Rich Fiscus
10 Mar 2008 1:41
In February DivX Inc., developers of the best known MPEG-4 ASP video encoder in the world, decided to shut down their highly popular Stage6 video sharing site. Stage6 was initially established in 2006 as a way to show off their successful codec's potential. In only a few months it had attracted millions of users, and plans began taking shape to spin the service off as a separate company.
According to the official explanation given to Stage6 users by a DivX employee, it was being shut down because there wasn't any interest outside the company in either buying it or providing venture capital to fund it. The message stated that "the continued operation of Stage6 is a very expensive enterprise that requires an enormous amount of attention and resources that we are not in a position to continue to provide. There are a lot of other details involved, but at the end of the day it’s really as simple as that."
According to Michael Arrington of TechCrunch that explanation is just plain false. He says that a number of sources involved in the defunct service have outlined a chain of events that took Stage6 from a promising commercial service to being shut down just a few months later. The story begins with DivX co-founder and CEO Jordan Greenhall resigning from DivX, along with a number of other key employees, to establish Stage6 as a distinct brand. Arrington claims that although there was little interest among existing tech companies to buy Stage6, more than a $25 million in venture capital was lined up to spin it off as a separate entity. Under the proposal developed by Greenhall and his Stage6 team DivX Inc. would have retained 20% ownership in the company, and would also receive the bulk of the company's revenue for 2008, which would primarily come from visitors downloading the DivX bundle and installing the included Yahoo Toolbar. Some estimate the potential revenue for 2008 alone at $10 million.
And that's where things start getting very strange. In November, when the final proposal was submitted to the DivX board they apparently changed their minds about the spinoff, resulting in Greenhall's resignation from the company. Around the beginning of February, DivX executives reportedly approached him in an attempt to revive his original plan, but were turned down. And of course at the end of February Stage6 ceased operation.
Thus ended what would appear to be a simple (if bizarre) case of corporate short-sightedness. Or so it would seem if not for a new claim from Brad Greenspan, co-founder of MySpace. Greenspan says he made an offer to buy Stage6 for $11 million nearly a week before it was shut down. In a press release he also claims he still hasn't gotten a response to the offer, despite the fact that it remains on the table.
"After LiveUniverse makes its first offer, DivX Board refuses to engage in any direct dialogue with LiveUniverse for over 5 days," according to the release issued by Greenspan's company Live Universe. "During this time, DivX shuts down Stage6...Directors of public companies have a fiduciary duty to shareholders to try to get the best deal and represent their interests, first and foremost."
Although DivX representatives have declined to comment on either article, they're expected to release some sort of public statement later this week when they report quarterly earnings.