DivX Pulls the Curtain on Stage6

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DivX (Nasdaq: DIVX) is shutting down its Stage6 digital video service this week, after trying and failing to find a better-heeled buyer for the past seven months.

Monday's announcement to shut down the video platform -- a high-def version of Google's (Nasdaq: GOOG) YouTube -- means that consumers lose a promising but unpolished video-sharing platform. When operations cease this Thursday, the content will be migrated to "certain content publishers."

Stage6 had the deck stacked against it, really. Consider the online video market, where YouTube is the half-ton gorilla of user-submitted content, followed by hopefuls including Yahoo! (Nasdaq: YHOO), News Corp.'s (NYSE: NWS) MySpace, and Microsoft's (Nasdaq: MSFT) MSN Soapbox -- among many others. With more than 30 user-generated video-sharing sites to choose from, Stage6's departure means one less choice in a crowded and confusing market.

DivX had increasing difficulty in supporting the video-sharing service because of the overwhelming need for "attention and resources." That's even before the trickiest piece of the puzzle: monetization. Google, for instance, has made a killing with its AdSense contextual advertising service, but it's had difficulty monetizing YouTube. After all, how do you identify the appropriate ad for a user-generated video of, say, two talking cats?

When you consider that not even YouTube is making "signficant" revenue today, it becomes clear that you need to be way bigger than DivX to support such a loss leader for any length of time.

For DivX, dropping Stage6 will mean stronger operating results in the near future, as the company refocuses on its core digital media format licensing. The costs of doing business there are smaller, and competition from companies like Dolby Labs (NYSE: DLB) and DTS (Nasdaq: DTSI) is more modest.

I think it's the right decision, though I must commend DivX for its bravery in facing long odds. It's too early in your corporate history to go chasing additional markets, lil' bud. Come back when you're all grown up. At least now, you stand a chance of surviving that long.

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