DivX On Stage6 Shutdown

Copyright issues contributed to the shutdown of Stage6, the video sharing site owned by DivX, says management. On last night’s conference call, reported by CNET, CFO Dan Halvorsen cited “potential copyright litigation” in explaining the move. Apparently, the company preemptively went to court to win an order proclaiming it not responsible for illegal actions taken on the site. Universal Music Group also went to court, soon after, with a complaint against DivX (NSDQ: DIVX).
DivX’s suit was dismissed, but UMG’s persisted. One interesting data point: UMG offered DivX the chance to pay $30 million to license its content. But it’s obvious why this was a non-starter. Stage6 has been a big money loser for DivX—causing its income in this last quarter to be sliced in half—so it really had no justification to pay so much to get content from just one of the four majors. Note that this doesn’t fully address the Brad Greenspan question—why it rebuffed his offer to buy the site—but it does suggest that his simplistic complaint, that DivX just refused to look at the options and acted against the best interest of shareholders, isn’t fully accurate.

DivX shares are getting crushed today, currently trading down almost 33 percent.