Divx, R.I.P.

By TWICE staff -- TWICE, 6/28/1999

Divx, one of the most closely watched and controversial consumer electronics formats ever introduced, died earlier this month.

The announcement was made through Circuit City, which apparently decided that $337 million spent on the format since 1997 was more than enough to justify pulling the plug. No official comment on the termination has been forthcoming from the chain’s Divx partner, L.A.-based entertainment law firm Ziffren, Brittenham, Branca & Fischer.

Like the fate of many other CE formats over the years, Divx’s demise was not due to a technological faux pas. Its fate was sealed in boardrooms rather than research labs.

Take a look at the format’s history. The existence of Divx came out of the blue and was made public by Circuit City during the fall of 1997. The news was greeted with much chagrin and consternation on the part of many on the hardware side, and some in Hollywood (notably Warren Lieberfarb of Warner Home Video), who were trying to get DVD off the ground.

Among the many explanations for Divx’s inability to gain a foothold at retail were poor promotion by Circuit City and its hardware partners; comments such as "if only DVD had been introduced with Divx as an option"; and a few thought the format was just too intrusive (i.e. using a phone line to bill software usage).

But retail hostility toward Circuit City was the overwhelming factor. Dealers resented what they saw as a Johnny-come-lately muddying the waters with Divx when they were about to begin selling what they considered the second coming of the VCR – DVD.

It seemed as if retailers took an anti-Divx stance as an opportunity to damage the mammoth chain that had bloodied many competitors over the years. When it was announced that Circuit City’s initial investment in Divx was going to be $100 million, more than a couple of CE retailers said off the record, "I only hope they keep losing money like that for awhile."

It was clear there was no way many regional or national chains would sell and promote a format whose profits would go into the pockets of a sworn enemy.

Results of the recently released PolkVerity Home Video Dealer Monitor quantified this resentment. When asked, "How would you describe Divx?" the leading response was "waste of money" at 22%.

In the same survey, dealers were asked, "When consumers come to your store, what percentage of the time would you say they ask about Divx?" and 45% said never. Whether the responses were truthful, or tainted by a bias against Circuit City, didn’t matter. Retail support was negligible.

Divx was picked up by a few retailers: The Good Guys, Denver-based Ultimate Electronics, metro New York’s 6th Avenue Electronics, and Nationwide chains. Canadian-based Future Shop, which sold Divx only at its U.S. stores, closed those locations, and Dow Stereo Video recently phased out the format.

Circuit City said Divx sold well during the 1998 holiday season. But the format’s detractors quickly maintained that any sales Divx had during the fourth quarter were due to the lack of open DVD players at retail.

Circuit City and its partners knew they needed broad-based support to make Divx a success and thought they had developed enough to make a go of it.

In the end, Divx backers miscalculated the type of battle they were in. They didn’t measure how deep the resentment against Circuit City was from retailers, and to use a military analogy, they did not bring enough overwhelming force to bear against the opponents to make victory inevitable.

On the other side, Divx may have been the savior of DVD – or at least sped up its market success – because the arrival of Divx spurred opponents, led by Warner, to launch the major open DVD ad and promotional campaigns that got sales to take off. – Steve Smith