DIVX QUESTIONS AND ANSWERS I. Divx: General 1. What is the Divx system and how does it work for the consumer? The Divx system allows consumers to purchase physical ownership of a special, encrypted movie disc that is the same size as the audio compact discs with which most consumers are already familiar. The purchase price of the movie disc includes a two-day viewing period. The viewing period begins only when the consumer inserts the disc into a Divx player and pushes the play button, be it on the day of purchase, the next week or even months later. Discs may be paused, stopped and played multiple times during the viewing period. Divx players will play all standard DVD discs, but the lower-cost Divx rental discs cannot be played on standard DVD players. The consumer owns the disc and is therefore never required to return it, eliminating all late fees. Divx discs may be added to the consumer’s home video library, and additional viewing periods may be easily purchased through the Divx player. For many titles, the consumer will be able, through the player, to convert a disc to unlimited viewing for a one-time fee. Certain titles also will be available for purchase in the store as unlimited viewing discs (Divx gold discs). Consumers who purchase Divx players will establish an account with Divx for billing of any additional disc rentals beyond the initial purchase and any rental disc conversions to unlimited viewing. The player plugs into a standard phone jack; however, the phone line is not used during movie play. No new phone line is required since the player never interferes with the consumer’s phone usage. The player periodically calls the Divx processing centers toll- free number in the “off-hours” to send billing information. 2. What are overall benefits of the Divx system to consumers? Divx provides more movie options by making many new release and catalog titles available with the Divx convenience features at an affordable price. Coupled with the ongoing availability of regular DVD movies, the Divx consumer can enjoy the full range of digital home entertainment in a convenient packaged-goods environment. 3. What are the benefits of the Divx system to video retailers? Divx will allow video retailers to compete via a packaged-goods medium with electronic pay-per-view delivery systems which offer the advantage of no return visit to the store. The Divx consumer benefits should help generate increased store traffic by attracting and retaining dissatisfied video renters. Also, the expected high turns rate for the rental-type Divx transaction will generate gross margin contributions that are attractive for this category of product. The Divx movie lineup should also draw attention to the overall DVD product, including standard DVD sell- through discs and Divx-gold discs. 4. Will Circuit City be the exclusive retailer of Divx players and Divx movies? Absolutely not. Divx expects manufacturers will distribute the Divx players through the normal retailer networks, which includes, but is not at all limited to Circuit City. It is expected that Divx movies will also be available in a variety of video retail locations, including video rental stores, video and music sell-through retailers, and other software outlets such as consumer electronics and general merchandise stores, including Circuit City. II. Divx: Studios 5. Who are the studios and what have they committed? Disney, Paramount Universal and DreamWorks have agreed to make available on Divx discs all new releases ‘day and date’ with their Home Video VHS products. Moreover a substantial number of catalog titles will also be available from Disney, Paramount and Universal. 6. What advantages does Divx offer the movie studios? Divx provides unrivaled and uniquely strong anti-piracy and anti- copy protection. This protection allows each studio to safely release not just catalog titles, but also new titles in a digital format with the highest quality viewing standard available today. By creating a more convenient and flexible video rental system, Divx should incrementally increase home video industry revenues. III. Divx: Consumer Points 7. When will Divx discs be available in comparison to movie titles released on VHS tape? New movie titles will be released on Divx discs on the same date they are available for rental on VHS tape. 8. What will the discs cost and where will they be sold? The suggested retail price for a typical feature film disc, which includes a two-day viewing period, will be $4.99. Divx expects that many retailers will sell them for less, and that they will be sold by a variety of retail locations, including video rental stores, video and music sell-through retailers and other entertainment software outlets such as consumer electronics and general merchandise stores. 9. How does the customer pay for additional viewing periods? Customers who purchase Divx players will establish a credit card billing arrangement with Divx. 10. What is the time limit for additional viewing periods and how much do they cost? Additional viewing periods will normally be two days. For additional viewing periods, the charge should generally be less than the original retail price. 11. Can the system tell if the complete movie has been viewed? How does Divx differ from pay-per-view? It doesn’t really matter. The consumer may watch all or part of the movie as often as he/she desires during the two-day viewing period. Unlike pay-per-view, the consumer may pause, stop, replay or scan the movie as frequently as desired throughout the viewing period. Furthermore, the Divx consumer normally has access to two-day viewing periods, during which movies can be viewed as many times as desired without incurring any additional “per-view” charges. 12. What happens if the Divx host computer “goes down” or the consumer’s phone line is already in use when the consumer wants to watch the movie? Is it true that the player must communicate via modem to a computer during movie play? The player does not have to make a connection to the host computer for the customer to view a movie. The information required to authorize and decrypt discs is stored in secure memory in the player. The phone line and host connection are only used during off-hours. 13. What happens if a consumer has multiple Divx players? Multiple Divx players can be billed to a single Divx account. This will most commonly occur when consumers have players in multiple rooms and/or have one or more players at home and/or at vacation home(s). 14. What happens if a consumer starts a viewing period on one player and wants to also use a second player while still in the original viewing period? If the players are billed to the same account, the consumer incurs no additional charge. However, use on an unrelated player will incur an additional rental charge. 15. Exactly what does “convert to unlimited viewing” mean? For many Divx titles, consumers will have the option to pay a one- time fee after the initial viewing period, and may then play the converted disc as often as desired without additional charges. The “free plays” are applicable only to the converting player and other players on the same billing account. 16. What if a rental disc is converted to an unlimited play disc and then played on a different player not billed to the same account? The account for the viewing player will be charged the rate for a first-time rental. 17. What are Divx-gold discs? For many Divx titles, Divx-gold discs will be available. Divx- gold discs are initially purchased in the store as unlimited play discs that may be played without charge on any Divx player. Divx expects pricing for Divx-gold discs to be similar to standard DVD discs. 18. Can the Divx player utilize standard DVD products? Divx players will play all standard DVD movie discs and regular music CDs, but Divx movie discs cannot be played on standard DVD players. 19. Can I adapt my old DVD player to be used with this device? If so, how much will it cost to adapt? No, existing DVD players cannot be adapted. However, standard DVD discs CAN be played on the Divx player. 20. How will the Divx player connect to my TV? Cable Box? VCR? All my home theater equipment? Can Divx players be connected to older TVs? Optimum performance is achieved by connecting the player to your TV. It will not connect to your cable box. Because of the copy protection technology, a VCR connection is not recommended. The Divx player will connect to your TV in the same manner as a standard DVD player. The only difference will be a phone line that will plug into a jack in the back of the unit. 21. What does the player look like? Weight, size colors, LED read out, LED clock, etc.? The Divx player will look like the standard DVD player. IV. Divx: Hardware 22. Who are the hardware “partners” and what are they committed to do? Zenith Electronics Corporation, Thomson Consumer Electronics and Matsushita Electric will included the Divx-equipped player in their DVD product lines. Players are expected to be shown at the Consumer Electronics Show in January 1998. Products will be available to the consumer in two yet-to-be announced markets beginning in the spring of 1998 with national roll out expected by early summer. The first products will be manufactured by LG Electronics and sold as part of the high-end Zenith-Inteq series from Zenith Electronics Corporation. Thomson Consumer Electronics will introduce products under both the RCA and Proscan brand names, and Matsushita will market products nationally under the Panasonic brand name. Manufacturers expect to broadly distribute Divx players through their standard retail outlets. 23. What advantages does Divx offer the hardware partners? Divx’s strong studio support and improved convenience for video rental customers should significantly improve demand for digital home video players and related home theater equipment. 24. Where will Divx players and discs be sold? We expect that Divx players will be sold in traditional consumer electronics retail outlets including consumer electronics specialty stores and general merchandise retailers. Divx discs likely will be sold by a variety of retail locations, including video rental stores, video and audio sell-through retailers and other software outlets such as consumer electronics and general merchandise stores. 25. How much will they cost? At launch, Divx DVD players are expected to retail for approximately $100 more than a standard DVD player. We expect that, over time, this premium will move down into the $50 range. 26. How does the Divx host computer system interact with the customer’s player? Does the consumer establish an account with Divx? Is there a support person to call if I can not get the disc to play? Who do I call if I have a problem? Will viewing be charged to my credit card? Does Divx have a customer service team in place to answer my calls? All accounting and other necessary system communications are performed via periodic off-hour calls by the Divx player modem to a central computer. Initial and subsequent movie plays never require real-time phone calls, and the Divx player communications are otherwise invisible to the consumer. Divx will operate call centers to handle the following incoming customer telephone calls: Divx player set-up and account registration; customer billing; customer problems; customer surveys; and off-line merchandise orders (i.e., movie discs and other merchandise). 27. Can I interrupt a Divx call in process if I need to use my phone for an emergency? Yes. The Divx player will disconnect the call whenever the handset of your telephone is picked up. 28. Will I have to put in a new phone line to use this “call-in” method of payment? No. The Divx player will work with your existing phone line. 29. Is this a long-distance call that I have to pay for or does the Divx system call me? The player initiates all calls and calls a toll-free number. The consumer will never be charged for any calls made by the player.