The Real Reason DIVX Failed Spectacularly

Looking back at the storied history of home video formats over the years, you wouldn’t be wrong in thinking they’re often built to fail. The long list of failed home video formats is far more extensive than the short list of successful ones: VHS and DVD.

Looking at that list of failed formats, you’re likely to see some real fighters among the ranks. Plenty put up a good fight before eventually backing down. Others, however, never stood a chance against their triumphant competitor. Unfortunately for them, DIVX is one such format. In truth, DIVX failed before it even began.

Short for Digital Video Express, DIVX came about in the final years of the 1990s. It was a time for wild experimentation and crazy ideas in the consumer electronics sphere, and DIVX is certainly fitting of this description.

Alas, “wild and crazy” doesn’t always translate to “success story.” DIVX failed, and it failed to the tune of hundreds of millions of dollars in losses, as well as thousands of DIVX discs and players thrown into the trash heap. What went wrong? How did this ’90s home video format fail so spectacularly? The answer isn’t so simple.

DIVX Specs

Why DIVX Mattered

While it was always possible to make a copy of a VHS rented from a video store, it wasn’t until the invention and popularization of the DVD that studios and rental stores alike started to be concerned about movie piracy. These companies began scrambling for a solution.

One possible solution that emerged? The DIVX, or Digital Video Express. Looking and functioning much like a DVD, the thing that set the DIVX apart was its ability to block viewers from watching the film after a designated period of time.

DIVX required a special DIVX-capable player in order to function. DIVX discs were typically sold for around $4.50. This gave viewers around 48 hours to watch the disc as many times as they wanted during a 48-hour period. After that 48 hours ran out, the DIVX disc would ask for viewers to pay a continuation fee to unlock two additional days.

Viewers could also opt to pay a DIVX Silver fee to unlock the disc for an unlimited number of plays. (DIVX Gold discs were planned, but never came to fruition. These Gold discs would have had unlimited plays from the get-go.)

To function, each DIVX disc came with a unique barcode printed on it. This barcode was then read by the DIVX player and used to keep track of the time remaining. The DIVX’s status was then tracked through the user’s phone line.

This phone line functioned as a unique account identifier, which you had to set up (along with your payment info) before your first use. The idea of a phone line account used to charge additional fees would later be seen with pay-per-view on Dish and DirecTV. In the research and development stage, it seemed like a surefire hit. And yet, DIVX failed.

How Did People Feel About DIVX?

There’s no beating around the bush here. People absolutely hated DIVX with a fierce, burning passion. There were several different factors that contributed to this hatred. For one, DIVX discs wouldn’t play in regular DVD players. Consumers had just begun to embrace DVD, and now there was another format they needed to shell out for?

It was like the VHS vs Betamax debacle all over again, which wasn’t too far in the past at this point in the late 1990s. It didn’t help that DIVX players were about twice the price of DVD players.

While DIVX discs came equipped with the same Content Scramble System (CSS) encryption as a DVD, the discs also implemented Triple DES encryption. This coding scheme — also known as alternative channel modulation — blocked DIVX discs from being read by a DVD player.

The players themselves also came equipped with a special security IC chip that controlled whether to encode or decode the disc. All of this additional tech drove up the price of DIVX players, which functioned like poison for consumers. The average joe, already in the process of building up their DVD library, wanted no part of DIVX.

Studios, on the other hand, were naturally all for the DIVX format. With its enhanced security, its potential for major pay-per-view profits, and its inherent allure as a bright, shiny new product, the studios backed DIVX enthusiastically. This only drove the price of players higher, as manufacturer Zenith Electronics expected major demand. They couldn’t have been more wrong, as DIVX failed in just 53 weeks.

How DIVX Failed: A Complete History

While DIVX wasn’t officially introduced until September of 1997, it had been in development under the name Zoom TV since at least 1995. Formed under a partnership between Circuit City and Ziffren, Brittenham, Branca & Fischer (an entertainment law firm), DIVX saw more than $100 million poured into the concept before it left the research and development phase.

Right out of the gate, there was immediate trouble. Circuit City and Ziffren, Brittenham, Branca & Fischer couldn’t agree on the terms of their very first advertiser, leading to a lawsuit between the two. It didn’t bode well whatsoever.

DIVX — now rebranded from the Zoom TV name — had a soft launch at the 1998 Consumer Electronics Show. While there, it caught the eye of 20th Century Fox. In February of that same year, the film studio signed a promising deal with DIVX to put out their new releases.

This was exactly what DIVX needed in order to enter a trial run. The startup chose San Francisco and Richmond as DIVX test cities, and — after several delays — the newfangled home video format hit stores in June of 1998.

The DIVX player was priced at $499, and customers had less than 50 titles to choose from. Consumers in San Francisco and Richmond could find DIVX products at three primary retailers: Good Guys, Ultimate Electronics, and co-developer Circuit City.

Much to their surprise, there was virtually no interest. Over the three-month trial run, one Good Guys store reported single-digit sales figures. Despite the very obvious fact that DIVX failed before it even truly began, the company continued forward with its nationwide rollout in September of 1998.

Early Signs of Imminent Failure

In an attempt to counter some of these poor early sales figures, DIVX retailers leaned into a particularly clever marketing tactic. They heavily advertised the player’s “no late fees, no returns” angle. While technically true, the fees accrued from extending the 48-hour window and the sheer upfront cost of the player itself made the point moot.

Not to mention, those who had bought into the DIVX tech were expected to return to the DIVX retailer and recycle their used discs after the viewing window expired. This was hardly different than returning a rental.

With just one Zenith-branded DIVX player on the market and just 150 titles to choose from, nearly 200 retailers across the U.S. took a bet on the new home video format. By the end of 1998, there were two other consumer electronics brands with DIVX players in the mix: Thomson and Panasonic.

DIVX’s marketing department leaned into the holiday shopping season, pouring millions into ad campaigns geared toward Christmas. Around 87,000 players were sold that quarter. Briefly, it seemed like things were finally turning around. Perhaps the naysayers were wrong?

Or maybe there was just a shortage of (much more in-demand) DVD players. With 300 different titles now available and more than 535,000 discs sold, only 17,000 DIVX accounts were ultimately created. 70,000 of those 83,000 DIVX players — no doubt bought as backup gifts for DVD player seekers at Christmastime — presumably went unused.

Already, mere months after the launch, Circuit City was looking for a new partner to take ownership of the company (and take on some of their losses in the process). DIVX failed to make a net profit of more than 4.1%.

The Eventual Demise of DIVX

DIVX might’ve poured millions into putting the new home video format in a good light, but no marketing campaign stood a chance against the widespread opposition found on the internet. Another burgeoning industry in itself, the internet — more specifically, forums for cinephile and home video enthusiasts — formed a united front against the spread of DIVX.

They hated the format’s lack of special features, its disregard for proper aspect ratios, and its obvious video distortion problem compared to the DVD (which was far superior in their eyes).

DVD developers Sony and Toshiba also decried the DIVX, as did Warner Bros. (who had a major stake in the DVD) and the DVD Forum (who helped standardize the format). Online polls revealed the truth. Of nearly 800 polled on the DIVX, only 3% approved of the concept.

Another poll stated that 86% of consumers would still choose DVD over DIVX, even if the latter format were given to them for free. Less than six months after the official launch, there was just no denying it anymore. DIVX failed, and it had failed spectacularly.

Everyone from rental stores and pay-per-view companies to big box stores and environmental activists joined in the pile-on. After these peak sales during the 1998 holiday season, sales fell off rapidly. By June of 1999, just one year after launch, every retailer but Circuit City had dropped DIVX.

It was officially discontinued by the middle of the month. Losses were estimated to exceed $330 million. The DIVX verification process officially ceased operations two years later in July 2001. Every DIVX product and disc left unsold was subsequently destroyed. With this, DIVX failed for good.

Why DIVX Failed

In the end, DIVX’s catastrophic failure came down to a few factors. Part of the blame was simply due to the fact that the entire concept was intrinsically flawed, to be sure. However, a large part of DIVX’s failure has to do with factors far beyond any one consumer electronics or home video company’s doing.

After so many failed home video formats in such a short amount of time between the 1980s and the 1990s — from the CED to the Betamax to the LaserDisc and several others in between — consumers were now skeptical of any new home video format.

Beyond this, the DIVX’s rollout was plagued by near-universal hatred. It was a level of brazen, open contempt the likes of which had rarely been seen in the home video market. Before the DIVX, there was typically a period of competition that took place before the losing format conceded.

With the DIVX, there was barely any competition whatsoever. It was a failure before it even began, with publications criticizing Circuit City’s decision to develop the format months before it had even been officially launched.

Couple this with the already proven success of the DVD format, the price of the DIVX player and discs themselves, and the growing hold of a little DVD-by-mail service called Netflix (which had emerged in 1997 and cost less than a DIVX or DVD rental), and there’s no question why DIVX failed so tremendously, so expensively, and so rapidly.

It was all sorts of wrong in all sorts of ways, like a horrific Venn diagram of what not to do in the consumer electronics and home video spheres.

Why DVDs Succeeded

The success of the DVD compared to the DIVX can be credited to a number of key advantages. For one, all the top consumer electronics brands had just spent years perfecting a set of standards for DVD-ROM players. They were disinterested in another new format.

As we’ve said above, the same thinking applied to the consumers themselves. They’d just watched the bloody battles between the DVD and the VHS, the DVD and the Betamax, the DVD and the LaserDisc, the DVD and the CED, and numerous other failed formats. The DVD won every time.

Consumers were right to assume that, after so many triumphant victories over the competition, DVD would likely reign supreme over the DIVX, too. Besides, it was cheaper to buy a DVD player, cheaper to rent a DVD, cheaper to own a DVD… all things that put the DVD at an advantage over the DIVX.

It seemed like the only people who really wanted to push for the DIVX’s success were the ones at the top who benefitted directly from more expensive players and compounded recurring rental charges of $4.50 on top of $4.50 on top of $4.50 ad nauseam.

DVD’s Appeal

Couple this with DVD’s more widespread availability, its much larger library of titles new and old, as well as its superior bonus features and picture quality, and it’s no wonder DIVX failed. As a matter of fact, it’s a wonder it didn’t fail faster.

There was just very little appeal about the DIVX in comparison to the DVD. This really shows when looking at the two side by side like this. By 2005, DVD sales would hit $16.3 billion annually. Additionally, DVD would command 64% of the market by the same year. Meanwhile, the last remnants of DIVX would command a mere fraction of the market at your local dump.

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