DivX buys rival for its technology

November 15, 2007
DivX Inc., a San Diego maker of video-compression technology, will pay $22 million MainConcept AG of Germany, which has a competing compression system that is gaining traction.
DivX makes a video-compression system that allows large video files to move between devices, such as from computers to televisions. It hopes to get its technology heavily adopted by consumers, making it the standard for compressing and decompressing digital video – just like MP3 technology became a popular format for coding digital music.
DivX makes most of its money licensing its technology, based on MPEG-4, to makers of DVD players. But it hopes to expand into other products, such as mobile phones and digital cameras.
MainConcept is a leader in a different compression technology, called H.264, that has been gaining ground in some gadgets, such as digital cameras that produce short video clips.
Cell phone makers, HDTV makers and set-top-box producers also are looking at the H.264 technology. Adobe has licensed MainConcept's compression system for its latest version of Adobe Flash player software.
DivX Chief Executive Officer Kevin Hell called MainConcept's system highly complementary to DivX. “MainConcept's H.264 technology is expected to increase our market penetration in key emerging-product categories,” he said.
On top of the $22 million, DivX could pay an additional $6 million for MainConcept if certain product-development and financial milestones are hit.
DivX expects that costs associated with the deal will push down its fourth-quarter earnings by 2 cents to 3 cents a share. But MainConcept is expected to contribute to the company's bottom line in the second half of next year, the company said.
Source: signonsandiego.com