DivX, Inc. (DIVX)

NetscribeTech (59.26) Submitted: 3/12/07 7:29 AM : Start Price: $19.11 DIVX Score: -46.11

Entertainment industry has seen many changes since the first motion picture was screened. The way people discover and consume content in the industry is also changing along with the devices used to watch it. Quality has become an aspect, which sets apart winners from also ran. Going ahead, 2007 is touted to be the year of DVD players, which currently at $23 million is expected to grow at a rate of 8.5% per annum for the next two syears.


Divx, Inc is the only company which using its video compression- decompression library (also known as codec) develops video compression software that is widely used in DVD players. The major distribution model that the company follows is licensing to leading consumer hardware manufacturers who in turn incorporate DivX codec in their devices. This licensing revenue accounted for 80% of the total revenue during the nine-month period ended September 2006, during which the total revenue jumped by 90%. Alternatively consumers also download the software directly from their site, which currently accounts for a miniscule proportion but is growing by leaps and bounds.


The popularity growth of the company has been driven primarily by its usage for playing pirated movies, a factor that the company intends to leverage to become a de facto standard fro all digital video compression. The fact that none of its competitors are focusing on this model nor is working on licensing model cements their leading position. Taking its licensing model forward it has entered into a deal with Toshiba the number two DVD manufacturer to incorporate its technology in Toshiba’s entire product that will be sold in the U.S from 2007. This licensing model along with its growth should increase its penetration in the DVD player market from the current 20% to 40% in the next couple of years. These factors make the company stock an attractive proposition in the year 2007.

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