Yesterday San Diego based DivX announced the shutdown of popular video site Stage6, to the surprise and dismay of the site’s 17.4 million happy monthly visitors (the post on the shutdown has over 5,000 comments).
There’s lots of speculation around why DivX is shutting the site down, ranging from piracy issues to the spiraling CDN costs of streaming all that HD content. But what really happened, according to multiple sources, is that a ridiculous battle of egos at the DivX board level caused most of the team to simply quit. DivX, essentially, snatched defeat from the jaws of victory.
First a bit of history – just before DivX went public in late 2006 it launched Stage6 as a way to show off the capabilities of the DivX codec. Without any promotion at all the site quickly gathered users. By mid 2007, when the site went into beta, it had millions of users and tens of millions of page views. The high quality video was key – users simply flocked to it.
DivX cofounder and CEO Jordan Greenhall knew he had a potential hit on his hands. He decided to explore a sale of Stage6, and hired investment bank Montgomery & Co. to see who might buy it. He also started pitching VCs on the idea of funding it as a spinoff. Given the conflict of interest, he resigned as CEO of DivX – president Kevin Hell took over the company. Darrius Thompson, (DivX co-founder), Mark How (DivX VP Business Development), Mark Chweh, Chester Ng and about 20 other DivX employees joined him. All shared the title of “cofounder” at Stage6.
Montgomery spent the second half of 2007 pitching Stage6 to buyers, although there wasn’t much interest. But VCs were eager to buy in to the idea of a spinoff. By November they had commitments from Crosslink Capital, Sofinnova France and Mission Ventures to invest $20 million at a $90 million post money valuation. Another $5 million was committed from a strategic investor, plus $2 million more from “friends and family.” All in all, Stage6 was preparing to close a $27 million round. DivX was to retain 20% ownership in the new funded entity.
Not only was DivX to receive a substantial chunk of equity in the new company, they’d be able to get the operating costs, estimated to be around $1 million/month in CDN costs alone, off their books. And Stage6 was to give most of their 2008 revenues back to Divx as well.
Those revenues were not immaterial. Everyone who views a video on Stage6 must first download the DivX player. Packaged with the download was an option to download the Yahoo Toolbar. The revenue from Yahoo to DivX is around $16 million per year. Our sources estimate that half that, or around $8 million/year, was due to Stage6 downloads. And that share was growing – 2008 toolbar revenues may have been as high as $10 million, making Stage6 almost breakeven.
At a meeting in late November the DivX board was asked to approve the spinoff and venture financing. But at the last minute the board decided to cancel the spinoff and retain control of Stage6. It’s not clear why they did this – perhaps they were surprised at the valuation and wanted to keep control of the assets. Or perhaps the revenue from Stage6 was too material for them to let it go over the long run. From what we hear a massive battle of ego’s ultimately killed the deal. But when the decision was made, the key Stage6 founders resigned. DivX made a brief announcement about Greenhall’s departure, and added that it “expects to take additional time to consider the alternatives available to the Company related to the future of the Stage6 service.”
From that point everyone expected DivX to just continue to run the site. But over December and January they may have become concerned again about the costs of streaming the video and running the site without most of the key team there to look after things. Three weeks ago, we hear, DivX re-approached Greenhall and asked if they’d like to do the original deal. Greenhall declined.
So then DivX announced the closure of Stage6. When it shuts down all those millions of DivX downloads and associated Yahoo revenue goes away with it. At the end of the day DivX threw out the baby, the bathwater, millions of dollars in revenue and tens of millions of users. Their board and executive team, in short, look like fools. Investors seem to agree – the stock hit an all time low today.
DivX declined to comment on this post.
Great post!
Poor DivX. So misunderstood. This article fails to mention the pending UMG lawsuit over stage6 for 30 million. Hard to see how some VC firm is going to want to deal with that, so I think this angle of the story is suspect. VC might have gotten cold feet as well, which is what I originally suspected.
Also, sir, your monetization picture is awful Rosy. Traffic was growing and revenues would not grow in proportion to traffic. The thing about the Yahoo toolbar is that you only need to download it once, so you would expect revenue from that to grow at less steep of a curve. They need a subscription service or very clever ad marketing to survive.
But, alas, it looks like stage6 has failed and DivX did a poor job capitalizing on their investment, which turned out to be an expensive ad campaign. It is up to the Veoh’s and Joost’s of the world to find a way to do HD video better.
Vimeo has HD. Just go there instead.
Hi Michael,
Thanks for covering the news and digging into more details. Its good to see that you actually acted so fast. Just hours after me informing about this fact you posted in depth news.
Shame to lose Stage6 – it showed such promise for high quality online video. I guess ill’ just go to http://www.dailymotion.com/hd !
If stage6 saw that the economical ends didn’t meet, why didn’t they at least try the payed subscription-method?
A lotta ppl are more than willing to pay for that service Im sure….
In my very biased opinion, there simply isn’t enough bandwidth to support widespread online distribution of HD video. Bandwidth and content costs are more than a legit company could hope to recover in advertising or toolbar revenues. For the time being, settle for YouTube and P2P streaming. Sorry vidheads.
“Kevin Hell”. The name is alone is a tip.
All former Stage6 users are welcome over at our site. We are working on backend improvements that will enable us to manage more load.
Come on over.
This is all very disturbing. I’m sure other ‘forces’ are shutting this great service down…. I’m calling B.S. on the following from the website message:
“…we decided we would either have to sell it, spin it out into a private company or shut it down.
I won’t (and can’t, really) go into too much detail on those first two options other than to say that we tried really hard to find a way to keep Stage6 alive, either as its own private entity or by selling it to another company.”
Has anyone seen ANY traffic/news on this sale to ANYONE the last few months?… I didn’t think so… This is all too quick a solution to some other reason.
Needless to say, DIVX itself, will die because of this. That’s probably what the ‘forces’ want…
An alternate to Stage6 that everyone is switching to is SATVOD which is very similar to Stage6, lets you watch everything you could watch on Stage6.
Nice analysis Mike, whatever may be the reasons, egos or other revenue issues, finally no one gained anything from the whole fuss, I guess its like the story of a hen with golden eggs, people never learn
That´s sad!
Why they just didn’t accepted the VC offer and new investments.. they are just a fool.
omg I can´t believe O_O
I have seen an alternative to HD streaming from Microsoft called Silverstream. SilverStream Application Server Version 3.7.5 is far more powerful than what stage6 was offering.
On the politics side Microsoft is going to buy Yahoo and DivX’s main source of income would of stopped once Microsoft gains control of Yahoo.
Silverstream converts DivX format on the fly…though sometimes there is a loss of picture quality…So, on the tech side DivX is still the HD king.
Very interesting article, and a bewildering story. I can’t believe Stage 6 cannot be saved, it’s one of these amazing sites really worth investing in, like Flickr. It’s so much better than YouTube and yet Google was ready to spend $1.65 billion for it, so what are Stage 6’s potential buyers waiting for ?
http://WWW.SAVESTAGE6.COM
Jesus christ that was stupid.
If they had just charged their 17 million users a dollar a year, then even if they got rid of all the yahoo toolbar advertisements and everything, that alone would be more then enough money not only to keep the website running, but to reap massive profits!
Sigh.
@Ikara: it seems http://www.joost.com is pretty cool too and build around P2P
Ayuden a evitar que cierren stage6… http://www.peti...9/petition.html ingresa en ese link e introduce un email ya sea original o falso. No sean egoístas y ayuden a que no cierren esa pagina.
http://finance....5d5ce2d0d3fc8a7
Don’t know if it’s true but it’s detailed!
There’s already a site working to replace stage6…
It’s actually doing ok as of right now, and seems promising..
CHeck it out it’s http://stage7.ning.com/
A compilation of sites where the community is heading to can be found in http://www.stage6community.com
does this mean http://quicksilverscreen.com might be next?
Very sad that stage 6 is shutting down.Wish that they could figure out a way to make it work out for all of us.
youtube should have bought it. youtube would have made a killer with good quality videos. oh well. im sure therell be a site just like it up sooner or later.
just look at quicksilverscreen.com (which i love) there was a whole lot of stage6 pirated videos on there. surely, movie and television networks have been trying to shut down stage6 for awhile.
Well, i could speculate all I want about the business decisions and/or ego decisions that lead to the shutdown, because I’m a MBA like everyone else on here *rolls eyes*…
But commenting PURELY as a user of Stage6, I must say that this is a huge disappointment! This sucks. Where else can I get HD streaming/downloading of video on the internet in a easy to use and searchable site? No where that I or any of my friends know of!
I guess we have to start all over with something new. Too bad. Stage6 was just starting to kick so much ass. It feels like Divx doesn’t care about the users.
And that’s how MOST other users will feel too, business reasons be dammed.
Stage 6 was a gold mine. Fucking morons.
oh ! i am totally shocked to heard this news . it was a part of my life because the picture quality and contrast were the advantage of this sited it was the massive search of any kind video. what did you done mikeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
Keep Stage 6 Alive!
http://stage6.forumer.com
The Stage6 DivX Community Forum is online now for all stage 6 members to stay in touch and keep up to date with whats going on, hopefully we can work together here and keep the community alive and get stage 6 going again. Thanks to all the great uploaders and posters and stage 6 members that are the people that made stage 6 the best site on the net.
Keep in touch here,and please pass the address on to other ex stage6 members you know, stage6 was a massive community and there were lots of online friends and contacts surrounding stage6.
http://stage6.forumer.com
LOL, the doods just cut their personal salary by 5%-30%, Im sure of it.
How stupid, they look like brainless morons..
Goodbye Divx RIP ehmm I mean Stage6
Great Article Mike…Yeah….I just got back from vacation & when I went to S6 I found out to my dismay that it was closed…Very disappointed in the manner it was closed without consideration to its members. I can only imagine the hours some must have put into converting & uploading their videos & they had to pay for the converters only to have them dumped without a formal notice to all members that kept it running. There should have been a 30 day notice to all members of their impending decision to close down…
It’s very disappointing as they were without a doubt the best Video source on the net with a great interface. Everything was Quality at Stage 6 & to hear that it closed because of nearsightedness is utter Stupidity…They certainly had the Right Product in the wrong hands as the quick closure has proven they didn’t care about their members in the 1st place. Its very unfortunate for us who enjoyed Stage 6 that they didn’t have the right business plan in the first place. They were trying to build a market for a tv converter on the internet…Now that is funny when they were on the Net & doing a great job where they were & therefore due to that inability to take care of your customers 1st they lost the ability to see where they were & where they could have naturally gone with their product which obviously would have been to change the nature of the way internet video should be. Which would have garnered them a very large audience with the advertising dollars to go with it….
As of now Dailymotion has the best quality video & resources but are increasingly going under the corporate blanket…
George Bush does not care about stage6 members.
@86
I assure you though that even he is way smarter than the morons at DivX who decided to shut down Stage6.
@87
You’re absolutely right.
I was just adding some comic relief.
George Bush doesn’t even know what DivX is.
Okay, who owns and controls the Stage6 name, content and equipment? Seems to me whom ever it is has a very likely deal in the works if they want one to exist… at all. And with millions of dollars on the table and everything already in lace to simply throw the switch back on, what’s stopping them from making a comeback? It can’t be money unless they simply want to spin it to the high bidders and walk away only to start another service that competes with the original! If they (?) sit on their ass to long and allow greed to control their decision they will surely get left holding the bag on this one. I say get Stage6 back online and work it with a fresh start. I also felt Stage6 was the best thing going on the net when it came to video content ease of use and quality.
> “Everyone who views a video on Stage6 must first download the DivX player.”
I didn’t, I don’t even think their player is available for linux. I just used normal firefox (iceweasel on debian) and played their videos fine.
Money changes people, what’s new?
cmon now. more is goin on here than we are told. stage6 doesnt just shut down… hello. gimmie a break. money talks bullshit walks. someone, somebody, somewhere is the tail… and the dog wagged. and there it is there. its all good cos everything always comes out i the wash. just watch and see.
George Bush would not know the difference between his arse and his face…err…not a good example, given the similarities. Llol
Question ? How do I get millions of beta testers, how do I show off my very best products. How do I make my product some thing that people would want to have in there home? —–(stage 6)—-How do I piss off my beta testers, my future customers —-(close stage 6)—-. Now who really cares what happens to DiviX. ONLY THE PEOPLE THAT INVESTED MONEY IN IT!!!!!!!! Stock price 2/25/2008 $12.00 Stock price 2/15/2008 $6.89 That a boy!!!!!
Keep up to date with developments on Stage6 and DivX and catch up with stage6 members at The Stage6 Community Forum
http://stage6.forumer.com
The chairmen at DivX are very stupid for declining the spinoff, but to me some of the blame should go to Greenhall, the chairs had after more consideration agreed to take the offer, but he refused.
Not to worry though, I think that sooner or later a large site, such as Google or Yahoo! will buy the technology and put it on their sites. Google could do it easily, create a sub site of Youtube (or just make use the tech on Youtube), and allow people to post and watch very high quality, they would make millions, and they could easily afford it.
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Such damn muppets at DivX.. amazing they haven’t screwed up their algorithms yet…