Divion ceases operation when DVD's promise fails to deliver
Minneapolis / St. Paul Business Journal - by Henry Breimhurst Staff Reporter
Divion Technologies, a venture capital-backed spin-off of Eden Prairie-based FieldWorks Inc., has ceased operations after the digital video disc (DVD) market failed to develop as expected.
Divion was acquired by a pre-IPO FieldWorks in 1995. Then known as Paragon Technology Inc., the company designed and sold a variety of computer technologies, including DVD equipment for computers. In November 1996, FieldWorks spun off the company, issuing a dividend to shareholders.
Since then, the company has raised venture money to pursue its business model, under which Divion's DVD and other computer-convergence products would be sold over the Internet and licensed to original-equipment manufacturers. The reasoning given by investors last August was that the consumers most likely to buy cutting-edge products would probably be shopping online.
"The market for DVD and other digital video products did not develop in 1997 as predicted, and the company was unable to deliver on its plan," said Gary Beeman, a director of Divion and CEO of FieldWorks, in a letter to shareholders. As part of the spin-off agreement, Beeman and FieldWorks executive vice president and chief technology officer Robert Szymborski were named directors of Divion.
"It is now predicted by the industry that it may be into 1999 or beyond before there is significant demand for DVD products," the March 19 letter continues. "It is now clear that the market window has moved out into an unpredictable future time window and made further efforts fruitless and future investments unwise."
As a result, the company has shut down permanently; the letter to shareholders thanked "team members who have continued to support the project even without pay as we explored our options over the past four months."
According to venture capital reports, Divion received more than $1 million in the second and third quarters of 1997, much of it from Minneapolis-based Brightstone Capital.
"DVD had some success in the home market, but the computer market ... has not materialized," Beeman said in an interview. "There is almost no content. In the home side, there are almost 300 titles, but on the computer side, there is almost nothing."
Beeman said the computer DVD market has seen the rise of competing formats, similar to the minidisc vs. digital audio tape competition that arose in audio. Software companies won't put their goods out on DVD until format issues are straightened out, and manufacturers don't want to build them until there are titles.
Also, consumers aren't willing to pay $500 for a DVD drive, Beeman said.
"It was a market-timing issue, and in a startup it's hard to get financing," Beeman said. "A lot of good work was done, and the company had a lead in DVD." But the intellectual property will not be used. In a market in which technology is constantly evolving, the year-old cutting-edge designs are as defunct as the company that made them.
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