DivX, Inc.

DivX, Inc.

Type	Public (NASDAQ: DIVX)
Founded	1999
Headquarters	San Diego, California, USA
Key people	Kevin Hell Jerome "Gej" Vashisht-Rota
Industry	Video Technology
Products	DivX 7 for Windows, DivX Pro 7 for Windows, DivX 7 for Mac, DivX Pro 7 for Mac, DivX Plus Web Player, DivX Author, muvee Reveal DivX Edition, SRS WOW HD DivX Edition
Revenue	$84.9 million USD (2007 calendar year)[1]
Employees	360 (March 31, 2008)[2]
Website	www.divx.com

DivX headquarters in San Diego

DivX, Inc. (formerly DivXNetworks, Inc.), based in San Diego, California, is the corporation behind the MPEG-4 Part 2-based 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 licenses its technologies to manufacturers of consumer electronics devices and components used in these devices and certifies that these products are able to properly handle DivX-encoded video. DivX, Inc. became publicly traded on the NASDAQ stock exchange after an initial public offering in September 2006.

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 Interleave file format (AVI).^[3] 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.^[3] 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 a lack of 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.^[4]

DivX, Inc. went public on September 27, 2006. In December 2006, DivX, Inc. was added to the Russell 2000 and Russell 3000 Indexes.^[5]

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.^[6]

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.^[7]

Partners include LG Electronics, Philips Electronics, Samsung Electronics, Sony Electronics, Thomson, and Pentax.^[7]

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.^[8]

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.^[9] DivX Inc.'s financial reporting for the third quarter of 2008 indicated that the Yahoo deal was proving to be more lucrative than the previous Google deal.^[10] Soon after the company reported third quarter results, however, Yahoo advised DivX, Inc. that it would cease making payments under the contract.^[11] DivX, Inc. responded by suing Yahoo in California Superior Court seeking damages and specific performance of the contract.^[12] The company acknowledged, though, that the breach would materially affect its financial performance for 2008 and 2009. (In the first nine months of 2008, the Yahoo deal accounted for 21% of DivX, Inc.'s revenue.)^[10]

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 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.^[13] Stage6 received a "Very Good" rating from PC World Magazine.^[14]

On September 6, 2007, DivX, Inc. filed a declaratory judgment action in federal district court in San Diego against Universal Music Group, Inc.^[15] 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.^[15] 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.^[16] 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.^[16] 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.^[13] 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.^[17]

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.^[18]

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.^[19]

Acquisitions and investments

In August 2007, DivX, Inc. announced that it had acquired the assets of Veatros, LLC, a Lawrence, Kansas-based company.^[20] Veatros developed video processing technology at the University of Kansas' Information and Telecommunication Technology Center.^[21] 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.^[22]

In November 2007, DivX, Inc. purchased Aachen, Germany based MainConcept AG.^[23] DivX, Inc. paid $22 million for the company, and will pay up to additional $6 million upon the completion of certain milestones in 2008.^[24] 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.^[25]

• In October 2007, DivX, Inc. was ranked the fifth fastest growing technology company in the San Diego region according to Deloitte & Touche USA LLP.^[26]

• DivX, Inc. was ranked No. 1 in Entrepreneur Magazine's Hot 500 list for 2007.^[27]

• 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.

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.^[28] The stock rose to over $30 per share. Cramer's view soon soured, however.^[29] In April 2007, the company's CFO resigned.^[30] 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.^[31] 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 has kept the stock price below the IPO price (the stock closed on May 14, 2009 at $4.79). 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 are a major source of the company revenue.

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.^[1]

References

External links

• DivX, Inc. web site
• DivX, Inc. SEC filings
• Stage6 website
• Background on DivX, Inc. IPO from Seeking Alpha
• Venture Capitalist's Take on DivX, Inc.'s IPO
• Project Mayo