DivX CEO on Video, YouTube, iPod

DivX CEO and founder Jordan Greenhall’s laid-back Southern California image belies the fact that he heads a billion-dollar digital video compression company.

San Diego-based DivX went public—raising $145.6 million—in September to a warm investor reception (see DivX Climbs in Nasdaq Debut). Since its market debut, shares have steadily gained over 50 percent, signaling staying power.

Wall Street may be onto something. DivX has become a de facto standard for digital video compression. So far that technology is finding its way into chips used inside DVD players. For DivX, that means licensing fees from millions of DVD players sold.

Mr. Greenhall acknowledges that YouTube has raised digital video’s profile, saying that DivX provides a far richer, big-screen viewing experience for serious enthusiasts. He’s among a handful of companies including Microsoft, Sony, and Apple that are banking on convergence in the living room. 

Emerging from DivX’s IPO quiet period, Mr. Greenhall talked recently with Red Herring about the company’s strange start. It began with tracking down a French hacker known simply as Gej, who had hacked together the earliest version of the DivX video codec.

Gej's DivX rose to fame as a wildly popular video download format on the P2P site Napster. Few knew who Gej was at the time because of the way DivX had been hacked together.

“So I went out on IRC and the underground Internet to look for him,” Mr. Greenhall said. “Most people thought he was Russian. The next likely place was the Netherlands. I contacted some folks who actually knew who he was. After I went through some hazing rituals, they put me in contact with him.”

Gej, whose real name is Jerome Rota, and Mr. Greenhall talked by long distance and came to agree on what could happen with DivX in the coming years, deciding to work together. At first, “we worked remotely together,” Mr. Greenhall said.

One day Mr. Rota finally flew in for a meeting in San Diego, where Mr. Greenhall went to go get the French hacker at the airport. “He came with nothing but a pack of cigarettes.”  It was an unusual start.

Finally, just before the dot-com downturn, Mr. Greenhall said, venture capital interest swarmed around DivX. Ultimately, it went with Zone Ventures. Mr. Greenhall holds about 8 percent of DivX.

Q: How did you get started in digital video?

A: Basically, what was happening was I was working on this specific strategy around digital media and looking for when and how video would get rolled into digital media. At exactly that same time, Jerome in France, who had a degree in computer science as well as video editing was employed as a video creator.

And he had a specific material need for the ability to take some video he made in his house and move it through a DSL line to another location, and he wanted to keep the quality as high as possible. And he didn’t have anything available at the time to do that. So he created the first DivX.

And he created it and he did in a very open way, which was out on the Internet. He said, “Anybody know anything that works?” Various people said, “Here’s different tools, and here’s things that work.”

He sort of put it together. Not a linear engineering, but rather what’s available, put it together, what can we do right now that really works, and how can we put it together—sort of kludge it. And it went from version one to version three. And by version three, I got wind of it.

People were talking about, “Hey, this thing is being used because it can take very high-quality DVD and make it small enough for the Internet like MP3.” Being at MP3.com, I had been broadcasting out to my network of people, and I needed something like this for video.

Q: Can you tell us a little bit about your video codec?

A: Video compression technology is a pretty well understood science. And it’s made of a bunch of different tools. When you’ve invented an algorithm that does compare this frame to this frame and see if there’s any difference between them, it’s done.

And then somebody else can do it. And then you can develop more sophisticated algorithms that might have a better ability to then very rapidly compare the two.

Q: DivX came on most people’s radar in the late 90’s as a download format on file-sharing networks. Can you describe how it grew out of that period?

A: The two places where it took off were university local networks, where you have high-bandwidth, and students typically had a PC as their primary media device. They didn’t have a TV and a PC, so video on their PC made a lot of sense. Downloading over the Internet was trivial even back in 2000.

And then of course the other one was that this was in the heyday of Napster. People were cognizant of the notion of P2P networks and cognizant of getting digital media content from other people on the Internet.

And it turned out with DivX you could turn a P2P network into a viable way to distribute video content, and people did, which of course when we wrote our original business plan was predictable.

We sat down and said what you just created will do these things, people will adopt it, they will use it to transmit high-quality video, probably movies, probably television shows, probably porn—on the Internet—and in this domain and in this particular way.

In some timeframe, they will want to be able transmit that from the PC into the living room. It will be the kind of content that wants to live in the living room—just like what happened with MP3. You had music files sitting in your PC and you wanted to take them portable.

Somebody had to invent the portable MP3 player. In fact, I was at MP3.com at the time, I got to physically touch the first MP3 player ever made. It was made by these guys from Korea—it was literally duct tape.

Q: What’s the next evolutionary phase for DivX in the era of YouTube?

A: It’s called Stage 6. It’s about two months old. We’re putting a stake in the ground, saying we know more about this phenomenon than most people. If you’re serious about creating your content as a content creator, then you use Stage 6. If you’re not, then YouTube is great. One of the things that YouTube is very good for is acting as a marketing vehicle.

Q: How important has YouTube been in raising the profile of what you’re doing?

A: It’s been very good. I mean the more people who are exposed to the notion of being able to use the Internet to access media or to use the Internet as a way to create and publish media is good in general.

We’ve actually found a reasonable number of people who have published to YouTube and then published to Stage 6. If you want to watch it in higher quality, then you watch it in DivX. And remember, we own the living room, so if you want to watch it on your TV, that’s the end of the game.

Q: Where does this fall into the bigger picture, where iTV and Xbox are going after this market?

A: iTunes took the traditional music industry and converted that into a new media industry. Xbox, iTV, and DivX connected—they’re all trying to solve that same problem and create convergence. And once the access part is solved—and you’re able to take that content into your living room—you’ll get a massive acceleration of the market opportunity for all content.

Q: What are the chances of getting DivX into Apple devices?

A: Random. Technically easy. It’s all about Apple. Apple right now is trying to rule. They’re trying to keep a closed system, where everything is Apple.

Q: At what point do you think Apple would work with DivX?

A: Apple will trail. They will actually have to take one on the chin before they change their ways. But what we’re just seeing in the iPod world is we’re just starting to see the demographics where the iPod is no longer considered hip. Kids these days are starting to see the iPod as passé. That’s the problem with being a fashion accessory.

The beauty of the iPod is that it is a fashion accessory, that it can be very rapidly absorbed. It’s not a gadget anymore—it’s a piece of fashion.

The problem with being a piece of fashion—that people in the fashion world will tell you—is that you gotta turn that shit over pretty quickly because it falls out of fashion. Apple kind of went through the iPod, the iPod Mini, the different colors, and the nano, but it’s kind of the same thing. Once it becomes uncool to have an iPod, price becomes the differentiator.

Q: When did it become apparent you could make a real business out of DivX?

A: The video content that is being created is video content that wants to live on your TV. It looks best on your big-screen TV. So one can predict with a high degree of precision that when a critical mass of content is sitting out there on PC hard drives around the world that a market will exist.

And that market demand will cause entrepreneurial entities to meet that market demand by taking DivX and putting it into devices so that it can go into your living room. So our job as a company is to simply build that market.

As it turned out, in 2002 we got our first calls from consumer electronics manufacturers. When we first called the chip guys, they said, “I don’t know who the hell you are. Why would I want to do this?”

From mid-2002 to 2004 we went on a complete rampage signing up all the chip vendors and then all the major OEMs. And by the end of 2004, Sony signed and they were the last of the major OEMs. We have all the major OEMs signed and shipping at least one DivX certified.