Monday, August 11, 2008 – Antonette Goroch

That no one has succeeded in challenging Apple’s dominance of the Internet video download market is both fact, and, to some prognosticators, prophecy. But DTC believes that Apple may face a credible challenger in Sony with the help of DivX.

Sony announced that it would allow its movie and television content to be distributed in the DivX format in January. Since then a steady stream of announcements from Sony and others suggest a broad, DivX-based ecosystem strategy, which could ultimately challenge Apple’s dominance for paid videos.

Indeed, over the past six months Sony has extended its original content agreement to include international releases, and made certification agreements across a range of product types, including the Playstation 3 and Blu-ray video optical disc. Add to this Sony’s new model of Blu-ray player, which also includes Internet access, and the picture becomes even more interesting.

Meanwhile, CinemaNow, one of the longest running Internet VOD sites with mainstream studio content, announced in late July that it will begin offering some (as yet unnamed) titles in the DivX format—undoubtedly Sony titles will follow by the end of the year. Certainly they will also be available through Sony’s own Sony Connect online propertiesto serve the Playstation platform.

Why might Sony succeed where others have failed? Because Apple’s digital entertainment ecosystem has seamlessly fostered growing mainstream commerce, but is still a closed network. Only Apple files will play in the Apple ecosystem. By aligning itself with DivX, Sony gains the benefit of a commercially secure platform (a la DivX’sOVS DRM) coupled with a thriving open platform that allows for a greater consumer base.

The potential of this sleeping giant is rather vast. DivX already boasts an installed base of over 100 million devices (predominately DVD players), which could easily double in short order if product suppliers other than those that make DVD players include DivX compatibility with mobile phones, and cameras. Indeed, DivX has spent the year announcing a swath of new DivX certified devices which include products for home networks (DivX Connected), mobile phones, Blu-ray players, as well as several promising chip level initiatives with Broadcom (set-top boxes) and AMD (mobile). Sony’s content will soon be available for purchase and playback by this entire “three-screen” installed base.

Additionally, there is already a great deal of DivX content on the Internet, meaning Sony won’t have to rely only on its own catalog to drive the platform overall. Stage6, DivX’s now defunct online clearinghouse, claimed some 17 million members before it was shutdown—and that was with no mainstream content. As a point of reference, DTC estimates Apple has about 16 million video customers.

If Sony can successfully tap the growing base of DivX devices, one thing is clear: the balance of power in the burgeoning Internet video market will have significantly shifted.