Is video compression outfit DivX finally shedding the lingering taint of being tool for content pirates?
It appears so, based on two deals the San Diego company announced this month.
The company also said it has reached a licensing deal with chip maker Advanced Micro Devices under which the DivX format will be included in processors that AMD is developing for digital televisions.
Both agreements give DivX well-known partners who haven't balked at the company's technology because of its early history. First created in 1999, the DivX video compression system initially became popular for people pirating copyrighted movies online.
But since then, DivX has reworked the technology and adopted digital rights management protocols to protect copyrighted material. Still, it was not able to persuade any major studios to become its partners, something investors sorely wanted to see to prove that DivX was legit.
DivX makes video compression software for delivering video over the Internet and playing it on any device – from a computer to DVD to mobile phone. DivX is trying to make its technology, called a codec, the de facto standard for the digital home. Already, more than 100 million DVD players licensed to play DivX encoded video have been sold worldwide.
The company's stock got off to a fast start after its initial public offering in September 2006, based on the idea that content owners would be looking to the Internet for distribution. Its shares opened at $19 and climbed to the mid-$20 range by the end of that year.
But investors began to lose confidence as the company failed to land a deal with a major studio. Its shares have dropped 32 percent over the past 12 months. They closed Friday at $13.89.
“Investors have been skeptical, believing that studios were reticent to partner with DivX due to the large amount of pirated content that exists in the DivX format,” said Steven Frankel, an analyst with Canaccord Adams in Boston.
The agreement with Sony should help put those fears to rest, Frankel said.
Sony Pictures Television oversees digital distribution for parent company Sony Pictures Entertainment, which is responsible for selling movies including “Spider-Man 3” and “The Da Vinci Code” and TV shows such as “Seinfeld.”
The Sony deal allows its content to be sold online in the DivX codec. But it will be up to DivX to reach deals with retailers such as Amazon.com to distribute Sony content online using DivX, said Tom Huntington, a company spokesman.
DivX has not announced any distribution agreements with retailers. Movies typically become available for sale online about the same time they are released to DVD.
DivX's move to possibly spin off its Stage 6 video Web site into a separate enity also could have contributed to Sony's willingness to enter a deal with DivX, said John Bright, an analyst with Avondale Partners in Nashville, Tenn.
Sony might have viewed Stage 6 as a place where pirated content could be posted, Bright said.
There are competitors to DivX, including large rivals such as Adobe and Apple. But the company hopes that its large install base – its codec software has been downloaded to computers 250 million times – and its stable of compatible DVD players will make it an attractive option.
“The food chain of technologies that consumers will adopt for digital distribution has yet to be seen,” Bright said. “We know there's a tsunami of demand out there.”