The makers of Divx, a rentable DVD system, have announced that they will discontinue operations.
Digital Video Express LP, which is partially owned by Circuit City Stores Inc. (NYSE: CC) said that while sales of the systems were going well, "we have been unable to obtain adequate support from studios and other retailers."
Circuit City will take a $114 million charge related to closing out the business. The company posted a first-quarter loss of $88.8 million Wednesday.
Before its time?
Circuit City Group, the publicly traded electronics division, topped analysts' forecasts of 25 cents a share with profits of $39.3 million or 41 cents a share on a 15 percent increase in sales to $2.2 billion. The Richmond, Va.-based company reported a loss of $88.8 million or 87 cents a diluted share.
The business model had consumers buying Divx discs for around the price a video rental. Consumers were able to watch the discs an unlimited amount of times for the first 48 hours. After that, they would be charged for additional viewings.
Divx was supposed to eliminate the problem of returns and late fees for consumers, while allowing content creators to protect their rights.
But some consumers balked at the idea of having two different standards for digital discs, and others objected to the idea that they would have to keep paying for something they had already purchased.
Once companies, including Blockbuster, announced plans to rent DVDs to consumers instead of Divx discs, the standard's fate appeared to be sealed.
"We have always said that we had to have adequate studio support and additional retail outlets for software and hardware. We could not be the lone distributor or financier," said Circuit City spokesman Morgan Stewart. "Those three components were not coming into play as we had envisioned. Despite strong consumer interest the risk and rewards turned in the other direction."
In fact, Divx-enhanced players were actually outselling standard DVD players, he said.
But the number of titles available for the systems was far smaller than the number of DVD titles, and Circuit City was virtually the only chain selling the systems.
Bob Kohn, chairman of EMusic.com Inc. (previously GoodNoise), said the failure of Divx showed that consumers rarely support products that use encryption technology.
"If history has taught us anything, it is that open has always won over closed," Kohn said. He said EMusic has cast its lot with the open MP3 standard for digital audio instead of encrypted schemes because the latter always prove a big turn off for consumers.
Rebates offered
Officials said consumers who purchased Divx-enhanced players before June 16 will be eligible for a $100 rebate and said that all Divx discs can be viewed between now and June 30, 2001.
Digital video players, which the company began selling in September, allowed users to view movies on encrypted discs for up to two days. Users were allowed to keep the discs and purchase additional viewings or convert the discs to unlimited play through the Divx-enhanced player.
Circuit City said today that in addition to the rebates, it would cut prices on Divx-enhanced players and extend the return policy for players purchased before June 16.
ZDNN's Robert Lemos and Reuters contributed to this story.
