Divx Presentation June 8, 1998 Alain Dalva Mauricio Endo Shoichi Osawa Greg Scheuffele

Agenda What is Divx? - Alain Critical Issues Grid - Mauricio House of Quality - Shoichi Bayesian Network - Greg

Positioning The affordable video disc –pan-and-scan The convenient video disc –no more late returns The smart video disc –you own it yet you don’t

Company Digital Video Express L.P –Circuit City Stores, Inc. (66%) –Ziffren, Brittenham, Branca & Fischer (34%)

Competition DVD Multimedia-rich format –collector’s positioning Expensive –$20-$25 sell-thru discs –$400 - $1,000 players –but prices are dropping

Competition (Cont’d) DVD Moderate success –500K players sold in first year –Penetration estimated at 2.5% by end 1999 –Over 1,000 titles available Expanding distribution –100 to 1,000 Blockbuster stores –NetFlix

Consumers Low-involvement Rental Habit Price sensitive Collector Sell-thru Habit Gizmo-crazy DivxDVD

Product: Software Encryption feature –co-developed by Nimbus and DVE Stripped-down, pan-and-scan version Disposable Upgradable to “Divx Silver”

Product: Hardware DVD Player with built-in modem –additional phone line DTS audio decoder Compatible with DVD titles (but not the other way around)

Price: Software $4.50 to unlock 48-hour viewing period $3.25 extra for additional viewing $12.50 extra to acquire title permanently Pros: less expensive than DVD Cons: incompatible with other Divx players

Price: Hardware Divx expected to match low-end DVD within 2 years

Promotion $100M first-year launch campaign –TV, print, direct-mail –Unnamed celebrity spokesperson “You have reached the point of no return”

Distribution Hardware –Circuit City, The Good Guys Software –Circuit City, The Good Guys –Divx website Future expansion –Video rental stores only

Launch Limited in San Francisco, CA and Richmond, VA, today Nationwide in September

Title Catalog 50 titles in limited launch 100 titles by mid-summer 400 titles by year-end holidays DVE holds “day-and date” agreements for 1,500 titles

Title Catalog (Cont’d) Will Divx catch up with DVD?

Industry Players Hardware manufacturers Studios (content providers) Pre-mastering facilities Replicators Retailers

Hardware Manufacturers Zenith Electronics Corp Thomson Consumer Electronics Matsushita Electric Industrial Co. JVC Pioneer Electronic Corp The Harman Consumer Group

Studios

Industry Other Pre-mastering facilities –Complete Post, Sunset Post Replicators –Nimbus, Rainmaker, Panasonic Disc Services Retailers –Circuit City, The Good Guys

Critical Issue - Company Political:Copyright Behavioral:No disk return Recordability Economic:Price premium of $.50 - $1 over VHS Cost effective licensing Social:Interactive system or movie theater Technological:Encryption DVD superior quality picture/sound

Critical Issue - Business Ecosystem Political:Copyright, piracy by consumers Behavioral:Initial limited film selection on DVD and DIVX Consumer ready for DVD/DIVX technology? Economic:Low penetration due to standard confusion High cost for retailers due to no disk return Social:”Cocooning" going to be reversed? Technological:Can DIVX's encryption scheme be broken?

Critical Issue - Infrastructure Political:Copyright Intellectual property protection worldwide Behavioral:”Throw away”- environmental threat? Cable/satellite pay-per-view systems Economic:Internet commerce - physical retail distribution obsolete Social:New forms of recreation emphasize personal interaction Technological:Encryption and multimedia in internet, cable, PCs...

House of Quality: Consumers Needs

House of Quality:Retailer Needs

House of Quality:Studio Distributor Needs

House of Quality:Manufacturer Needs