost everything I've written since I started to share my thoughts online. I don't know how to reconcile my interest in the stock market with my passions as a fan, but its not the first time that I've struggled to find the right balance for this paradox. If I was invested in DivX, I'd probably feel differently, but my investment is emotional which means that hearts trump diamonds.

If this was only about Stage6 closing, I probably wouldn't be as concerned, but what really bothers me is the shift in focus by DivX from long term investing to short term earnings. This is a key development and one that I disagree with. DivX has essentially moved from a growth company to a value one. Don't get me wrong, there are times when businesses should make this adjustment, but DivX is still only on the cusp of a tremendous market opportunity and to see them buyback stock when they should be investing in growth makes me wonder what their agenda really is.

Closing Stage6 will add to the net income, but it's more about manufacturing earnings growth then securing DivX's strategic future. There will be some long term benefits in the cost savings, but $20 million for a share buyback won't go very far. It won't even be enough to buyback the stake that Insight dumped. If DivX was struggling to stay afloat or was dealing with a lot of debt, I could understand the rush to pull the plug, but they have more than adequate cash flow and the reserves to fund the site for at least another six months while they try to continue to raise financing. In the past week alone, we've seen CrunchyRoll raise an initial $4 million, Akimbo raised another $8 million in what has to be their 100th round of funding and TidalTV raised $15 million of series A financing. Even in this cash starved market, there are people who are willing to invest in digital video. Even if the board disagreed with how much of an ownership piece they wanted to keep, wouldn't it have been better for DivX's long term future if they kept a small piece of a funded and vibrant Stage6 over giving up on all of their investment and closing down operations? If they were focused on growing the company, they would be using their cash to solidify their market opportunity instead of focusing on milking the existing business for cash to buy back stock.

Ancient Chinese Proverb:
"Do not fear going forward slowly; fear only to stand still."

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

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.

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

<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.

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

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.

DivX Considers A Profitable Break-Up, But Are There Any Long Term Benefits?

Scott - You're right that Greenhall is still involved, but if you were in his shoes would you give up control of the parent company, just to run the microcap/VC spinoff? I don't think I would, unless I was willing to sell my 8% stake in the company. Greenhall could have been forced out, I'm sure that there are some shareholders who were more than upset about the head fake last quarter, but if he was being forced out, than why would they promote Hell to take over? I would've found a more seasoned CEO who Wall St. would get excited about.

Maybe the spinoff is really just a cosmetic change and won't impact the long term positioning of the company or it could be an alternative way for DivX to do a secondary offering, but when I see many of the key DivX employees shifting their focus to Stage6, it leaves me wondering what will happen to DivX. It may just be business as usual, but once you separate the companies, then the end game will change for both entities. I don't think that DivX is torpedoing their long term future by doing this, but it does seem like the change is designed more to benefit current shareholders than to improve revenue or net income.

In the future, the two entities could merge back together, but unringing this bell would be a lot more difficult than splitting up the companies to begin with.

DivX Considers A Profitable Break-Up, But Are There Any Long Term Benefits?

I think that as an advertiser, you want to put the highest quality ad in front of viewers. I'm not a big fan of the Discovery channel, but check it out in HD and all of a sudden it's some of the best programming out there. The same is true for ads. A low quality video experience, doesn't make me excited, but a high quality ad, makes me take notice. You're right that there would be less acceptance of DivX because they don't have the same player installed base, but this is why DivX would want to push this program. Each user who can't see the video, but wants to will install their product. Flash is on 90% of the computers (probably higher really, but who's counting) because early Macromedia used advertising to deliver the platform into consumers homes. There is no reason why DivX couldn't do the same to acheive greater penetration.

From the advertisers standpoint, you don't care really care because you wouldn't be paying based on page views, you'd be paying based on the number of ads viewed. If they pay for a million streams, than 1 million people will actually watch the ad.

The people who would care the most would be the publishers. If you get a 50% response rate with DivX vs. an 80% response rate with Google, than it's up to DivX to pay out enough that they make up the difference. Given how much revenue Google is keeping, I think DivX can do this, if they run at breakeven or a small profit.

I also think that DivX has a different relationship with independent publishers than some of the bigger companies. Google also understands social networking, but Sony would never be able to convince publishers to distribute a codec that they might make. Stage6 wouldn't have realized the growth that they have seen, if DivX didn't understand community. I may think that there are still plenty of bugs and things DivX could do better, but just like the guys who made Kazaa and Skype, the team behind DivX understands how to reach the larger net community.

If DivX did try to convince publishers to run third party ads, but couldn't get them to sign on, than what have they really lost? It doesn't cost much to set up an ad platform and even if bloggers/publishers rejected the ads, they'd still have 10 million + hits to sell on their own site.

DivX Considers A Profitable Break-Up, But Are There Any Long Term Benefits?

Richard, I'm not sure that you are understanding what I'm advocating. It's not about selling traffic on Stage6, it's about selling video ads on other websites. The traffic on Stage6 could be used to provide inventory for an ad management system, but the key for DivX is to leverage their relationship with people in the community, so that they'll sell other people's ads for them. Example, Charles Schwab has a hot new commercial, they could go to SA directly for the ad, but maybe they want to buy their ad placements in bulk.

Instead, DivX approaches SA and says, let us sell Schwab ads on your site and we'll pay you more than what Google will. Then they syndicate that ad on the Motley Fool, various technology/business sites, paidcontent, whoever is willing to partner with them. Now instead of having 10 million views to sell, they've got 20 million.

Only half of them are coming from Stage6.com, but they are cutting the content creator out of the monetary stream.

Right now, the business model is to let content creators upload their content, then you sell an ad for that content and split the revenue with the creator. What I'm saying is why pay for content, when so many people will pay you to distribute their content instead. Take a look at Zatz's Not Funny's Google video ad on his site and you'll see that Google is already leading this area of the market.

DivX's total user base is way past 10 million at this point. They've had 200 million downloads last time I checked. The value for DivX is that they don't pay for content, it increasing their profile with journalists, they make a small commission, but more importantly they introduce the DivX player to new web viewers. When viewers download the DivX player, DivX would have an opportunity to make a small commission on the Google toolbar. As a separate company, Stage6 could still do this, but they'd need to keep 60% of the revenue. With DivX's licensing support they could pay out a lot more and then just know that each ad being served is helping to solidify DivX as an industry standard.

DivX Considers A Profitable Break-Up, But Are There Any Long Term Benefits?

Good question Richard and perhaps I was clear enough in how I think they should implement their ad strategy. I don't think that Stage6 should be selling ads to viewers (well they should, but that's the smaller opportunity) They should instead be approaching sites like Forbes, BetaNews, DivX fan forums, Etc. and offering to pay them higher CPM to carry high quality video ads. Either way Take Two (or whoever) would have to pay to get the eyeball, but right now they are paying to run the ad on the flash platform instead of DivX. There still aren't a lot of video ads out there, but as this part of the market grows, I think it will present a great opportunity to innovative companies.

CES Brings Internet Capabilities to TV

That's because you are an Apple fanboy Tom. Normal people won't be buying Apple TV. How is the Apple Dongle even slightly better then Netgear's fully function HDTV PVR that supports, DivX, Amazon, iTunes, WMV, &amp; just about every other codec you can come up with? It's not. Given the lack of titles that iTunes has, I would never lock myself into their media universe when there is so much content out there. Consumers are much better going with something where they can get YouTube and iTunes onto their home theater systems. Steve Jobs really dropped the ball on this product. He could have made it awesome, but went mediocre just so that he can try and maintain a monopoly on the content that you can play with Apple products. In the long run Apple's proprietary nature will very much work against the company.

What DivX Must Do To Succeed

J - Thanks for the clarification, I was never aware that this was the case. Do you know why they are prohibited? Is it just industry policy or is it an SEC issue? Also do you know the rules for the quiet period? I was under the impression it was 30 days from the IPO which would have been last Friday. Even though the quiet period is over, I suspect that DivX will wait to speak until their earnings are released. I'm sure it will be an interesting call to listen in on.