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Circuit City, a Web-video pioneer?

The defunct electronics merchant ceased operating in 2009 but not before spending more than $100 million on technologies that might have some use today for distributing streaming media.

Circuit City's bones aren't picked clean yet.

CNET Networks

The failed electronics-chain store closed its doors and began liquidating assets two years ago, and still there is some intellectual property left to sell.

Turns out that in the decade before getting demolished by Best Buy, the 2008 financial meltdown, and its own hapless management, Circuit City had sought to boost pioneer digital-video distribution. The company pumped a boatload of money into developing technology that it hoped would help it cash in when the market finally emerged

Some of Circuit City's patents, including those from the company's ill-fated start-up, Digital Video Express, cover data encryption, content-protection, and watermarking technologies. They were specifically designed to help a service provider restrict access and prevent the pirating of streaming media.

What's interesting about all this is that some of Circuit City's technology actually deals with issues now affecting Internet distribution, such as authenticating users, billing, and conditional access. Authentication--ensuring that the viewers of a TV show or film are the people entitled to watch--is reportedly one of the issues that has held up a wider roll out of TV Everywhere, the IPTV verification system from Comcast and Time Warner.

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Overseeing the patent sale on behalf of the Circuit City Liquidation Trust is Streambank, an intellectual-property investment bank. Gabe Fried, a Streambank executive, said that Circuit City began developing the technology when it sought to squeeze more profit out of television. The retailer saw how cable companies were getting all the recurring revenue out of TV and they set out to find a new way into content distribution.

"These technologies were developed to support business models that are only now starting to emerge," Fried said. "As all media content, books, videos, and music change their distribution models, the value of these patents will become increasingly valuable."

Some of the technology grew out of the Digital Video Express effort, or DiVX--not to be confused with DivX compression technologies.

DiVX was Circuit City's attempt to compete with the traditional DVD. DiVX was a limited-use disc that allowed viewers access to movies for 48 hours after the initial viewing period. After that, a customer had to pay continuation fees for extended access. To unlock the disc for continued play, DiVX owners had to buy a DiVX player and attach it to a phone line, which would then unlock the disc after the customer paid.

Best Buy helped doom Circuit City, which began liquidating assets in 2009. Greg Sandoval/CNET

You have to ask yourself, what were they thinking? The company sank $100 million into the project, which was launched in June 1998 and was shut down in June 1999. Circuit City and partners in the operation said at the time that what doomed the project was they couldn't get content form the film studios and TV networks.

So the business model was a bust, but the technology that let them do some of the communicating and authentication may have application today, when most of the Hollywood studios are working on cloud-video services and enabling video to be played on a host of different devices and software platforms, Fried said, adding that some of the patents might be valuable to services that charge customers as part of a pay-as-you-go business model. Streambank has agreed to sell the patents for $750,000 unless it receives a higher bid by August 12.

Circuit City, which was founded in the 1940s, didn't play much of a part in content distribution over the Web, but it would be ironic if the doomed merchant could contribute to the future of entertainment years after it shut down.