The Lesson of DVD vs. Divx
by Marc Hedlund
Reuters reports that DVD rentals doubled last quarter versus the same quarter of the previous year (presumably everyone who got a DVD player over the holidays immediately signed up for Netflix), and one in four US households now owns a DVD player. It's interesting to remember the background of DVD technology, particularly considering today's battles over P2P filesharing.
Soon after DVD's were commercially introduced, a Los Angeles law firm teamed up with Circuit City to release a competing home video format called Divx (not the same thing as the more recent online video format, DivX). The idea of Divx was that you would buy low-cost discs that you could take home and use for a few days, after which time they would "expire" and become unusable, unless you paid an additional usage fee. Unlike DVD's, which consumers can buy and use for as long as they like, Divx discs kept control of the media directly in the hands of the media distributors. A child only a lawyer could love.
Divx failed. Consumers hated the idea. The competing DVD format, with less privacy restrictions, less centralized control, and a concrete feeling of ownership for the person buying the disc, won out and put Divx out of business. (And I still won't shop at Circuit City.)
There's a lesson here for the current debates about filesharing and digital rights management: consumers won't buy less control over their media if more control is available to them. "Divx model" online music sites are very likely to end up with the same fate as Divx itself, and ignoring the parallels is just a waste of money for their backers. The incredible success of the DVD format shows that in the long run, less control for Hollywood can add up to greater consumer acceptance, and therefore greater profits.