Friday, March 14, 2008

Whither--or Wither--Stage6?

I was one of many who were saddened and disappointed by last weeks shuttering of DivX's Stage6 site. It was surely among the best and most groundbreaking of UGC video sites--YouTube for adults. Moreover, I think they really got the community part of it right, and it served as a model for others wishing to combine social sites with video.

Many in the blogosphere, who didn't understand either Stage6 or DivX's business, dismissed it as just another video site destined to bite the dust because it "lacked scale". This always irked me.

Like DivX itself, the centrex of Stage6's popularity lay abroad, not in the U.S. So it's no wonder wags who look only at ComScore, Compete, etc. failed to notice its popularity (and why Jordan Greenhall, DivX's former CEO and Stage6 founder, always referred to Alexa statistics). For example, according to Compete, Stage6 only had about 1M monthly unique visitors, vs. 6M for Veoh and 60M for YouTube. But using Alexa's worldwide stats, Stage6 was among the 100 most popular sites in the world; dead-even with Veoh. Hell, it had 1/6 the traffic of Facebook, which regardless of your thoughts on exact valuation is worth beaucoup bucks.

As an interesting aside, deviantART, which is part owned by DivX, is ranked 60th worldwide per Alexa, which was a big surprise to me.

As someone who covered DivX as an analyst, I understood the drag it had on the company's financials. But's unfortunate that the realities of business (and Street sentiment) did not allow them to hang on long enough to develop Stage6 into a standalone concern--or spin it off as planned.

Others have written either more eloquently, or more breathlessly, about the reasons DivX's Board chose to retain Stage6, and the circumstances surrounding the departure of Jordan Greenhall and the bulk of the DivX/Stage6 founding team. Personally, I think the rumored $90M post-money valuation sounds high, particularly in light of recent concerns about the difficulty of monetizing UGC video through advertising.

It seems much more likely to me that despite initial interest from potential buyers, the combination of an uncertain monetization and the threat of lawsuits (Universal) likely drove the value of Stage6 unacceptably low. That could explain the departure of the founders, particularly if they came to believe--rightly or wrongly--that DivX's board somehow botched the negotiations.

As to the fate of DivX itself, that's an interesting one. The company certainly has an impressive installed base, a compelling value proposition with electronics manufacturers for its licensed technology, and exciting potential to move into licensed content with its recent deal with Sony and its purchase of the leading MPEG-4 AVC vendor, MainConcept. The loss of Stage6 doesn't diminsh that user base as much as many fear. And based on my personal experience with a beta unit, DivX's Connected platform--which can turn any piece of electronics gear into a more open AppleTV--is a winner.

But despite a good 4th quarter, management whiffed on guidance for 2008 and the stock tanked. I suspect they are conservatively projecting a slowdown in electronics sales worldwide. I also believe the takeup of (DivX-certified) Blu-ray players will disappoint in 2008, as consumers delay HD player purchases in anticipation of cheaper prices down the road. Nor will any of DivX's other promising initiatives gain traction until 2009.

Still, the firm has plenty of value. Are they for sale? Sure. Everyone is at the right price. Management are big believers in the firm's potential, and won't let it go easily. But with the right buyer and a decent price, it'll go. My bet? Dolby Labs. They have the size, synergy in business model, a common customer base, and need for new growth platforms. And video is one they've already said they want to move into more strongly.

Any way you look at it, this is one company--and stock--that'll continue to generate excitement and speculation.

1 comment:

Scott Berry said...

soloride, thanks for the kind words. I don't know where Jordan is now but I'm sure he'll turn up soon, his energy level is way to high to just sit around.

Let me know when you find that next Stage6...