For this week’s Engadget Interview, veteran journalist J.D. Lasica spent a few minutes with CEO Jordan Greenhall and President Shahi Ghanem (pictured below) of DivXNetworks. The San Diego company has morphed from a codec-centered technology startup to a full-fledged CE business.The execs offered tantalizing hints about looming deals with Hollywood studios and Netflix, DivX movie kiosks, high-def camcorders and the coming grassroots video revolution.
I’m sure some readers have never heard of DivXNetworks. What do you folks do?
Ghanem: First, let’s talk briefly about what DivX is. DivX is a compression-decompression technology, a codec. DivXNetworks is the company that invented that technology. We were founded in 2000 in San Diego and now have 110 employees.
What’s your business model?
Ghanem: Our core competency is building intellectual property in the digital media space. That falls into three categories: compression; security and digital rights management to deliver video on demand over secure networks; and advanced multimedia technologies in the connected home to enable consumer devices talk to one another. Companies that you might compare us to include Dolby, DTS or Macrovision, though our potential market is much larger.
The reason DivX exists is to empower consumers with the highest quality digital media experience possible. We’re a consumer-driven company. Our community base is enormous: 130 million users strong, we add 3 million new users every month.
Did you have any key ah-ha moments early on that led to a new direction for the company?
Greenhall: I’d say the first insight was the digital media revolution was not going to be led by the major content providers. It wasn’t in music, and it hasn’t been in video, and really it never has been. The major content companies aren’t about innovation, they’re about market power. They want someone else to go in, innovate a new technology or marketplace, figure it out, make sure it looks viable, and then exert their economies of scale to go in and take it over.
The second ah-ha moment about a year and a half in was the consumer electronics marketplace and understanding how critical consumer electronics is to media, particularly video, from every level: from a consumer perspective, from an economic perspective, from a content provider perspective and from a performance perspective, and then understanding how that marketplace works and the dynamics of it. We came to realize that we needed to be as much a CE company as we are a technology company. And building technology for CE is very different than building technology for PCs or software.
Greenhall (pictured at right): Consumer electronics is about getting technology into an integrated circuit. That means building your technology in a way that it is easy for a chip company to get it onto the chip, it works perfectly all the time, and it’s not going to be upgraded a whole lot. Unlike creating software for the PC, where literally anyone can write software, and put it out there on the Internet. You have to get the chip guys to agree to use your technology, which is not trivial. Because if you don’t have them, you’re not going to get into a CE device. To get into CE chip sets, you literally have to have a completely different culture than a software company. They work at a different pace, they have a much higher set of QA requirements, and when you’re in a chip, it’s got to be perfect. When you’re in software, it’s just kind of got to work. If you’re alpha for a year, it’s no big deal, you just upgrade for a year.
Ghanem: We organized our company along three business units: hardware, software and content. For the hardware makers, we provide all the intellectual property in the forms of source code and software development kits that go with the chips, reference designs and ultimately devices, chiefly DVD players and DVD recorders but also portable media players, PC peripherals, handheld devices, still cameras, video cameras, all compatible with each other. DivX has become to the consumer electronics industry kind of like what Java became to programming languages or what the Sony memory stick became to the Sony line of CD devices.
The PC is a nice device for watching content but the vast majority of people are not going to plug a PC into their TV or gather around a large PC screen. To really drive digital media, you need a CE device, and you need to grab and play content off the TV. So three years ago we began bridging the gap between the PC and the TV. This year, we’ll have about 20 million units of different devices coming out with DivX embedded. Last year we had 3 million units.
All of which contain the DivX codec. But that started out strictly for the PC platform.
Ghanem: Early on, we became the dominant technology used on PCs to decode and encode video. Then came a wave of PC software application developers who used DivX. Today, pretty much anyone who munches video in the PC software market uses DivX in some way — companies like Roxio, InterVideo, CyberLink, Holon, Canopus.
When you say DivX is the dominant technology to encode and decode video, others might point to Microsoft’s Windows Media codec.
Ghanem: Those are the two technologies you must consider. In the PC market, we have equal standing with Microsoft in that they get bundled with a lot of stuff. We have more application developers and game developers deploying DivX than does Microsoft. As you move into the CE market, you see a huge disparity open up.
There’s also a whole area of commercial users. Sony uses DivX for bundling with medical devices. NEC and AMD bundle with PCs. Boeing and GE use DivX for the enterprise. Nortel uses DivX for videoconferencing. We work with Electronic Arts, Activision, Lucas, all the major game developers use DivX.
Any interview about DivX has to circle back to the piracy question. A lot of people still associate DivX with the pirate video format. How do you respond to that?
Ghanem: I get asked that question probably on a daily basis. Let’s be frank about it. People on the Internet who pirate content use DivX, and they use DivX because it’s the best-quality technology available to them. As we’ve told the MPAA and the major studios, DivX is not a piracy technology. You can commit piracy with Quicktime or Real or any video compression technology, but people rip DVDs with other technologies and they encode DVDs with DivX because it provides them the best way to transfer those files. We tried to learn a lesson from Napster and MP3, which didn’t strike a good chord with the media industry. So we built in security because we want to bring users legitimate content. DRM is not a bad thing if it lets users get what they want. If it becomes so draconian that you can’t use your content, then you’ve gone too far.
Your original idea was to use compression to pipe content over the Internet, wasn’t it?
Ghanem: We have an end-to-end video on demand platform that we built in 2001. That system has delivered over 10 million secure transactions to over 2.5 million subscribers. It’s bigger than Movielink and CinemaNow put together. Today we have 75 content providers who use it.
The vision is for DivX to become the glue or the lingua franca that holds this whole convergence space together.
What is the 10,000-foot view of some of the possibilities that codec technologies like DivX hold out for home entertainment? Will we see a grassroots video movement, for example?
Greenhall: It’s not a question of whether, it’s a question of how. There are a lot of pieces of the puzzle: broadband, home networking, devices throughout the home, and they’re all coming into place. And technologies like DivX come in to add the last piece to the puzzle. Being able to offer compression across all of those is the major piece. If I can take a movie I’ve rented or a TV show I’ve recorded, I’ll be able to watch it anywhere — on the TV in my living room, upstairs, or over at someone else’s house automatically on the network. I can put it onto a portable device and access it wirelessly. That starts to be a consumer behavior modification that starts to change how people interact with their media.
So what about those future armies of grassroots programmers?
Greenhall: That speaks to the economic layer. Compression makes the Internet economically viable. No matter how good your broadcast is, it only has the ability to deliver out a certain amount of content in temporal fashion. I turn on my satellite receiver, I’ve got 30 channels. But those 30 selections serve 10 million people, so they’re going to be very generic, and I don’t get a lot of control over the programming. If I start to use recording technology like PVR and TiVo, I can time shift that, but my selections are still based on the economics of mass media. But if you start layering in the Internet, you can do one-to-one communication. You don’t have to get out to an audience of a million in order to be viable, you can get out to an audience of six and be viable, depending on what you want to accomplish. So that signals the ability to deliver very narrowly tailored content out to individuals. People will be able to slice and dice what they consume – and somebody has to produce all that content. Now I have the ability to create and publish content at a very high level and deliver it to millions or to one person. So you’ve got hundreds of millions of potential publishers.
What’s going to kickstart this?
Greenhall: The propagation of high definition DV cams will be very significant in being able to provide high-quality source material. Because you’ll have source that looks very good, and that makes a big difference. With grainy VHS source, no matter what the quality of the content, a lot of people are not going to be willing to watch that. It’s hard on the eyes. But if you have high DV source, you have quality in your hands that’s superior to today’s broadcast television. You’re at the equivalent of theatrical film. So you combine that with a high-end PC editing suite, and the only barrier now is talent. (Leaves room for a call.)
How long before we see consumer-level high-definition camcorders at reasonable prices?
Ghanem: Right now they’re all priced above $2,000 to $3,000 and selling in Asia. You won’t see anything at a realistic price point in this country until Christmas 2005 or later.
Let’s get back to the present. What are some of the cooler devices hitting the market with DivX inside?
Ghanem: I’d say the coolest ones are the portable and handheld devices. Two companies doing really great stuff are NHJ and Apex. Apex started out as a DVD company and TV set manufacturer, and now they’re moving into portable devices. The Apex Digital E2Go portable media player (pictured at right) will be available with DivX certification in the next couple of weeks. In the same category is the NHJ MPM201. Both of these have a four- to five-inch LCD, they have a 20- to 60-gigabyte hard drive, and they have TV outs. You can store 50 to 70 DivX movies on them, or plug them into your TV and watch the content on any TV with a component-out jack.
The portable media player category is still fairly small, but I personally think this sector will drive convergence more than any other category for IP-driven music or video. I’ve got rooms and rooms of gadgets in my house, and the ones I use the most are my portable media devices. I can download content from my PC to my device, watch it on a plane trip to Asia, I can plug it into my 65-inch Sony DLP and get a great experience with DVD quality, or I can show it off at a trade show. I’ve got my entire audio library on there, an entire photo library, lots of DivX video.
You mentioned DivX certification. What’s that?
Ghanem: The DivX certification program ensures that any device that carries the DivX logo meets our standards for quality, interoperability and security. When you walk into a store and buy a Toshiba, JVC, Philips or Thomson DVD player with a DivX logo on it, it means it always plays DivX, that the content created by that device can be played by any other device that bears the DivX logo, and that device can play both free and secure content.
Can you record off broadcast TV and transfer the shows to these portable media players?
Ghanem: Yes, but there’s an intermediate transcoding step on the PC. The NHJ device does have a handle with an analog-in that allows you to encode directly, but you won’t get a great picture until the chips get more powerful. Now, if you were so inclined, you could go out to BitTorrent, get an RSS feed, and grab all the episodes of ‘Sex and the City,’ download them to your PC in DivX format, dump them into your device and watch them.
But that wouldn’t be legal.
Ghanem: Correct. And we don’t advocate it. Don’t do that.
A year or two ago Archos raised some eyebrows by allowing people to record directly off their TVs onto a portable device with DivX encoding.
Ghanem: Yeah. Not a strong working relationship between the two companies right now. Can’t really give you details about that.
I take it that licensing deals with DVD manufacturers make up the bulk of your business.
Ghanem: Apex started the trend toward multi-disc, multi-format DVD players. They were the first guys to introduce MP3 decode in a DVD player, and that started a revolution where suddenly MP3 suddenly became a must-have feature for DVD players. About three years ago the demand for including DivX on the players became great. Today every major manufacturer of DVD chipsets and DVD players in the world is a DivX customer. Over 103 different models of DivX-certified DVD players are available today.
What other markets are you entering?
Ghanem: Fixed media. Fixed media is not available today for DivX but we are in deep conversation at the terms level with two different companies to create kiosk-based systems. Imagine kiosks in a Blockbuster or similar store where you could download highly compressed but high-quality high def onto your device.
What would be in those kiosks? Indie films?
Ghanem: You’ll see major studio content. One of the issues is with the studios’ release windows system, so the holdup is in determining the appropriate release window for new releases on the Internet and on new media. There’s got to be a new industry standard created around that.
We’re also working with a major content provider so that if you want to see a major new release, you can have it delivered to your door in high def on red-laser DVD or on some other fixed media on the day it comes out in the theaters, maybe for about $20.
Are you in discussions with Netflix?
Ghanem: Netflix would be a great customer for DivX. Yes, we’re talking with them. The bottom line is, if you’re a Netflix, a Blockbuster, a major studio or independent content provider and you want to get to the TV, you look out into the marketplace. Here’s DivX on 25 million secure, addressable devices to which you can actually sell content.
What’s coming on the horizon?
Ghanem: The two cool categories we see are, first, network-enabled DVD players, turning your DVD player into a PVR-type device and network server and receiver. About 10-12 percent of the DivX-enabled DVD players hitting the market this year will be network enabled, running into the millions.
The second cool category are the high-def DVD players coming out in Q4. These are regular DVD players that are using a chip that has been optimized to decode DivX high-definition content.
Ghanem: Digital cameras. Today if you have a still camera, your video options are pretty crappy. You can get 15 to 45 seconds of really poor motion mpeg1. We’re working with our partners to roll out 30 minutes to an hour of VGA quality and in some cases DVD quality video on fixed media that is compatible anywhere in the house. Those guys are thinking, ‘If I can capture 15 to 30 minutes of VGA to DVD quality video on my still camera, I frankly negate most of the need to have a digital videocamera, and I can charge more.’ The cameras aren’t out yet, but I’d expect to see tens of thousands of units by Christmas, rolling into the low millions in 2005.
We’re also working with the DV camera guys to help them capture even more content with complete compatibility so if I take my Samsung camera and I capture some footage at a party, I can drop it into my portable media player, my DVD player, anywhere in the house and it just works.
And the last category would be PC encoder peripherals. These guys are popping up between the PC and the TV as a mediating step. The Plextor PX-M402U digital video converter would be a good example. These devices have an analog signal in, and they can transcode and encode content on the fly into DivX and dump it onto your hard drive. The user could capture any analog TV signal, compress it into DivX and store it on his hard drive and then watch it anywhere in a connected home.
This is neat stuff. From a business perspective, DVD players are where we make our money and drive our dominant position in the marketplace. The things we do that are true to our nature and exciting to the consumer audience are new device categories, the portable media players and PVRs, the PC encoder peripherals and the cameras.
Of all these different technologies we’ve discussed, which is most personally rewarding to you?
Ghanem: Two answers to that. As a DivX user, the most exciting stuff is in the advanced technologies that are enabling user creation and consumption of content. We’re doing some really cool things around high definition video right now — you can download some high-def trailers from our website and you can view it on your PC. We’re working to get high-def devices out into the market before Christmas. The first ones should be coming out in the next six to eight weeks. Can’t tell you the details yet.
Another exciting initiative is working with independent film producers and other folks that are not the major studios to help create their movies, edit them effectively, and reach a much broader audience with their message. We’re considering projects where we equip people around the world with cameras to go out and film content. We’re also hoping to do a DivX film festival. We have a large social consciousness and those are the sorts of things we enjoy doing.