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DivX, Inc.
(formerly DivXNetworks, Inc.), based in San Diego, California, is the
corporation behind the popular MPEG-4 codec, DivX. The company's codec has been
downloaded over 240 million times since January 2003. DivX, Inc.'s offerings
have expanded beyond the codec to include software for viewing and authoring
DivX-encoded video. DivX, Inc. also certifies consumer electronics devices that
are able to play and record DivX-compatible video. DivX, Inc. became publicly
traded on the NASDAQ stock exchange after an initial public offering in
September 2006.
Contents
History
The origin of DivX, Inc. begins with video engineer Jerome Rota (aka Gej), who
made the original "DivX ;-)" codec available on his personal website after he
had reverse-engineered the Microsoft MPEG-4 V3 codec. Gej was looking for a way
to compress his portfolio so he could transmit it using the Audio Video
Interlaced file format (AVI).] The codec became popular because it enabled
reasonable quality video transmission over the internet (see DivX). Co-founder
Jordan Greenhall, a former Mp3.com executive, learned of the codec from friends,
and used it to download a copy of "The Matrix."[3] Greehall eventually got in
touch with Gej through an underground Dutch hacker group after a multi-month
search. In early 2000, Greenhall put forward the idea of using the "DivX ;-)"
codec to found a company. With co-founders Joe Bezdek, Darrius Thompson and Tay
Nguyen, Greenhall and Gej created DivXNetworks, Inc. After coming under scrutiny
for the original "DivX ;-)" codec, which was not a clean room design codec,
DivXNetworks created a new codec.
Early on, DivXNetworks started Project Mayo, an open-source initiative. They
developed the OpenDivX codec. Eventually, several Project Mayo collaborators
left the DivX team when they became frustrated with the commitment of
DivXNetworks to open-source projects. These members went on to help create the
XviD codec.
DivX, Inc. incurred net losses from its creation through the second quarter of
2005.[4] The company was profitable for fiscal years 2005-07.
Revenue streams
DivX, Inc. licenses its technologies to manufacturers of consumer electronic
devices. DivX, Inc. also licenses its technologies to manufacturers of
integrated circuits designed to be used in consumer electronic devices. For
example, on September 12, 2007, DivX, Inc. announced a licensing agreement with
Qualcomm that allows the chip manufacturer to include DivX, Inc.'s technology in
its video-enabled chipsets.
In addition to licensing, DivX, Inc. also certifies devices that can encode
and/or play-back videos using the company's codec according to DivX, Inc.'s
standards. The company has certified DVD players, digital televisions, digital
cameras, portable video players, and portable video recorders. DivX,Inc.'s
partners have shipped over 100 million certified consumer electric devices,
representing over 2500 product models.
Partners include LG Electronics, Philips Electronics, Samsung Electronics, Sony
Electronics, Thomson, and Pentax.
The licensing and certification agreements that DivX, Inc. strikes with its
partners usually entitle DivX, Inc. to receive a per-unit royalty for every
device shipped that incorporates DivX, Inc.'s technology and is certified by
DivX, Inc. Approximately 75% of all royalties DivX, Inc. received are for
products sold in countries outside of the United States,[4] as DivX-encoded
video is more popular in certain regions outside of the United States than it is
in the United States. Royalties resulting from licensing are approximately $1 to
$2 per unit shipped.
Prior to November 2007, DivX, Inc. also received revenue from Google by
providing the option to download the Google Toolbar when downloading the DivX
Player from the company's website. In November 2007, DivX, Inc.'s contract with
Google expired, and the company started distributing a co-branded version of the
Yahoo! Toolbar and a version of Internet Explorer 7 that is pre-configured with
Yahoo tools.[8] It remains to be seen whether DivX Inc.'s contract with Yahoo!
will be as lucrative as its former arrangement with Google.
Stage6
Main article: Stage6
Stage 6 was a user-generated content site run by DivX, Inc. that was similar to
YouTube but that allowed for uploading and viewing of high-definition video.
Anyone could upload a video to Stage6 and can make it available for viewing for
free. All videos on Stage6 were playable on all consumer electronics devices
that DivX had certified as being capable of playing DivX encoded video. Stage6
contributed to divx.com becoming one of the top 200 most-visited websites
according to the site Alexa.com.[9] Stage6 received a "Very Good" rating from PC
World Magazine.[10]
On September 6, 2007, DivX, Inc. filed a declaratory judgment action in federal
district court in San Diego against Universal Music Group, Inc.[11] In the
lawsuit, DivX, Inc. sought a declaration from the court that DivX Inc.'s
operation of Stage6 fell within the safe harbor protection provided by the
Digital Millennium Copyright Act for hosting websites against claims of
copyright infringement.[11] Previously, UMG had demanded that DivX, Inc. take a
license from the company to cover works on Stage6 that it owned and, in
addition, pay UMG $30 million for past damages.[12] On October 16, 2007, UMG
filed an action against DivX, Inc. in federal district court in Los Angeles for
copyright infringement. UMG then moved to have the San Diego action dismissed in
favor of the Los Angeles action. On February 5, 2008, the judge in the San Diego
action granted UMG's motion to dismiss. The Los Angeles action is still pending.
On July 24, 2007, DivX, Inc. announced that it intended to separate Stage6 into
its own separate private company because Stage6's success has resulted in
significant expenses that have impacted DivX, Inc.'s bottom line.[9] In December
2007, DivX, Inc. announced that it needed additional time to consider the
alternatives available to the company with respect to the future of Stage6.
On February 25, 2008, DivX, Inc. announced its plan to permanently shut down
Stage6 on February 28, 2008 instead of selling it or spinning it off.
Prior to the decision to close the site, disagreements within DivX, Inc. on what
to do with site appears to have led to the resignations of senior personnel,
including co-founders Jordan Greenhall and Darrius Thompson.
Acquisitions and investments
In August 2007, DivX, Inc. announced that it had acquired the assets of Veatros,
LLC, a Lawrence, Kansas-based company.[16] Veatros developed video processing
technology at the University of Kansas' Information and Telecommunication
Technology Center.[17] The technology can be used for video search and
discovery. The deal was for $2 million in cash plus an additional $2.5 million
upon completion of certain technology-related milestones.
In November 2007, DivX, Inc. purchased Aachen, Germany based MainConcept AG.[19]
DivX, Inc. paid $22 million for the company, and will pay up to additional $6
million upon the completion of certain milestones in 2008.[20] MainConcept
developed and distributes one of the most popular codecs using the H.264
standard.
Awards
In March 2008, DivX, Inc. announced that Moscow State University ranked
MainConcept's H.264 codec first for the second straight year in its annual
H.264-codec comparison.
In October 2007, DivX, Inc. was ranked the fifth fastest growing technology
company in the San Diego region according to Deloitte & Touche USA LLP.
DivX, Inc. was ranked No. 1 in Entrepreneur Magazine's Hot 500 list for
2007.[23]
DivXNetworks received awards in the AlwaysOn "100 Top Innovators" and the "Red
Herring 100 Top Private Companies" in 2004. Jordan Greenhall was also featured
in the BridgeGate "20 Awards 2002" list.
[edit] Stock Price
Since the company went public in September 2006, its stock price has
disappointed many. The IPO price for the company's shares was $16. The price
initially rose quickly as a result of positive reports from financial companies
initiating coverage of the company and a favorable commentary on the stock by
Jim Cramer on his popular television show Mad Money.] The stock rose to over $30
per share. Cramer's view soon soured, however. In April 2007, the company's CFO
resigned. Shortly afterward, the company announced earnings for the first
quarter of 2007 that were below analyst estimates, even though management had
earlier made a rare positive preannouncement on revenue. This combination of
events contributed to a slide in the stock price to a level below the IPO price.
Uncertainty about the company's future have kept the stock price below the IPO
price (the stock closed on June 27, 2008 at $7.52). A number of factors have
contributed to the uncertainty: weak guidance from management, resignation of
key personnel, the shutdown of Stage6, serious competitive threats, and a
slowdown in the market for DVD players, which market is a major source of
revenue for the company.
Initial funding
In September 2000, Zone Ventures of Los Angeles, California, as well as Tim
Draper and several other investors from the Draper Fisher Jurvetson family of
funds provided the initial round of investment.
On June 4 2002, DivXNetworks received an additional $6 million. Zone Ventures
was again one of the largest investors, deriving funds from the WI Harper group.
Draper Atlantic and the Wasatach Venture Fund also invested, and Tim Draper made
another personal investment. At the time, this put DivX's total equity financing
at over $11.5 million.
In May 2004, DivX raised an additional round of $7 million, investors included
Draper-affiliate Zone Ventures, WI Harper Group, Draper Atlantic, Wasatch
Venture Fund, Springboard-Harper, Tim Draper, Cardinal Venture Capital, ALi
Corporation, and Cyberlink International Technology Corp. In October 2005, the
company announced closing a $17 million round from Insight Venture Partners.
DivX, Inc. raised over $108 million in its Sep. 27, 2006 IPO.
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