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Tickers in this Article: DIVX, DLB, DTSI, SNE, TWX, AAPL
No doubt about it, Americans love watching movies. And if tiny tech upstart DivX (Nasdaq:DIVX) has its way, it will emerge as the key player in the new digital distribution system that will deliver Tinsel Town's output into the living rooms of the nation.

IN PICTURES: 20 Tools For Building Up Your Portfolio DivX appears to be in the sweet spot of the ongoing digital revolution that's transforming the way we watch movies. The company's business model allows it to cash in by embedding its proprietary technology into the various consumer devices such as DVD players and game consoles that can hook into the internet to download video content.

Upbeat Guidance Sends Shares Soaring
Recently, investors appear to have recognized the value of this strategy. The company's shares shot up 15% following the release of the company's recent quarterly results. While DIVX showed a loss for the final quarter of 2009, upbeat guidance for the first quarter of this year suggesting that earnings could be double analyst's expectations.

It's a move that appears to reflect earlier dramatic gains made by other players in the digital media game. Recently, shares of Dolby Labs (NYSE:DLB) and DTS Inc. (Nasdaq:DTSI) tacked on impressive gains. Both companies are in the business of embedding their proprietary digital audio technology in the consumer electronics products that now make up the home theatre experience.

DivX's Technology Standard
DivX's proprietary technology allows digital videos to be compressed to a fraction of their size while maintaining their visual quality. It's a technology that is key to enabling the downloading of full-length movies from the internet. The process has caught on to such an extent that it's now regarded as the defacto standard for full length digital video files.

Hollywood Commits
Because this standard also provides protection against piracy, DivX has managed to bring onboard some of Hollywood's top film studios including Sony Pictures, a unit of Sony Corp. (NYSE:SNE) and Warner Brothers, a subsidiary of Time Warner (NYSE:TWX). As a result, about half the films that Hollywood now produces, as well as extensive film libraries, are now being produced in the DivX format. It's a key incentive to getting manufacturers to license Divx technology for their players. Not surprisingly given their existing relationship on films, Sony announced that they would be incorporating DivX technology into their latest high def televisions.

The Bottom Line
What Apple's (Nasdaq:AAPL) iPod and iTunes store did to downloadable music, DivX hopes will now happen with video content. And if the recent share price moves experienced by some of the tech players in this game is any indication, that process is now firmly underway. (For more, see our article on Technology Sector Funds.)

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