Site created 12/15/97.		page created: 1/15/99 Interview with Divx president Paul Brindze Friday, January 8th Following the private demonstration of the Thomson / Divx high definition system, I had the opportunity to speak one-on-one with Divx president Paul Brindze, and conduct a brief interview. Based on feedback from our readers, and my own concerns, I asked him about as many of the issues that avid DVD consumers find troubling about Divx as possible. The following is a slightly-edited (for length) transcript of the interview. Bill Hunt (The Digital Bits): The 87,000 players that your press release indicates as being sold to consumers... does that include players in the hands of studio and industry participants, the press, Divx and Circuit City employees and so forth? Paul Brindze (Divx): That's sold to consumers. Of course, some consumers include employees, because we don't give the players free to our employees. It's also definitely not a shipped number. You always hear numbers, shipped into retail. To be clear, we [Divx-equipped players] are included in the CEMA numbers shipped into retail. They don't break that out. Hunt: How many total Divx players have shipped thus far, as opposed to the number sold? Brindze: I don't have the specific number. I believe Thomson has shipped over 100,000. As for others, everybody did phenomenal - I mean, everyone did run out at the end of the year. As you may know, Thomson has announced that they're putting in another line, because they simply couldn't keep up with demand. I will tell you this - what Warren [Lieberfarb] tried to say on the panel is demonstrably untrue. The idea that, "everybody wanted DVD, and when we ran out of DVD players, there were all these Divx players... so everybody bought them, but didn't really want Divx." That is untrue - and I'm very thankful that Keating from Good Guys, who is kind of the neutral party in this game - put it straight. They ran out of the Divx players first. It's not like people wanted DVD and couldn't find one. If you talk to any of the retailers out there, you will find out that everybody ran out of the low-priced machines, the $299 giveaway machines, and they ran out of the highest-end machines, the top, top Sonys. What they didn't run out of, were the ones comparably priced to the Divx machines. People did not run out of the $400 to $500 machines... except the Divx models. Hunt: Let's talk about the number of accounts - the number of registered Divx players. In the panel discussion, Larry Pesce from Thomson himself indicated that, according to their research, not everyone who purchased a Divx player intended to use the feature right away. So what is the rate of usage? Brindze: This is what Rick was trying to say. From the time we started selling to the public back in June, we noticed a lag in registrations. And frankly, I could go back and give you anecdotal reasons why the lag exists. For example, my sister and her husband purchased a Divx player, and they're not technical people, so they had to have someone come out and install the wiring, and they had a carpenter come out to enlarge the cabinet. So a good three weeks passed before they registered. I don't know how many people there are out there like that, but there are certainly people like that. There are others who need to get a phone cord put in the right place. What we discovered, is that the more players we sold, larger the number of unregistered players got. But it's just a factor of the increased sales curve. When you go back to the earliest people who purchased the players, and we've done this several times, you discover that the number of unregistered players after three weeks or a month is basically negligible. On the other hand, if we started telling people numbers of currently unregistered players, when we've just sold half the players in the last two weeks, people would jump on that, and say, "Ah, ha!" We know it's a big number, but somewhere around three or four weeks it starts to disappear. And then we've got a certain number of people who don't want the player, for whatever reason - who bring it back. We don't know if it's they don't want Divx, or they don't want DVD, or they really wanted a camcorder instead. By the way, the returns are no higher for Divx players than for any other consumer electronics device. But as you know, normal is in the range of 10 to 15%. So those people never register. Hunt: But certainly, there must be some people, as the Thomson research indicated, that may try the Divx feature once or twice, and then not rent again for a long time, or just may not use it at all... Brindze: Well, that's not what our research indicates. As Rick mentioned, we phoned a random selection of Divx owners - this was done for us by Centris, by the way, an independent research group - and they took a sample of some 600 - 700 people that had owned their Divx players for 4 to 6 weeks. And what we found is that those people bought 11 Divx discs in that time, and about 4 basic DVDs. Now, of course, any individual could be all one or all the other. But on average, they're using both pieces of product. Hunt: For clarification, the number of Divx discs sold - 535,000 - does that include the 5 free titles in your rebate program? Brindze: Yeah, the way it worked is that they got to pick 5 titles that they wanted in the store, when they bought the player, and they took those home. And I'll be blatant on my pitch - when you get your 5 free movies, under the Warner Bros approach, they're the 5 free movies that Warner has enough of to decide that that's what you want to watch. You have no choice in the titles. We're the freedom of choice guys. With Divx, you take 5 movies of the shelf at random, pay for them, take them home, and then you send in the rebate program and get the refund. I have zero idea how many of those titles are in the 535,000, but that's included though. That's why it's important to say that in the 4 to 6 weeks, we know it's 11, because we know that those people at least went out and got 6 more, after the 5 they took home with the player. Hunt: One of the big concerns my readers have talked about, is that there have been a significant number of sales "horror stories", for lack of a better word, on Circuit City sales floors. For example, consumers will go into the stores, and the signage that indicates some studios support DVD and some only support Divx is still up, so that they... Brindze: Is still up now? Hunt: Yeah. I just experienced this myself at a Los Angeles-area store not three weeks ago. And you have to take the sales people over and show them, "We'll if your sign is right, why is this DreamWorks DVD here, and this Fox DVD...?" And there's also cases where sales representatives will, certainly not necessarily deliberately, will misrepresent DVD or Divx in the effort to sell the Divx feature. For example, they'll say that, "Titanic is gonna be exclusive on Divx." Things like that have been a source of irritation and ill will with avid DVD consumers - these are people who know when they're being told something that's obviously false. Brindze: All I can tell you is that the Circuit City headquarters doesn't think this is happening - these things should be brought to the store manager's attention. Clearly, the sales people shouldn't be doing that. I will tell you that we had the opposite experience - you know, Circuit City shops its competitors. And at those stores, individual sales people would say things that were just flatly untrue about Divx - how terrible Divx was, that we're gonna watch everything that you watch, and we'll publish your viewing habits all over the Internet. And of course, we only record Divx disc activity on the players, and we keep that secret. I'm just saying that there's been a lot of that going around. I mean, I can't blame Toshiba, for every open DVD salesman that misrepresents Divx... Hunt: So maybe it speaks to the level of salesperson experience in general, all around...? Brindze: Right. Unfortunately. When we get this kiosk in stores, there will hopefully be less of that. Hunt: There was a recent issue with a web site, called ProDivx.com... Brindze: I personally haven't seen it. Hunt: Well, it claimed to be a fan site, but the overall look was clearly corporate - the images and sales pitch looked as if they came right out of a Divx sales brochure - having seen your brochures and sales materials myself. And some clever folks on the Internet did a little digging, and found out that the webmaster - his name is Mark Patton - lives within a mile of Circuit City and Divx's corporate headquarters in Richmond. There are also lots of spam posts on the DVD newsgroups lately, from pro-Divx individuals claiming to be fans, while their comments read like a Divx sales pitch, almost line for line. And there's been a lot of speculation that this is an organized effort by Divx employees, to promote Divx on-line, and to counter the widespread hostility toward Divx on the Internet... Brindze: Well, it is not an organized effort. There is only one official Divx web site, and that's Divx.com. Period, end of story. We have had people come and say, "I'm tired of all this negative stuff. I'd like to do my thing and get your word out." And if they ask us to link, or they ask us to provide material, we'd be idiots not to. I mean, if they come to us and say, "I'd like to do a description of Divx the way you want it said," we'd be silly not to take them up on it. I mean, we're a business trying to promote ourselves. We don't encourage or authorize our employees to represent Divx on the Internet. It is possible that some of these people are going after the negative DVD folks on their own, and we can't stop that. I mean, if you worked for a company, and read a lot of negative and false stuff about your company on the Internet, wouldn't you speak up? That's only natural. In fact, I'd be willing to bet that that's probably going on. But we aren't organizing any sort of effort. And to my knowledge, Mark Patton is not an employee of, or affiliated with, Circuit City or Divx. Hunt: One other major area of irritation for DVD fans, and this is perhaps their biggest concern, is that certain studios seem to favor Divx over DVD when releasing some titles. Buena Vista, for example, has released quite a number of its Miramax titles to Divx, that the studio will likely not release to DVD for some time. And what's worse, the open DVD version of Armageddon, for example, which was just released, doesn't have the anamorphic widescreen feature, which is extremely important to the early adopters, while the Divx widescreen version IS anamorphic for widescreen TVs. How would you address these concerns? Brindze: Well certainly, we don't attempt to obtain exclusive titles. The titles that the studios choose to release on each format are entirely up to them. We don't have that kind of power to determine what they do - I wish we did! Honestly, we would like nothing more than for all of the studios to release their titles day-and-date on both Divx and DVD, and let the consumers decide which they wanted. So, I think that a lot of the anger that's directed against us [Divx] is misplaced. But I also think that if there's anyone that your readers should be upset at, it's the people who sold the DVD format on false pretenses. This idea that consumers would be able to buy all their favorite movies on DVD, from all of the studios, with all the extras, for $20 - consumers like your readers were sold a bill of goods, in my opinion. This is a real issue for me - the people who sold DVD knew, even as they made these claims, that their counterparts at the other studios weren't going to go for that. And I will tell you, because I don't want you to get away and hear this, and think, "Those guys have done me again!" We do not encourage what I'm about to say at all, but you should know that there are a few studios already who are thinking about a rental window for DVD. As a business. And what that means, is that they're gonna have DVDs that may come out at the time you want, but they're gonna have SRPs of like $40 and $50. They're not gonna be the $100 like cassettes, because it's not a big enough audience yet. But then 4 months or 6 months later, it'll drop down to the sell-through price, just like it does on VHS. And that's again, nothing to do with us. That's just what we're hearing - and they [the studios] haven't decided yet. But they're concerned about DVD cannibalizing their VHS market. Look, if you sell Blockbuster a DVD at $15 wholesale, and they can turn around and rent it 15 or 20 times... the more popular DVD gets, the more pressure on this issue there is. The bad news for your customers, is gonna be that the guy who wants to buy it right off the bat, is gonna be pressured up on the price. And he's gonna get pissed at some point, because of the way expectations have been built up with DVD. As for the Armageddon issue, all I can tell you is that our technical person who deals with the studios on our end, and gathers the materials from them, he wants the quality of the Divx disc to be as good as possible. So if he's told that we're doing a widescreen version of a title - you know we do some research and try to see what consumers are asking for. So if he can get anamorphic elements, that's how he wants to do it, so that the Divx version is as good as it can be in terms of quality. Now, as for the studio - Buena Vista - we don't have any influence on what their policy is in terms of what features they choose to put on their DVDs. We just try to make our product as good as possible. Hunt: Changing subjects a bit, what about additional financial partners for the Divx venture? Are there any parties that have expressed interest? Clearly, you've been looking... Brindze: Of course, we're talking and working on this, but there's no one specific yet. Hunt: Are there any plans in the works to take Divx into international markets? Brindze: Yes. The key here is that you need international partners, who understand their own markets, to be effective. We're working on this, definitely. Hunt: Does the U.S. Government restriction on the export of encryption technology have any effect on these plans? Brindze: Well, yes... but we already have the first level of approval from the government. They're actually pretty easy. The key is that Divx players use decryption technology, not encryption, and that's where the problems lie. Hunt: Thanks for answering some of our questions, Paul. Brindze: Certainly. My pleasure. The editor would like to thank Paul Brindze and Josh Dare of Divx, for taking the time to speak with The Digital Bits, and for arranging the interview. (back to main CES '99 menu)
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