Posts tagged ‘DivX’

Stage6 Resurrected?

Davis Freeberg has a piece out discussing the apparent return of Stage6, or at least a potential clone. (previously DivxIT) is said to be ready to launch a site that it hopes will recapture the spirit, if not the user base, of the original. It also seems to have the blessing of DivX to use its webplayer and codec.

Davis did a nice bit of investigative work here. Some in the blogosphere have commented that it won’t fly, since Veoh (originally endorsed by DivX when Stage6 folded) is where all the old Stage6 users went. But if you look at recent Alexa stats, there’s no uptick in Veoh traffic that corresponds with the dramatic drop in Stage6 as it went off the air. So they’re still out in the Ether somewhere.

I hope Vreel (or someone) succeeds, but I have my doubts. The ties between Stage6 and DivX’s software, community, forums, and tech people had a lot to do with its original success, as well as Jordan Greenhall’s vision. Further, there seems to be no paid subscriptions and therefore no business model (yet). Presumably an ad-based model can be added later, but in the meantime it’ll be damned expensive if traffic builds to anything like Stage6.

We’ll see.

Disclosure: I hold no position in any of the stocks mentioned here.

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April 25, 2008 at 9:02 am 4 comments

DivX: Juvenile Delinquent?

Did everyone see this morning’s announcement from DivX (DIVX)? TVs that are DivX Certified, from HP and LG. Yawn. DivX has had an HP TV certified for some time, and the rest of this was distressingly devoid of details. (Nice to see the SKU count up, though.)

Particularly curious was the mention of Internet video streaming capability on some models, but the wording suggests DivX isn’t involved in this part. If any of these SKUs incorporated DivX Connected technology I’m sure it would have been announced.

All in all quite a fluffy release, without much new in it. I wouldn’t have thought DivX was one to use puff pieces prior to earnings. But then…

Parents are always on the lookout for those telltale danger signs in their kids: falling grades, withdrawal from family involvement, strange friends, mood swings, glassy eyes, smoky odors clinging to clothes, etc.

I wonder. Is DivX a troubled kid?

First, there was the Stage6 imbroglio, with Jordan Greenhall and most of the founding team leaving for parts unknown. Stage6 was neither retained as an (expensive) venture investment nor spun off to others, but simply value destroyed. Complete with swirling rumors of hot tempers and incompetence.

Then the departure of SVP Sales & Marketing Pamela Johnston early this month. These things are rarely explained adequately, or truthfully. Might be poor performance, might be strategic disagreement. But it could have been “time to get the hell out of Dodge”.

Third, sagging guidance for 2008, leading to a reduction in analyst estimates on the stock. The 2008 mean estimate has fallen 8% to $0.47, while the 2009 estimate dropped 15% to $0.55. The stock price followed. Everyone had been holding their collective breath for the end of the Stage6 drag on costs, but the MainConcept deal has brought unanticipated expenses and 2008 is now being billed as “an investment year”. I thought 2007 was the investment year.

Finally, I have heard rumblings lately about layoffs at DivX. If true, this could really hit the stock where it hurts, although any associated cost is almost certainly already in management–if not analyst–estimates.

DivX is cheap. It’s trading at about 15 times forward earnings, and has an enterprise value on the order of only $100M. This is simply nuts for a company with high gross margins and rapidly growing license revenue. It generated $13.3M in free cash flow last year, and that was when it was burdened to the tune of about $20M by Stage6. But some of the points above help explain why this thing has been so badly ostracized by the investment community, which is understandably nervous after a long roller coaster ride.

I like DivX. I use their tech and it’s excellent, especially DivX Connected. Their user base is rabid and involved. I like the management team. They’ve made impressive announcements recently about licensing and content deals which should prove lucrative. The DivX format will soon incorporate perhaps the best H.264 codec.

But like a good kid going through a rough patch, their potential always seems to be receding into the future. And like most teens, DivX can rightly complain that “nobody understands me.”

On the other hand, maybe it’s just puberty.

Disclosure: I hold no position in any of the stocks mentioned here.

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April 23, 2008 at 10:51 am 1 comment

A One-Channel TV

Got to thinking the other day about the last 10 foot problem, i.e. getting media from either your computer or the Internet to the TV. No shortage of available or announced solutions: TiVo, AppleTV, XBox, etc. Even Nintendo is apparently trialing a service in the U.K. to get the BBC’s iPlayer to your living room via your Wii console.

I’m still a bit puzzled about the underlying strategy for this, however. There’s obviously an attempt to differentiate each box, but I just can’t see how it might drive sales by itself. XBox delivers movies, AppleTV allows YouTube access, Wii incorporates iPlayer, DLink’s DivX adapter had Stage6 (sigh). I guess for a select few this might make sense, that the service tail might wag the electronics dog.

Me, I want it all. I want YouTube, Hulu, iPlayer, Veoh, as well as any video currently on my PC. Not to mention whatever hot new thing comes out tomorrow. But since nobody offers a consumer electronics solution to provide all these, I guess I’ll just….wait.

And wait.

After all, who would want to buy a TV that only receives a few channels?

Certainly, one could always hook up a PC to their TV directly. Or use a Media Center PC of some type that provides most/all of this. But that’s likely too much trouble (and technical savvy) for joe sixpack and sally soccer-mom.

Is it any wonder that there is no surefire convergence solution? It the holy grail here simply a browser on your TV?

Until that time, perhaps the PC still needs to be in the equation somehow. After all, everything on the internet is already accessible via the PC, including not-yet-dreamed up video sites and (this is important) easy billing solutions. Maybe trying too quickly to bypass the computer is a mistake. Maybe this is a two-phase process:

  1. First, something that allows easy, format-agnostic streaming of anything on or accessible by your PC.
  2. Evolution to a pure Internet TV (or a simple internet front end to the TV).

Why would I ever buy a box that didn’t do at least one of these things, unless it had another purpose (e.g. gaming, DVR)? The problem, of course, is that the industry is trying to manage the profit stream by linking boxes to services, cutting special content joint ventures, building new advertising paradigms, etc. That approach largely ignores the consumer.

Where would the television industry have been if RCA had cut a deal to deliver ABC content and local news, while Panasonic TVs showed only CBS and the weather?  What if Sony VCRs had only played movies from Disney and Sony?

Disclosure: I hold no position in any of the stocks mentioned here.

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April 21, 2008 at 10:36 am 2 comments

CinemaNow, Technicolor Become Enablers

TechicolorCinemaNow and Thomson’s Technicolor (NYSE: TMS) just announced a partnership to provide an end-to-end platform for online content delivery to consumers. CinemaNow will contribute its studio-licensed content and a storefront, while Technicolor will provide encoding, encryption, rights management, and content delivery services. (I hadn’t known until now that Technicolor runs its own CDN, but it does.)

The platform will extend all the way from content origination to consumer devices. The press release mentions CinemaNow partners such as Samsung, Archos, Dish Network, and HP as providing compatible hardware for the platform.

What isn’t mentioned is the engine “inside” that will make this work at the device level. I’m sure Macrovision (NASDAQ: MVSN) is in the mix, as it already has deals with CinemaNow and Samsung for its Macrovision Connected technology. Presumably Dish/Echostar set-top boxes will get the Connected treatment also, which is certified DLNA compliant.

CinemaNowThere are advantages to the middleman model, especially in providing a mechanism to drive digital living technology into more electronics gear. But is it a long-term solution?

Making it easy for anyone to become an online content retailer will lead to… well… lots of online content retailers. Most of them poorly differentiated and few with any staying power. And when the customers dry up, where will the middlemen be?

Imagine the early days of television, except with dozens of TV networks. If they had all broadcast the same programs, or nearly the same, how many of those networks would have survived? Sort of like Internet video portals today. Home video delivery will be no different.

I think to succeed as an online retailer will require one of two things:

  1. Exclusive content. Not really in the best interests of the content providers, who want as broad a reach as possible and who are tired of being restricted by their distribution partners.
  2. Something to make the channel sticky. My best guess remains either unsurpassed ease-of-use (e.g. iTunes) or most likely some form of social networking. DivX’s Stage6 had a fair amount of success here.

Those few online retailers that get the formula right will probably try to disintermediate the enablers. Or the middlemen will acquire the portals. Or both. (Me? I’m a big fan of horizontal separation.)

In the meantime, look to partnerships such as this one to facilitate the home viewing transition from discs to a full media download market.

Disclosure: I have no position in any of the stocks mentioned here.

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April 16, 2008 at 7:31 pm 2 comments

Blockbuster: Driving Off A Cliff?

The Hollywood Reporter had a story last week that Blockbuster (NYSE: BBI) will soon announce a movie rental set-top box. Everyone who has written about it has noted it will compete against–among others–Apple TV (NASDAQ: AAPL).

That’s true, if you can call “eating dust” a competition.

To the extent such dedicated set-top boxes ever catch on (and I have doubts), Apple TV is Lightning McQueen to Blockbuster’s Mater. Apple is in the hardware business, you can bet it’s in this race to win. Frankly I doubt it even cares that much about the movie revenue. But those rentals are Blockbuster’s raison d’etre.

Blockbuster still seems like a deer caught in the headlights, and has been playing follow the leader with Netflix (NASDAQ: NFLX) for some time. This recent development simply copies the deal Netflix announced with LG Electronics awhile back. While I wouldn’t go so far to say it is doomed (yet), Blockbuster needs a serious strategy tune-up.

First it has to rid itself of the retail store “boot”. For too long Blockbuster has focused on driving traffic to its locations, which it naturally feels obligated to earn money on. But this is the digital age, and despite trying desperately to leverage them, Blockbuster’s locations aren’t the assets it thinks they are. Instead of trying to earn a return on real estate, Blockbuster should have been shedding stores. I understand the real estate market was pretty good last year, probably a great time to divest. Oops.

This is the same mistake Toys-R-Us made, dipping its toes into the on-line pool but afraid to jump in until it was too late.

Blockbuster does have some options left. The purchase of Movielink gives it a leg up in on-line delivery. Going to market with its own STB is a mistake, however. First, it’s not at all clear there would be much demand for the box; just look at Vudu. Second, Blockbuster doesn’t exactly present a compelling co-branding opportunity for CE manufacturers. And depending on the arrangement, the costs associated with such a move could easily outweigh any additional revenue generated.

Far better to package Blockbuster-to-the-TV as a service. True, Apple and TiVo (NASDAQ: TIVO) aren’t likely to sign on. But it could partner with multiple CE manufacturers who can build home media transfer capabilities into their DVD or Blu-ray players, using technology from the likes of DivX (NASDAQ: DIVX) or Macrovision (NASDAQ: MVSN).

These solutions (perhaps not so coincidentally called “Connected” by both firms) are licensed to CE manufacturers, vendor neutral, and built-in at the chip level. Movielink gets films to the PC, and “Connected” easily gets them to the DVD or STB, without requiring an additional box. In fact, DivX has a good relationship with LG already–wouldn’t surprise me to see Netflix go with DivX Connected on an LG box instead of with a branded version.

This makes even more sense when you consider the other advantage Movielink brings to Blockbuster: a partnership with Sonic Solutions (NASDAQ: SNIC). Sonic’s Qflix is the only legal way to burn a studio DVD remotely, which allows Blockbuster to say goodbye to much of its costly inventory. It will soon be feasible to download movies to PCs and then burn them at home. (The disc is dead, long live the disc.)

Blockbuster still has a chance in this race, but it had better get out of first gear. Fast.

Disclosure: I don’t hold positions in any the stocks mentioned in this article.

April 12, 2008 at 8:03 pm 2 comments

Whither–or Wither–Stage6?

I was one of many who were saddened and disappointed by last weeks shuttering of DivX’s Stage6 site. It was surely among the best and most groundbreaking of UGC video sites–YouTube for adults. Moreover, I think they really got the community part of it right, and it served as a model for others wishing to combine social sites with video.

Many in the blogosphere, who didn’t understand either Stage6 or DivX’s business, dismissed it as just another video site destined to bite the dust because it “lacked scale”. This always irked me.

Like DivX itself, the centrex of Stage6’s popularity lay abroad, not in the U.S. So it’s no wonder wags who look only at ComScore, Compete, etc. failed to notice its popularity (and why Jordan Greenhall, DivX’s former CEO and Stage6 founder, always referred to Alexa statistics). For example, according to Compete, Stage6 only had about 1M monthly unique visitors, vs. 6M for Veoh and 60M for YouTube. But using Alexa’s worldwide stats, Stage6 was among the 100 most popular sites in the world; dead-even with Veoh. Hell, it had 1/6 the traffic of Facebook, which regardless of your thoughts on exact valuation is worth beaucoup bucks.

As an interesting aside, deviantART, which is part owned by DivX, is ranked 60th worldwide per Alexa, which was a big surprise to me.

As someone who covered DivX as an analyst, I understood the drag it had on the company’s financials. But still….it’s unfortunate that the realities of business (and Street sentiment) did not allow them to hang on long enough to develop Stage6 into a standalone concern–or spin it off as planned.

Others have written either more eloquently, or more breathlessly, about the reasons DivX’s Board chose to retain Stage6, and the circumstances surrounding the departure of Jordan Greenhall and the bulk of the DivX/Stage6 founding team. Personally, I think the rumored $90M post-money valuation sounds high, particularly in light of recent concerns about the difficulty of monetizing UGC video through advertising.

It seems much more likely to me that despite initial interest from potential buyers, the combination of an uncertain monetization and the threat of lawsuits (Universal) likely drove the value of Stage6 unacceptably low. That could explain the departure of the founders, particularly if they came to believe–rightly or wrongly–that DivX’s board somehow botched the negotiations.

As to the fate of DivX itself, that’s an interesting one. The company certainly has an impressive installed base, a compelling value proposition with electronics manufacturers for its licensed technology, and exciting potential to move into licensed content with its recent deal with Sony and its purchase of the leading MPEG-4 AVC vendor, MainConcept. The loss of Stage6 doesn’t diminsh that user base as much as many fear. And based on my personal experience with a beta unit, DivX’s Connected platform–which can turn any piece of electronics gear into a more open AppleTV–is a winner.

But despite a good 4th quarter, management whiffed on guidance for 2008 and the stock tanked. I suspect they are conservatively projecting a slowdown in electronics sales worldwide. I also believe the takeup of (DivX-certified) Blu-ray players will disappoint in 2008, as consumers delay HD player purchases in anticipation of cheaper prices down the road. Nor will any of DivX’s other promising initiatives gain traction until 2009.

Still, the firm has plenty of value. Are they for sale? Sure. Everyone is at the right price. Management are big believers in the firm’s potential, and won’t let it go easily. But with the right buyer and a decent price, it’ll go. My bet? Dolby Labs. They have the size, synergy in business model, a common customer base, and need for new growth platforms. And video is one they’ve already said they want to move into more strongly.

Any way you look at it, this is one company–and stock–that’ll continue to generate excitement and speculation.

March 14, 2008 at 9:57 am 1 comment

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