The Late, Unlamented Divx

The Late, Unlamented Divx

The Late, Unlamented Divx

Moneybox
Commentary about business and finance.
June 22 1999 6:37 PM

The Late, Unlamented Divx

Electronics retail giant Circuit City's announcement last week that it was finally sending its Divx digital video player to a much-needed early grave brings to an end one of the odder stories in the history of American technology. Divx was technologically inferior to its competition (DVD), it was no cheaper than its competition, it arrived later to market, it had no chance at wide circulation because most major studios refused to release their films in the Divx format, and its players were sold at only one major outlet (Circuit City). The surprising thing is not that Divx is being killed off less than a year after it was introduced. The shocking thing is that it was ever introduced in the first place.

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If you're not sure exactly what Divx is or how it's different from DVD, you're in good company. In eight months of existence, only 200,000 Divx players were sold, and an even more pathetic 1,000,000 Divx discs were sold. Actually, "sold" isn't the right word. The way Divx worked was that you would pay $5 to buy an encrypted Divx disc that you could keep for two days. If you wanted to keep the discs and purchase more viewings, you could hook the player up to a phone line and call the store to pay another $3.25 per viewing. Otherwise, the disc would effectively expire.

DVDs, by contrast, can be purchased outright for generally somewhere between $13.99 and $24.99, depending on the movie. And while Circuit City touted Divx as a digital-video solution for people who didn't want to watch a movie over and over again, somehow the company simply overlooked the existence of these things called video stores. (Or, as Dr. Evil might put it, "video stores.") Blockbuster rents DVDs for the same price as videos, and I can keep a non-new-release DVD from Blockbuster for five days and pay just three bucks. The only possible advantage that Divx had over DVD was that you didn't have to return the discs to the store. But that's a pretty tiny advantage given all the other ways in which Divx was inferior to DVD.

The default assumption when looking at a major business decision should be that there was probably some reasonable argument for it, even if in the end it turned out to be the wrong decision. (The great exception to this rule is, of course, Hollywood.) But I've been unable to come up with any argument that Divx was a good idea. And Circuit City seems equally incapable of producing one.

Circuit City execs do say that the real problem was not consumer demand, but rather the refusal of Sony, Paramount, and Warner Bros. to release films on Divx. But this just begs the question. If the studios had thought they could make real money on Divx, they would have adopted the format. Instead, they balked at a new technology that offered no technological improvement over its chief competitor (in fact, since DVD discs are loaded with special features and letter-boxed versions of films, while Divx discs were all pan-and-scan versions, DVD was technologically superior) and a highly dubious business model. The truth is that even if all the major studios had got on board, Divx would have failed. There was simply no reason -- no reason -- to buy a Divx player instead of a DVD player.

This is not a revised version of the Betamax-VHS fight, where an inferior technology supposedly triumphed. It's not even an example of how technologies inevitably converge on a single standard. Instead, it's a story of the wisdom of consumers, who in this case did exactly what they should do: reject inferior products and punish their makers with losses that run into the hundreds of millions of dollars. Hear, hear.