Audio Video News

Early indications don't look promising for Circuit City's pay-per-view alternative as the DVD/Divx war begins to heat up in earnest. Recently, a neutral, informative introduction to Divx by Chris Stamper appeared on the ABC News website. Stamper's story included an opportunity for readers---who, presumably, had read the piece and were now reasonably well-informed about Divx---to vote on whether or not they would spend $449.99 for a Divx player.

As of midnight, September 23, only 121 people, out of a total of 7137 who voted, said they would buy a Divx machine. That figure represents 1.7% of the total---a far cry from the 15-20% of the home-video market that Digital Video Express hopes to control within five years. Digital Video Express, the Circuit City offshoot that actually markets Divx, will administer the Divx program once customers begin to sign up for it.

Circuit City is a two-thirds partner in Digital Video Express, having committed $100 million to its development. Los Angeles entertainment law firm Ziffren, Brittenham, Branca, and Fischer---said to have originally hatched the complicated Divx scheme---is a one-third partner, with a $50 million stake. Circuit City recently announced that it would be forced to cut back its Divx promotional budget from $100 million to $60 million if additional partners can't be found.

Assuming a total investment of $200 million in Divx---a low estimate, considering upfront money that was given to the six participating film studios---and a generous average profit margin of 20% on sales of Divx discs ($1 each), a $25 license fee per machine, and $1 clear profit on each viewing activation fee, Digital Video Express will have to sell approximately 2 million machines, 50 million discs, and collect 50 million rental fees to approach breaking even. Put another way, to become solidly profitable, Divx might need to win as many as 4 million customers---a milestone recently reached by satellite TV provider DirecTV. Circuit City CEO Richard Sharp has admitted that his goal of selling 250,000 Divx machines within the first year probably isn't realistic.

Divx offers movies on encrypted discs without open DVD's extra language soundtracks or letterbox viewing option. This week, Circuit City will launch the controversial format in stores nationwide. California electronics retail chain Good Guys, Denver-based Ultimate Electronics stores, and 23 Future Shop stores are the only non-Circuit City operations to have signed on with Divx. Future Shop is based in Canada, but only its US stores will participate in the Divx rollout. Canadian stores may come on board later, Digital Video Express announced last week.