Divx Presentation

June 8, 1998

Alain Dalva

Mauricio Endo

Shoichi Osawa

Greg Scheuffele

Agenda

• What is Divx? - Alain

• Critical Issues Grid - Mauricio

• House of Quality - Shoichi

• Bayesian Network - Greg

Positioning

• The affordable video disc– pan-and-scan

• The convenient video disc– no more late returns

• The smart video disc– you own it yet you don’t

Company

• Digital Video Express L.P– Circuit City Stores, Inc. (66%)– Ziffren, Brittenham, Branca & Fischer (34%)

CompetitionDVD

• Multimedia-rich format– collector’s positioning

• Expensive– $20-$25 sell-thru discs– $400 - $1,000 players– but prices are dropping

Competition (Cont’d)DVD

• Moderate success– 500K players sold in first year– Penetration estimated at 2.5% by end 1999– Over 1,000 titles available

• Expanding distribution– 100 to 1,000 Blockbuster stores– NetFlix

Consumers

• Low-involvement• Rental Habit• Price sensitive

• Collector• Sell-thru Habit• Gizmo-crazy

Divx DVD

Product: Software

• Encryption feature– co-developed by Nimbus and DVE

• Stripped-down, pan-and-scan version

• Disposable

• Upgradable to “Divx Silver”

Product: Hardware

• DVD Player with built-in modem– additional phone line

• DTS audio decoder

• Compatible with DVD titles (but not the other way around)

Price: Software

• $4.50 to unlock 48-hour viewing period

• $3.25 extra for additional viewing

• $12.50 extra to acquire title permanently

• Pros: less expensive than DVD

• Cons: incompatible with other Divx players

Price: HardwareDivx expected to match low-end DVD within

2 years

$250

$300

$350

$400

$450

$500

1998 1999 2000

Year

Re

tail

Pri

ce Divx Player

Low-end DVDPlayer

Promotion

• $100M first-year launch campaign– TV, print, direct-mail– Unnamed celebrity spokesperson

• “You have reached the point of no return”

Distribution

• Hardware– Circuit City, The Good Guys

• Software– Circuit City, The Good Guys– Divx website

• Future expansion– Video rental stores only

Launch

• Limited in San Francisco, CA and Richmond, VA, today

• Nationwide in September

Title Catalog

• 50 titles in limited launch

• 100 titles by mid-summer

• 400 titles by year-end holidays

• DVE holds “day-and date” agreements for 1,500 titles

Title Catalog (Cont’d)Will Divx catch up with DVD?

-200400600800

1,0001,2001,4001,600

Mar

-97

May

-97

Jul-9

7

Sep

-97

Nov

-97

Jan-

98

Mar

-98

May

-98

Jul-9

8

Sep

-98

Nov

-98

Month

Tit

les DVD

Divx

Industry Players

• Hardware manufacturers

• Studios (content providers)

• Pre-mastering facilities

• Replicators

• Retailers

Hardware Manufacturers

• Zenith Electronics Corp

• Thomson Consumer Electronics

• Matsushita Electric Industrial Co.

• JVC

• Pioneer Electronic Corp

• The Harman Consumer Group

Studios

Divx Only Divx and DVD DVD Only

Fox Disney Sony

Dreamworks Universal Warner Bros.

Paramount

MGM-UA

Industry Other

• Pre-mastering facilities– Complete Post, Sunset Post

• Replicators– Nimbus, Rainmaker, Panasonic Disc Services

• Retailers– Circuit City, The Good Guys

Critical Issue - Company

Political :Copyright

Behavioral :No disk return

Recordability

Economic :Price premium of $.50 - $1 over VHS

Cost effective licensing

Social :Interactive system or movie theater

Technological :Encryption

DVD superior quality picture/sound

Critical Issue - Business Ecosystem

Political :Copyright, piracy by consumers

Behavioral :Initial limited film selection on DVD and DIVX Consumer ready for DVD/DIVX technology?

Economic :Low penetration due to standard confusion

High cost for retailers due to no disk return

Social :”Cocooning" going to be reversed?

Technological :Can DIVX's encryption scheme be broken?

Critical Issue - Infrastructure

Political :Copyright

Intellectual property protection worldwide

Behavioral :”Throw away”- environmental threat?

Cable/satellite pay-per-view systems

Economic :Internet commerce - physical retail distribution obsolete

Social :New forms of recreation emphasize personal interaction

Technological :Encryption and multimedia in internet, cable, PCs...

House of Quality: Consumers Needs

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Players User Needs

Consumers should make movie-viewing convenient + ++should have price similar to VHS +should offer wide variety of films + +should be able to record movies - -should support added media features -

Product / Service Specifications

Must-haveLiner SatisfierDelighterIndifferent

House of Quality:Retailer Needs

Must-haveLiner SatisfierDelighterIndifferent

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Players User Needs

Product / Service Specifications

Retailers should keep inventories low - - +should provide wide variety of content + +should provide full range of players +should be backed by 'pull' marketing ++should be equally available to all distributors +should be easy for sales force to explain - - -

House of Quality:Studio Distributor Needs

Must-haveLiner SatisfierDelighterIndifferent

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Players User Needs

Product / Service Specifications

Studio Distributors should provide piracy protection ++ + ++should generate extra revenues from VHS replacement + +should generate extra revenues by video mkt expansion -should be equally available to all distributors ++should have low/flexible licensing fees +

House of Quality:Manufacturer Needs

Must-haveLiner SatisfierDelighterIndifferent

Manufacturers should have low/flexible licensing fees +should have low manufacturing costs +should have flexible operational implementation - + -

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Players User Needs

Product / Service Specifications