Hack Attack! Divx Survives the Holidays, Faces a New Demon

Emedia Professional, April, 1999 by Lauren Wiley

Divx--the embattled digital video papyri-view system--defied critics' predictions of an early demise with a successful run over the holidays, only to discover in the new year that its opponents were promoting a code-breaking device to limit its profitability. The Divx Hack box--developed by a group of anonymous hackers including college students with expertise in satellite technology--reportedly prevents Divx players from communicating with Digital Video Express (DVE)'s billing and monitoring system.

While Divx developer DVE insists the Divx Hack box will not work, one of the creators of the Divx Hack, who identified himself only as Mike, says the box does work and claims to have sold 500 units to dealers at $150 apiece in January. He says the group was selling the devices to dealers, but not to the general public because some people had tried to duplicate the technology and the creators wanted time to tamper-proof their device. He also says publicity about Divx Hack--mostly generated by Divx opponents touting the device on their anti-Divx Web pages--prompted investigations by DVE and law enforcement officials.

Intended to make Divx more affordable to consumers by allowing them unlimited viewings of Divx discs for a one-time charge of $4.99, the Divx Hack apparently intercepts automatic billing calls, making the machine think it's communicating with the DVE system when it really isn't. Though Mike considers Divx to be a well-designed system and an asset to the digital market, he also believes it's overpriced and, therefore, not consumer-friendly.

When consumers buy a Divx player, they get a standard DVD player that also plays Divx discs as an additional feature. Divx discs may be watched in 48-hour time increments at a cost of $4.99 per viewing period, or activated permanently for $19.99. Once or twice a month, the Divx player--which is connected to a phone line--calls the DVE computer system and reports the customer's purchases during that billing period. The fees are then charged to the customer's credit card.

Josh Dare, a spokesman for DVE, says bypassing the billing system is illegal, noting that Divx customers sign an agreement to pay for their viewing periods when they sign up for the service. He maintains the Divx Hack won't work because Divx DVD players are programmed to deactivate the Divx feature if the machine is unable to reach DVE's computer system after a certain number of attempts. The machine will still play Open DVD and CDs, but not Divx discs, he says.

In early February, Divx Hack developers pulled a picture of Divx Hack from their Web site. By the end of the month, the Divx Hack page had been transformed into a Divx promotional site with links to the DVE home page. Mike says Digital Video Express purchased the copyright to Divx Hack and that a legal agreement bars him from revealing how much the company paid for the device. Dare denies that his company has had contact with the creators of Divx Hack and says, "We couldn't imagine why he's linking with our page." He did say he isn't surprised people are attempting to bypass billing, though. "We suspect there will be others who will try to compromise the system."

Since its debut in June 1998, Divx has been attacked by critics who argue the product is confusing consumers new to the DVD market and is unnecessary because renting open DVD discs at video stores is cheaper than paying $4.99 for 48 hours of Divx viewing. They also voice concerns that if Divx fails, consumers will be left with a collection of inoperable video discs.

Indeed, Divx's growth has been slow, with a reportedly Iow response during summer test-marketing and sales of roughly 25,000 players in the first two months of its nationwide roll-out. In December, however, more than 62,000 players were sold, granting Divx more than a quarter of the DVD player market. Dare says these figures surpassed all expectations and are even more astounding given the relatively limited number of retailers selling Divx-enabled players and the diversity of players currently available. In December, 742 stores were selling four brands of Divx players, while 40 brands of open DVD players were available at more than 10,000 retail locations (albeit at retail outlets typically smaller than most Circuit City stores). Likewise, Divx discs can only be purchased on the Divx Web site or where players are sold, while open DVD discs are sold in most video stores, including Blockbuster. Still, DVE sold 535,000 Divx discs in the fourth quarter--375,000 of them in December. And within the first seven weeks of this year, another 500,000 Divx discs were sold, pushing total sales past the one million mark.

Although they are excited by the holiday sales, DVE officials know they have to extend their reach to survive. "We cannot be successful with the retail distribution we currently have, especially on the disc side," Dare says. The company's first step towards expansion includes selling Divx discs wholesale to retailers over the Internet. DVE also announced that four more manufacturers will join the Divx player market by year's end. And next year, Thomson Consumer Electronics plans to release a high-definition Divx player that will offer resolutions of more than one million pixels in the widescreen format.