DivX Bets Big on H.264, Buys MainConcept

DivX, a video codec and software company based in San Diego, Calif., announced yesterday that it was acquiring Aachen, Germany-based MainConcept for $22 million with another $6 million in earn outs. For DivX CEO Kevin Hell the acquisition is a bet on the future of video: the H.264 video compression technology. What’s H.264? Take it from Wikipedia, which describes it as “a standard for video compression. It is also known as MPEG-4 Part 10, or AVC (for Advanced Video Coding).”

Unlike DivX’s own technology, H.264 is an open standard, though companies have their own implementations. MainConcept is one of the important players in the H.264 codec business and counts Adobe, Corel, MobiTV, Sonic, Sony, and Panasonic as its customers. This is why it is particularly significant (albeit small in terms of dollars) deal. DivX (DIVX) makes a living by licensing its codec, now used in 40 percent of DVD players sold around the world, thanks to its “ability to compress lengthy video segments into small sizes while maintaining relatively high visual quality.”

With the deal, DivX is acknowledging that the open standard H.264 is becoming a codec of choice when it comes to high quality video — be it broadcast video, streaming Internet video, video on mobile phones, or on consumer devices like next-generation DVD players.

A new breed of digital video playback devices including IP set-top boxes are all being built to play back H.264 video, which is popular because of its versatility. Video content creators can create once and publish to many platforms without worrying too much about compatibility. Or at least that’s the utopian vision.

“H.264 is where digital video is heading,” Hell said in an interview. “Including MainConcept’s technology in our offerings accelerates our time to market.” The new technology from MainConcept will help DivX move beyond just DVD players into new arenas such as cellphones, gaming consoles, camcorders and other digital media devices, Hell said.

DivX plans to integrate MainConcept’s technology into its offerings and ship them to is customers in the semiconductor market by 2008, Hell said. While he thinks the deal is of financial and strategic importance for the company, Hell declined to discuss the details of its implications.

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