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DivX Files Lawsuit Against Yahoo On Advertising Payment Breach

imageimageDivX (NSDQ: DIVX), the San Diego-based online video codec and tech firm, has filed a lawsuit against Yahoo (NSDQ: YHOO), accusing it of going back on its two-year advertising services agreement announced in September last year. Yahoo notified the company that it intends to breach the contract and discontinue making payments required under the agreement. As a result, DivX has filed a lawsuit in California Superior Court in Santa Clara County seeking damages from Yahoo and specific performance under the agreement.

The agreement was to offer consumers who download DivX video software tools a co-branded version of the Yahoo Toolbar, along with a Yahoo services-loaded version of IE 7. The deal replaced a Google (NSDQ: GOOG) search tools deal hat was distributed by DivX before that.

Following this new development, DivX is revising its revenue and earnings estimates for the fiscal year ending Dec 31, 2008. Yahoo accounted for about 21 percent of its media/distribution segment for Q308, which is about $1.1 million out of $5.3 million revenues. It anticipates that its revenues for 2008 will range from $90 million to $92 million as compared to its previous estimates of $95 million to $97 million, which means that the Yahoo deal was worth at least $5 million for this fiscal year. The Yahoo agreement was supposed to run until end of 2009. DivX is now searching for a replacement partner for the deal. More details in release.

Update: Yahoo’s statement: