DivX seeks profitable, legal path

DivXNetworks is determined to put its bootleg past behind it and become a viable purveyor of legal downloads.

Evan Hansen Staff Writer, CNET News.com
Department Editor Evan Hansen runs the Media section at CNET News.com. Before joining CNET he reported on business, technology and the law at American Lawyer Media.
Evan Hansen
6 min read
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  DivX standard goes online
Shahi Ghanem, COO, DivX Networks
June 12, 2001

A dark-horse competitor is joining the bitter battle over Internet video standards, promising to bring an MP3-like challenge to market leaders Microsoft and RealNetworks.

Known as DivX, the technology has until now has been most closely associated with growing piracy of Hollywood movies on the Internet. But DivXNetworks, the company behind the format, is determined to put its bootleg past behind it and become a viable purveyor of legal downloads and full-blown video-on-demand services.

That ambitious goal inched a step closer to reality last week when alternative film distributor Strand Releasing said it had licensed the DivX Open Video System, becoming the first commercial partner to use its video-compression format for secure DivX downloads. For example, consumers can now rent the 1995 film "World and Time Enough" for $4.95 directly from Strand Releasing's Web site for five days, after which the file will become inaccessible.

Although Strand Releasing is a minor player in Hollywood, the announcement highlights the high-stakes battle to create a video standard with wide appeal and marks an important step in DivXNetworks' quest to be that standard. Last month the company issued a new version of its touted DivX "codec"--a mathematical formula used to compress bulky video files to transfer them effectively over the Internet.

Although RealNetworks and Microsoft have dominated in this arena, analysts said video technology on the Net remains an open race partly because the quality of current offerings leaves a lot to be desired.

"DivX has hit the same sort of status in video as MP3 has in digital music," said Ben Sawyer, researcher and founder of Digitalmill, a Portland, Maine, company that consults on emerging technologies. "The question now is whether it can go over the top. They've come out of nowhere and ridden on the strength of their programming team. But frankly, I'm not sure any available video codec is there yet. There is still a lot of work to be done in delivering video pictures over the Net."

The race for the killer codec comes as Hollywood studios are beginning to position themselves for the day consumers can call up programming over cable or computer networks on demand. Last week, for instance, Walt Disney and News Corp.'s 20th Century Fox studio announced plans to create a joint video-on-demand (VOD) service. That announcement followed a deal struck in mid-August between AOL Time Warner, Sony, Vivendi Universal, Viacom's Metro-Goldwyn-Mayer and Paramount to develop a similar service.

Those announcements point to a potentially enormous payoff for companies such as DivXNetworks, if their technology is eventually used to build the system for seamlessly delivering digital video to millions of consumers at the click of a mouse or remote control.

Success, however, is not assured. Even if it receives the endorsement of major content owners, DivX still faces significant challengers, including mighty Microsoft.

Windows Media technology has steadily gained ground among online movie aficionados since the release of the highly regarded Windows Media 8 format earlier this year.

The technology has been endorsed by several companies that have long sold movie downloads from major studios on the Net, such as SightSound, CinemaNow and Intertainer. According to Microsoft, 20 million movies have been viewed online using its Windows Media format.

Microsoft could pose a further headache for DivXNetworks down the road for a different reason: The original version of DivX was essentially based on a Microsoft implementation of MPEG-4.

"The DivX technology lineage is based on using Microsoft technology and re-branding it as its own," said Michael Aldridge, Microsoft's product manager for the Windows Digital Media Division.

Aldridge said Microsoft's lawyers are looking at implementations of DivX, but he would not comment on legal questions relating to the origin of the codec.

DivXNetworks admits that early versions of the codec did rely in part on Microsoft technology but says the most recent versions represent a clean break.

"The (new) codecs were built from scratch," said a company spokesman.

MP3 for video?
Created by DivXNetworks co-founder Jerome "Gej" Rota in 1999, the original DivX codec was one of the first to allow feature films to be transferred over a high-speed Internet connection in hours rather than days, making it an instant hit with underground file swappers. As of this week, first-run films such as "American Pie 2," Tim Burton's "Planet of the Apes" and "The Fast and the Furious" are widely available in DivX via free peer-to-peer software such as Gnotella and LimeWire.

According to the DivXNetworks Web site, the newest version of the company's codec can transfer a feature film over a high-speed connection in about 30 minutes.

Because DivX has flourished in the Net underground, it has drawn numerous comparisons to MP3--the now-famous digital music format that became a de facto standard under the very noses of the record labels. Subsequent secure music formats have since been introduced in commercial ventures, including Microsoft's Windows Media format, although none has made significant headway in replacing MP3.

DivXNetworks also has capitalized on its underground reputation, attracting $5 million in seed funding last year partly thanks to the MP3 comparisons. The parallels have proven to be something of a double-edged sword, however, and the company is eager to distance itself from bootleggers.

Scott Sander, chief executive of online movie distributor SightSound, downplayed the importance of DivX's codec in the race to deliver quality video over Internet lines, saying security is for now the bigger problem.

"It's less about codecs," said Sander, whose company has licensed Microsoft's Windows Media format. "We're rapidly moving to a day when content will flow seamlessly from the content owner to the consumer--and we can always license a better codec if someone comes out with one. Our decision to go with Microsoft's technology stems from the fact that it's the only platform to meet our standard for encryption."

In fact, DivXNetworks has taken big strides to court movie studios, developing proprietary anti-piracy technology in concert with encryption provider Secure Media--a key factor cited by Strand Releasing in announcing the licensing deal with DivXNetworks last week.

"The grassroots success of DivX was a proof of concept," said DivXNetworks Chief Executive Jordan Greenhall. "Now our mission is to find a third way between the extremes of 'video apocalypse' represented by Napster and 'video fascism' represented by the overreaction of content owners to the threat of piracy."

For now the company has not announced any deals with major Hollywood studios. But its endorsement of anti-piracy technology won't hurt its relationship with Hollywood.

"We are aware of DivX and similar technologies, but it's not the technology that's the issue. It's how it is applied," said a spokesman for the Motion Picture Association of America, who declined to comment specifically on DivXNetworks. "Our concern is with technology that is marketed, promoted, and used as a tool for piracy."

Just as with the music industry, converting a concept involving video into a commercially successful enterprise will be a tricky task, particularly when it comes to balancing the interests of consumers and copyright holders.

Many analysts say that digital rights management and encryption schemes aimed at preventing piracy cannot adequately safeguard content. In just one example of the failure of encryption, the movie industry's anti-piracy scheme for DVDs was cracked by Linux programmers who said the locks prevented them from playing movies on machines running the Linux operating system. Code that can defeat the scheme, called DeCSS, has proliferated in a variety of ways--it's short enough to be printed on T-shirts and used in poems--despite a legal crackdown by the motion picture industry.

Ironically, DivXNetworks' success could ultimately hinge on its ability to shut down the community that it helped foster.

Observes Microsoft's Aldridge: "Trying to market yourself as the MP3 of video is not going to endear you to content owners."