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Will DNA = IPO for BitTorrent? - October 9, 2007

BitTorrent's announcement today that it is licensing its Digital Network Acceleration (DNA) technology to Web TV service Brightcove will likely fuel further speculation about an IPO in BitTorrent's future.

Since going legit earlier this year and signing movie download deals with most of the major studios BitTorrent has been a frequent subject of interest among deal-hungry investment bankers.

Although other movie download services, such as Movielink, have not exactly fetched enviable valuations lately, BitTorrent has generally been lumped in with the likes of Akamai and Limelight Networks, two content-distribution network (CDN) providers whose successful recent IPOs were seen as good omens for BitTorrent (both Akamai and Limelight have stumbled more recently until yesterday's out-of-nowhere rally).

Like CDN's BitTorrent has been seen as a platform that helps content owners distribute their video more efficiently.

A better model for its monetization strategy, however, might by DivX Networks (DIVX). Like DivX, BitTorrent aims to create an "ecosystem" by insinuating its technology into a range of devices and Internet applications, which will then use BitTorrent's distributed distribution model to disseminate and access content.

DivX's biggest area of success has been its hardware licensing and certification program, which aims to incorporate DivX's video codec, media player and other elements into devices and chipsets. In August it announced that 100 million consumer electronics devices have now been DivX Certified, and last month struck a deal with chipmaker QUALCOMM to incorporate DivX technology into chipsets for handheld devices.

BitTorrent is now looking to replicate that strategy with its BitTorrent Device program. The BitTorrent DNA program closes the loop by adding BitTorrent-distributed content to the ecosystem.

Also like DivX, BitTorrent is looking to leverage its legacy as a tool of piracy. DivX, once a rogue codec derived from MPEG-4 technology, became the format of choice for distributing illegally copied video over the Internet because it was freely available and more efficient than other codecs (DivX Networks adopted the DivX name but ultimately developed a proprietary codec). As a result, hundreds of millions of PCs have DivX software installed, creating a ready-made installed base for legitimate uses of the technology.

BitTorrent's basic technology is still widely used to swap unauthorized video files over the Internet, largely because, like DivX, it's freely available and more efficient than other technologies. As a result, BitTorrent software is found on over 150 million PCs worldwide. The BitTorrent DNA program seeks to harness the power of that massive peer-to-peer network to make Web video platforms more efficient.

As for DivX's monetization strategy, the jury is still out. Since going public last September at $18.50, its shares have traded between $12.20 and $31.89. The shares are lightly traded however, in part because its story is a complicated one to explain to Wall Street. Of the six analysts who cover DivX, however, all have "buy" or "outperform" ratings on the stock.
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