The last couple of years may have felt like a bad dream to most investors, but for DivX shareholders it’s been nothing short of a nightmare. They don’t hand out Oscars for businesses, but if they did DivX would have won hands down for best horror flick.
When the company first went public, expectations were high. YouTube had just been sold for $1.6 billion, DivX was demonstrating 75% gains in their high margin core licensing business, and their unique business model looked like it offered a very strong moat from competitors like Apple and Microsoft.
At one point DivX’s market cap exceeded $750 million, today it barely closed above $150 million. Over $600 million dollars in capitalization wiped out by one misstep after another. Admitedly, the tough economic environment can be partially blamed for DivX collapse, but the sad truth is that much of the value destruction could have been avoided.
Shortly after DivX went public, Jeran Wittenstein wrote “DivX was founded just before the dotcom bust in February 2000 after Greenhall managed to convince Jerome Rota — a French software engineer who created DivX’s founding technology — to join him in building a company. Including Greenhall and Rota, eventually there would be five co-founders, all of whom are younger than Greenhall and still with the company.” (Note: bold print added by me)
They may have been able to survive the dot com collapse, but DivX’s founders weren’t able to survive the success of going public. In December 2007, Jordan Greenhall, Darius Thompson, & Tay Nguyen all left the company after DivX’s board of Directors made the inexplicable decision to cancel their spin off of Stage6. Joe Bezdek officially left the company 10 months later and now I hear that Jerome Rota, DivX’s original creator, resigned from the company on February 6th of this year.
While Rota remains on the DivX board of Directors, the loss of his day to day influence can’t be understated. I only had the opportunity to meet him once, but was impressed by his remarkable vision. These five individuals may not have had the spit and polish that Wall St. expects from traditional executives, but they weren’t afraid to take risks and knew how to motivate the troops beneath them. The impact from the loss of these employees goes well beyond their individual contributions and investors have already seen shockwaves from these loses ripple through DivX’s employee base.
Two and a half years later, investors have voted with their feet, all five of the founders have now left the company, cracks are beginning to form in their moat and their franchise is very much in danger. The company has gone from being an innovative risk taker to a zombie of her former self. DivX now stands at a crucial crossroad. Are they willing to risk potential annihilation to save consumers from their zombie masters or do investors have Dawn of the DivX in store for a sequel?
“Affliction comes to us all, not to make us sad, but sober; not to make us sorry, but to make us wise; not to make us despondent, but by its darkness to refresh us as the night refreshes the day; not to impoverish, but to enrich us.” – Henry Ward Beecher
There are many instances where management has stumbled, but the end result all comes down to a loss of confidence. They’ve lost the confidence of their shareholders, the analysts, their employees and most importantly, the consumers who drive demand for their products.
Without a dramatic turnaround, I fear that this lack of confidence will spread to their manufacturing partners and we’ll see DivX lose their digital video franchise. While there is still plenty of cash flow left to milk from the DVD market, without aggressively expanding their market position, DivX’s influence will be over before they have a chance to finish the revolution they started.
Davis Freeberg is a technology enthusiast living in the Bay Area. He enjoys writing about movies, music, and the impact that digital technology is having on traditional media. Read more at Davis Freeberg’s Digital Connection.
There’s evil afoot ( read: M-pee-A-A and the ISPs ) working hard to torpedo DivX, me thinks.
I would advise DivX and its shareholders to look-up campaign contributions to congressmen who have put forth anti-P2P legislation, voted against Net Neutrality, etc.
Follow the money.
I highly encourage everyone to click the link and read the rest of the article! :)