The San Diego, California-based company said its video compression-decompression software library (codec) has been downloaded over 180 million times in the last four years. However, what brings in most of the money is licensing its technologies to consumer hardware device manufacturers. It said that over 35 million DivX Certified hardware devices have been shipped, including approximately 8.5 million in the fourth quarter of 2005. Its customers include Philips Electronics and Samsung Electronics.
DivX said its video compression technology uses a mixture of video compression tools, including some from the MPEG-4 standard, and is capable of producing high-quality video using only a fraction of the amount of data required by a standard-length DVD.
It has also developed a digital rights management technology that encrypts and manages the playback of protected content on PCs and consumer hardware devices. It said this ensures that digital video is delivered in a secure manner and used in accordance with rules defined by its publisher.
The company said that three trends: digitization, connectedness, and openness, are converging to create a historic transformation of content. The falling cost of producing, distributing, and marketing content allows a larger and more diverse group of people to create and generate revenue from content.
This transformation of content requires a new ecosystem of consumers, content creators, software vendors, hardware device manufacturers, and advertisers, and Divx believes it has an important role in this ecosystem.
Divx has more than doubled revenue each year since 2003 with revenue in 2005 rising 102% to $33 million and the company moving into profitability with net income of $2.3 million, compared with a loss of $4.3 million the previous year.
While 71% of its revenue in 2005 came from hardware device manufacturers, a further 11% came from software licensing, primarily from ISVs who incorporate its technologies into their video creation, editing, and playback software products.
A further 15% came from what it terms advertising and product distribution revenue when it includes third-party software products with DivX software. Its only arrangement of this type is with Google, and with each download of its software, consumers are offered the opportunity to install Google software. Google pays royalties based on specific performance targets under an agreement that runs to the end of 2006, and in 2005 this brought in $4.9 million. This Google Toolbar and Google Deskbar Promotion and Distribution Agreement is intriguing because Google is one of its main competitors.
A final 4% of revenue came from digital media distribution, where it acts as an application service provider for third-party owners of digital video content and provides encoding, content storage, and distribution services.
While its strength so far has been in digital video players, it has its eye on other markets such as digital still cameras, digital camcorders, mobile handsets, digital media software applications, and smart TVs.
However, the market is swarming with muscular competitors, with the ability to create their own ecosystem to compete with that offered by Divx. These potential competitors currently include Apple, Google, Microsoft, News Corporation, Sony, and Yahoo.
On its core compression technology, Divx says Adobe Systems, Google, Microsoft, and RealNetworks offer competing video formats. Meanwhile, Divx’ digital rights management technology competes with those offered by Apple Computer, ContentGuard, Intertrust Technologies, Microsoft, Nagra Audio, NDS, and 4C Entity.
In the content distribution market it also faces a huge array of competitors such as Amazon.com, Apple, CinemaNow, Google, MovieLink, Netflix, and subscription entertainment services and cable and satellite providers.
In addition, it said Google, Microsoft, Yahoo, and MySpace.com offer online communities that we expect will compete with its planned online video community offering.
