Davis Freeberg over at Zatz Not Funny provides some great analysis on the history and future strategy of DivX. On the company’s historical success, Freeberg notes the importance of creating an eco-system around the DivX codec, both in terms of becoming the preferred format for “grey” content on P2P networks, but also the way in which the company reached out to consumer electronics manufacturers — DVD players, media streamers, PMPs, and more recently Sony’s PS3 — through its DivX certification program. The result is that DivX has become the consumer facing brand for MPEG4, despite rival offerings from Apple and Microsoft, for example.

“I still prefer DivX files because I know that I’ll be able to play them on the hardware devices that I own”, writes Freeberg. “By creating an eco-system that supports portability, DivX has been able to lock me into their format in the same way that Apple has been able to use iTunes to keep their customers buying iPods instead of MP3 players.”

However, the advent of H.264, and other more efficient codecs, means that DivX faces a new round of competition.

Microsoft is pushing its proprietary Silverlight: “By retaining full control over the video format, they are able to convince people to buy as many Microsoft supported products as possible”, says Freeberg. Silverlight also has DRM built-in, making it an easier sell to Holllywood.

And while Apple has opened up a little by adding support for the H.264 format, “they’ve still chosen to wrap their h.264 files inside of the Quicktime container. This prevents other companies from supporting Apple H.264 content, without obtaining a license for Quicktime first.”

Similarly, “Adobe has also forged agreements to support H.264 inside of Flash, but if you want to take your Flash H.264 files portable, you’ll need a device that can support the Flash format.”

Once again, consumers are faced with a plethora of competing formats, many of which are actually based on the same H.264 codec. It’s like the MPEG4 battle all over again.

In response, last November DivX announced that they had acquired Mainconcept for $22 – $28 million. “The Mainconcept acquisition gave DivX an immediate footprint in the H.264 space.”

Essentially, DivX wants to build on its current eco-system strategy by becoming the “consumer face” of H.264, and possibly other next generation formats. During a recent earnings call, DivX CEO Kevin Hell revealed that the company is on track to release a new version of DivX in 2008 that supports H.264 and then extend that support to consumer electronic devices that are likely to hit the market in 2009. “We believe that this development will help move the DivX brand beyond one single format and toward promise of support for any video content, on any device.”

“Instead of trying to educate consumers on the differences between MPEG-4 Part 2 vs. MPEG-4 AVC (H.264), CE manufacturers can slap the DivX label onto their devices and consumers will know that it will support their digital video libraries without complications”, writes Freeberg.

Moving forward, DivX hasn’t ruled out adding Flash Video support to its certification program, if there is consumer demand, and Freeberg speculates that other formats could be incorporated, such as the Matroska container which is popular for “grey” HD content.

Bringing other formats into the DivX program, would add to DivX’s cost of revenue, but it would make DivX certification more valuable to their CE partners. I may enjoy dissecting the nuances between the various competing video formats, but most consumers don’t want to think about it. They want to be able to play whatever file they have without converting it into a single format. By focusing on supporting as many formats as possible, DivX may end up competing with their own eco-system, but they’ll also expand their reach in the process. By taking DivX beyond the codec, it allows their community to move forward with the future, while hanging onto the treasures from the past.

Read the full post over at Zatz Not Funny, with more analysis including comments on Sony’s recent support for DivX, and related issues such as DRM.

DivX