Divx Grinds to Halt

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Digital Video Express LP said last week that it will stop
marketing its pay-per-play "Divx" DVD feature and shut down the company.

Consumers who already own Divx discs will be able to watch
them only for the next two years.

A cross between home-video rentals and video-on-demand,
Divx allowed consumers with compatible hardware to buy Divx software for only a few
dollars and to watch the movie for up to 48 hours. For additional fees, customers could
watch the movie again or buy the disc for what was promoted as unlimited viewings.

Unlike movie rentals, Divx discs never needed to be
returned to video stores.

Warner Bros. Pay TV, Cable and Network Features president
Ed Bleier, who was not surprised by the demise of Divx, said he never considered Divx a
threat to pay-per-view or VOD.

"I never thought this was a threat to anything but
itself," Bleier added.

Circuit City Stores Inc., one of the owners of Digital
Video Express, lost $337 million on the venture. It will offer a $100 rebate by mail to
anyone who bought a Divx player before the June 16 announcement. Rebate forms will be
posted at www.divx.com.

Divx-capable home-video systems also play standard DVDs.
DVD players without the Divx feature had typically cost less than Divx models.

Bleier predicted that VOD and DVD would peacefully coexist.
VOD will attract users to its impulse-order capabilities, while DVD will attract movie
lovers who want to collect DVDs the way others collect books or records, he said.

DVD also offers features of interest to technophiles --
such as director's cuts, soundtracks, a wide-screen option and foreign-language subtitles
-- that were unavailable on Divx discs.

"We have been unable to obtain adequate support from
studios and other retailers," Circuit City chairman Richard Sharp said in a prepared
statement. "Despite the significant consumer enthusiasm, we cannot create a viable
business without support in these essential areas."

Other consumer-electronics retailers shied away from Divx,
partly because they didn't want to create two sets of hardware standards for DVD, perhaps
learning their lesson from the consumer confusion that hit home video when Beta competed
with VHS.

Consumer-electronics stores were also reluctant to give
Circuit City residual revenues from Divx pay-per-play programming. And video-rental stores
were afraid low-cost Divx discs would cannibalize DVD sales.

Also, some consumers raised privacy issues over giving an
outside party information on how often they watch certain movies.

Divx software will be reduced to $1.99 for the initial
48-hour viewing. All additional viewings must be completed by June 30, 2001.

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