DIVX

DIVX (Digital Video Express) is a discontinued digital video format, an unsuccessful attempt to create an alternative to video rental in the United States. 
Format.
DIVX was a rental format variation on the DVD player in which a customer would buy a DIVX disc (similar to a DVD) for approximately US$4.50, which was watchable for up to 48 hours from its initial viewing. After this period, the disc could be viewed by paying a continuation fee to play it for two more days. Viewers who wanted to watch a disc an unlimited number of times could convert the disc to a "DIVX silver" disc for an additional fee. "DIVX gold" discs that could be played an unlimited number of times on any DIVX player were announced at the time of DIVX's introduction, but no DIVX gold titles were ever released.
Each DIVX disc was marked with a unique barcode in the burst cutting area that could be read by the player, and used to track the discs. The status of the discs was monitored through an account over a phone line. DIVX player owners had to set up an account with DIVX to which additional viewing fees could be charged. The player would call an account server over the phone line to charge for viewing fees similar to the way DirecTV and Dish Network satellite systems handle pay-per-view.
In addition to the normal Content Scramble System (CSS) encryption, DIVX discs used Triple DES encryption and an alternative channel modulation coding scheme, which prevented them from being read in standard DVD players. Most of the discs would be manufactured by United Kingdom-based Nimbus CD International.
DIVX players manufactured by Zenith Electronics (who would go bankrupt shortly before the launch of the format), Thomson Consumer Electronics (RCA and ProScan), and Matsushita Electric (Panasonic) started to become available in mid-1998. These players differed from regular DVD players with the addition of a security IC chip (powered by ARM RISC and manufactured by VLSI) that controlled the encode/decode of the digital content. Mail systems were included on some players as well. Because of widespread studio support, manufacturers anticipated that demand for the units would be high. Initially, the players were approximately twice as expensive as standard DVD players, but price reductions occurred within months of release, due to economies of scale and large consumer backlash as detailed below.
History.
Development and launch.
DIVX was introduced on September 8, 1997 (after previously being made under the code name Zoom TV), with the format under development since 1995. The format was a partnership between Circuit City and entertainment law firm Ziffren, Brittenham, Branca & Fischer, with the former company investing $100 million into the latter firm. One advertiser attempted to sign with the company, but was unable to do so, which spurred a lawsuit between the two.
The product made a quiet showing at the Consumer Electronics Show in Las Vegas in early January 1998, but won the attention of 20th Century Fox which on February 20, 1998 signed a deal to release their titles on the format. After multiple delays, the initial trial of the DIVX format was run in the San Francisco, California and Richmond, Virginia areas starting on June 8, 1998. Initially, only a single Zenith player was available starting at $499, along with no more than 50 (but more than 19) titles. Very few players sold during this time period, with The Good Guys chain alleging that fewer than ten players were sold during this time period. A nationwide rollout began three months later, on September 21, again with only one Zenith player and 150 titles available in 190 stores in the western U.S.
At the format's launch, DIVX was sold primarily through the Circuit City, Good Guys, and Ultimate Electronics retailers. The format was promoted to consumers as an alternative to traditional video rental schemes with the promise of "No returns, no late fees." Though consumers could just discard a DIVX disc after the initial viewing period, several DIVX retailers maintained DIVX recycling bins on their premises. On September 22, 1998, a fourth retailer, Canadian Future Shop, signed a contract with DIVX to stock the format, although only in 23 stores in the U.S. only. Thompson's player, after multiple delays, arrived on October 3, 1998, followed by Panasonic's on December 10. The format made its overall national debut on October 12, 1998. A marketing push began that November for the 1998 holiday season, with more than $1 million going into the campaign. The fortunes of the format would seemingly turn for the better in mid-December 1998, when a shortage of DVD players occurred. In total, 87,000 players were sold during the final quarter of 1998, with 535,000 discs across 300 titles being sold, although fewer than 17,000 accounts for DIVX were created.
Opposition.
Almost immediately after the format's reveal, a movement on the Internet was initiated against DIVX, particularly in home theater forums by existing owners of the then-still nascent DVD format. Both companies that created the DVD format (Sony and Toshiba) also denounced DIVX, as did major studio distributor Warner Home Video (who was the first major American studio to distribute DVD) and the DVD Forum (a consortium of developers on the format who standardized DVDs). Titles in the DIVX catalog were released primarily in pan and scan format with limited special features, usually only a trailer (although a few widescreen titles did arrive on the format in early December 1998). This caused many home theater enthusiasts to become concerned that the success of DIVX would significantly diminish the release of films on the DVD format in the films' original aspect ratios and with supplementary material. Some early demos were also noted to have unique instances of artifacting on the discs that were not present on standard DVDs. Many people in various technology and entertainment communities were afraid that there would be DIVX exclusive releases, and that the then-fledgling DVD format would suffer as a result. DreamWorks, 20th Century Fox, and Paramount Pictures, for instance, initially released their films exclusively on the DIVX format (something that DIVX did not originally intend to happen), as did Disney, which released on both formats. DIVX featured stronger encryption technology than DVD (Triple DES instead of CSS) which many studios stated was a contributing factor in the decision to support DIVX. Others cited the higher price of DIVX-compatible DVD players and rental costs as their reason for opposing the format, with one declaring DIVX as "holding my VCR hostage". One online poll surveyed 786 people on the format, of which nearly 97% disapproved of the format's concept, and another poll in December 1998 reflected 86% disapproval even if the format were free – a testament to the fierce online backlash the format received. As early as December 1997, news outlets were already calling the format a failure for Circuit City.
In addition to the hostile Internet response, competitors such as Hollywood Video ran advertisements touting the benefits of "Open DVD" over DIVX, with one ad in the Los Angeles Times depicting a hand holding a telephone line with the caption: "Don't let anyone feed you the line." The terminology "Open DVD" had been used by DVD supporters and later Sony themselves; in response to DIVX's labeling of DVD as "Basic DVD" and DIVX/DVD players as "DIVX-enhanced". Other retailers, such as Best Buy, also had their concerns, most of them citing possible customer confusion and cumbersomeness with the two formats. Pay-per-view companies were also concerned with the format intruding on their business sector, namely with their objective of single-use rentals of a film being offered to the consumer.
However, early concerns of alleged or feared constant usage of the phone line proved to be somewhat exaggerated, as all players needed to do was verify its usage twice a month. Despite this, informational-freedom advocates were concerned that the players' "dial-home" ability could be used to spy on people's watching habits, as well as copyright and privacy concerns about its licensing of the media, with some alleging it violated fair-use laws entirely.
Allegations of anti-competitive vaporware, as well as concerns within the software industry prompted David Dranove of Northwestern University and Neil Gandal of Tel Aviv University and University of California, Berkeley, to conduct an empirical study designed to measure the effect of the DIVX announcement on the DVD market. This study suggests that the DIVX announcement slowed the adoption of DVD technology. According to Dranove and Gandal, the study suggests that the "general antitrust concern about vaporware seems justified".
Demise.
Right after the launch of the format, Circuit City announced that despite a gain of 4.1% in net profit, huge expenses of launching that format (among other issues) massively undercut that profit. As early as September 1998, Circuit City was looking for partners to share their losses from the format's launch. Retailers such as Blockbuster Video did not carry the format at all. Not helping the format's defenders was suspicious activity of pro-DIVX sites, with one shutting down as quick as it opened.
Ambitiously, DIVX and Thompson teamed up in January 1999 to create another format made for high-definition video using existing DVD technology, predating the development of both Blu-ray and HD DVD by many years. The market share for DIVX players was 23% in January 1999, and by that March, around 419 titles were available in the DIVX format. However, sales for the format quickly fell off after the 1998 holiday season, with all three third-party retailers pulling out of DIVX sales by that point. In May, studio support for DIVX would start to be phased out with Paramount refusing to convert their titles to "Silver" discs (and then later stopping DIVX releases entirely), and Disney increasing their DVD activity. By the format's first anniversary, the future of the format was very grim - with only five DIVX-compatible players (and no DIVX-compatible computer drives), 478 titles, and only Circuit City selling DIVX discs.
The format was discontinued on June 16, 1999, because of the costs of introducing the format, as well as its very limited acceptance by the general public and retailers. At the end of the format's life, Circuit City announced a $114 million after-tax loss, and Variety estimated the total loss on the scheme was around $337 million. Over the next two years, the DIVX system was phased out. Customers could still view all their DIVX discs and were given a $100 refund for every player that was purchased before June 16, 1999. All discs that were unsold at the end of the summer of 1999 were destroyed. The program officially cut off access to accounts on July 7, 2001. The player's Security Module, which had an internal Real-Time Clock, ceased to allow DIVX functions after 30 days without a connection to the central system. Unsold players were liquidated in online auctions, but not before being modified to remove the DIVX Security Module. As a result, certain player models demonstrated lockups when DIVX menus were accessed.
On the company website to announce discontinuation of the product on June 16, 1999, it stated: "All DIVX-featured DVD players are fully functional DVD players and will continue to operate as such. All DIVX discs, including those previously purchased by consumers and those remaining in retailer inventories, can be viewed on registered players anytime between now and June 30, 2001. Subsequent viewings also will be available during that period. Discs can no longer be upgraded to unlimited viewing, known as DIVX Silver. Customers who have converted discs to DIVX Silver can continue viewing the discs until June 30, 2001, or can receive a full refund of the conversion price at their request". This meant no DIVX discs could play any content after June 30, 2001, rendering the medium worthless.
DIVX appeared as a "dishonorable mention" alongside "PC World"'s list of "25 Worst Tech Products of All Time" in 2006.