Part II..............................
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CD-ROM MAKES WAY FOR DVD: NOT IF, BUT WHEN
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Most CD-ROM drive manufacturers and industry analysts see price as the major deciding factor in the changeover to DVD-ROM from CD-ROM in the next several years.
Most CD-ROM drive manufacturers and industry analysts see price as the major deciding factor in the change-over to DVD-ROM from CD-ROM in the next several years. Bob Katzive, vice president of Disk/Trend Report, a California-based market research firm, explains that the change-over will happen eventually, but only gradually. A full change-over, Katzive argues, will not happen until the end of 1999, and will occur only gradually, partly because of slow-to-drop DVD-ROM drive prices, partly because of performance issues, and partly because of lack of titles available for DVD-ROM drives. Also, Katzive explains, there are concerns about the first generation of DVD-ROM drives not reading CD-R and CD-RW media, a problem that CD-ROM drives can solve with multiread technology, which makes them capable of reading CD-RW media.
The change-over to DVD, according to IDC's Wolfgang Schlichting, will primarily depend on price. IDC expects the DVD-ROM price for OEMs to be around $200 for the drive itself at the end of the year. Indeed, Pioneer's current DVD-ROM drive was sold to systems integrators as early as April 1997 for sub-$200 prices, without MPEG-2 cards. One rumor, however, is that certain decoder manufacturers will be providing the DVD-ROM hardware solution chip-set for below $50 for MPEG-2 video decoding by the end of 1997, even though the real number, according to Schlichting, is probably closer to $100. At $100 for an OEM drive with DVD-Video decoder chips, and $200 for the DVD drive itself, the street prices for DVD-ROM drives capable of playing DVD-Video will be somewhere in the $700 to $800 range. The prices of DVD-ROM drives, according to most industry analyst estimates, should be falling dramatically in the next couple of years: the average price is estimated to be below $140 for OEMs in 1998, and below $90 for OEMs in 1999.
At the same time, the DVD-ROM market share will expand in proportion to CD-ROM's demise, according to Schlichting. In 1997, the share will be around 4 percent; in 1998, the share will rise to 14 percent; 1999 will see DVD-ROM drives occupying a full third of the market. By the turn of the century, current IDC estimates suggest that DVD-ROM drives will occupy around 65 percent of the market, with CD-ROM drives still selling, but only occupying around 35 percent market share.
Elizabeth Kims, market research manager of Business Planning and Marketing at Sony, has seen varying predictions on the transition from CD-ROM to DVD-ROM. She believes that the demand for CD-ROM will continue to be substantial--because the current installed base of CD-ROM drives will keep generating CD-ROM-based software titles--and her best guess is that the shift will start to take place in 1998 and 1999. Kims believes that there won't be a large number of manufacturers offering DVD-ROM drives to start out with, and suggests that other companies will enter the channel only when the technology and sales get off the ground.
The most significant factor in DVD's market ascent is price, according to Kims, who sees DVD's cost further increased by the obligatory expense of MPEG-2 and AC-3 add-on cards. The transition will not happen immediately, in her opinion, and she points out that not all countries will be quick to adopt the new technology. Nonetheless, Kims suggests that the change-over to DVD-ROM is a natural extension of Sony's current production capabilities. Sony plans to bundle its DVD-ROM drives with MPEG-2 cards that the company itself will produce and package with the drive. Kims says that Sony has plenty of DVD-ROM and even DVD-R drives in its labs, but that production and distribution of the drives will be determined by the market feasibility and the availability of DVD-ROM authoring systems, which at this point is largely a niche market. In the meantime, says Kims, Sony will continue to support the CD-ROM and CD-R markets.
Scott Elrich, product development and marketing manager at TEAC, believes that the CD-ROM drive market will remain strong until compelling applications for DVD-ROM are developed and nearly the same OEM pricing for DVD-ROMs as CD-ROMs become the norm. Elrich explains that the changeover is heavily predicated by price, and suggests that, as of yet, he doesn't "see a lot of interest out there for making DVD-ROM as popular as CD-ROM," and that DVD-ROM will initially be "very niche."
Elrich also sees stability in the number of CD-ROM drive manufacturers, at least until 30X speed can be reached, which will, according to Elrich, "push the technology as far as it will go." When 30X speed is reached and becomes common and even expected, a second channel will then emerge, Elrich argues, driven by the need for greater capacity. The DVD-ROM drive will then begin to go through the same transition as CD-ROM, he says, starting with a few manufacturers developing and producing drives--relying on compatibility and speed features to generate small sales--and then moving to a volume-sales commodities market. He believes that the huge installed base of CD-ROM drives and titles offers enough opportunity to keep the technology around for a while.
Plextor Corporation's cautious approach to the DVD-ROM market is not unlike TEAC's strategy. Felix Nemirovsky, Plextor's vice president of engineering, describes the DVD-ROM drive rollout as having three stages, and Plextor doesn't intend to suffer through the first--where the market is today. Present drives, he says, have relatively low access times (200ms for DVD, versus 65ms access rates for the top CD-ROM drive) and other shortfalls like CD-R media read problems, except for the drives that use a dual optical read-head mechanism. Plextor's Lowrey argues that at this stage, with the CD-R problem not well-resolved, DVD-ROM is simply not capable of replacing CD-ROM. "The first stage will take the brunt of proof and cost," Nemirovsky says, but even the second stage, where the CD-R and CD-RW compatibilities are solved, will see DVD-ROM drive OEM prices remaining relatively high.
Plextor sees its entry into the DVD-ROM market at this second stage, where its strong "options" offering can help place Plextor into the comfortable position the company has built for its high-end CD-ROM drives. One feature Plextor plans on claiming for its DVD-ROM drives--with good basis, if the frequent selection of Plextor CD-ROM units by jukebox and tower integrators is any indication--is drive reliability. A second Plextor feature is a SCSI interface that contrasts with the more common ATAPI strategy pursued by today's DVD-ROM drive makers. In the race for future positioning, Plextor is counting on its strengths in today's market, and the company must be wishing that good positioning will hold when the third stage for DVD-ROM drives arrives, marked by OEM costs that are no higher than the cost for CD-ROM, and support for DVD-ROM and DVD-RAM, and more is transparent and "supported by Microsoft," according to Nemirovsky.
John Gawa, division manager of Panasonic Multimedia Systems Division of Panasonic Industrial Company, sees a somewhat faster-paced but still gradual transition. "I think it is reasonable to say that the change from CD-ROM to DVD will take place over the next two to three years," Gawa says, explaining that the processors have to speed up so that less hardware is necessary for good DVD performance, especially with DVD-Video factored in. "Within the current installed base there is a need for some hardware assist for CCS and Dolby," says Gawa, referring to the MPEG-2 and AC-3 requirements for video playback. Over time, he continues, as computers improve, manufacturers will work on the encryption and decryption problems generated by the copyright protection requirements of the DVD-Video specification. The second major issue affecting the changeover is price, according to Gawa, who believes that in 1997 the market will still be primarily dominated by CD-ROM, and that in 1998 there will be some shift-over from CD-ROM. The full migration to DVD, he says, will not take place until after the year 2000. Despite the processing limitations and price barriers acknowledged by Gawa, however, Panasonic introduced its first DVD-ROM drive in late spring 1997.
Peter Doelling, marketing manager for Hitachi's Computer Division, believes that CD-ROM drives will remain in the channel for another two to three years before becoming displaced by DVD-ROM and DVD-RAM drives.
At this point, Mitsumi sees a clear contest between CD-ROM and DVD-ROM. According to Jim McKaffery, vice president of sales and marketing, the question is not if DVD-ROM will become pervasive, but rather when it will happen. At the moment, McKaffery argues, "there is not a compelling need for the technology." Mitsumi expects to be concentrating on DVD-ROM technology throughout the latter half of 1997, and will begin planning for DVD-R technology then. McKaffery says that the company's plans will depend largely on DVD-ROM's performance in the marketplace. Mitsumi currently has a DVD-ROM drive in development for the end of the year, but the majority of their interest will remain in CD-ROM through 1998.
Peter Doelling, marketing manager for Hitachi's Computer Division, believes that CD-ROM drives will remain in the channel for another two to three years before becoming displaced by DVD-ROM and DVD-RAM drives. The company sees continued large market shares for CD-ROM drives, and estimates that 21 million units will be sold in 1997, 16.8 million units in 1998, and 9.6 million units in 1999. Doelling believes that whether or not a corporation or small business continues to rely on CD-ROM technology depends on the applications being used. Doelling sees the company's drive division concentrating primarily on DVD-RAM technology in the next two years, not the least reason for which is that the company's DVD-RAM technology was responsible for bringing the DVD-RAM specification to finalization in April 1997.
But Philips has a more conservative forecast for DVD-ROM than most companies. Philips' Arjen Bouwman says that "in terms of CD-ROM's relation to DVD-ROM, market conditions at present don't justify dropping CD-ROM." Bouwman suggests that "most analysts aren't forecasting more than about 50,000 to 70,000 drives being sold this year--a significant volume, but not much in terms of the total possible market." According to Bouwman, DVD-ROM will be a premium drive, but the price will have to be below $200 for it to sell, because DVD-ROM still has to compete with CD-R, CD-RW, and CD-ROM. Bouwman does not see the takeover happening until 2000 or 2001, "when support from channels and from content providers is in place."
MARKET FORCES AND THE WILL TO COMPETE
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Producing a DVD-ROM drive, at this point, is an issue of posturing. If you are one of the top-name drive manufacturers, industry forces point to the necessity of offering a DVD-ROM drive to position your company and remain competitive in the marketplace, or at least in consumer mind share. Whether all the DVD efforts bear out remains a matter the market itself will decide. Although not all opinions are positive regarding the viability of DVD-Video as a consumer product, there are plenty of electronic media professionals who believe that having optical media capacity boosted five-fold will be compelling enough reason for widespread adoption of DVD technology on the computer side of the market.
OEM assemblers of CD-ROM drives who don't initially jump on the DVD-ROM bandwagon will take some time to catch up to the DVD market due to the large investment required for developing the new technology. Although many parts of the DVD-ROM drive and CD-ROM drive will be nearly identical--spindle-motor and loading mechanisms, for example--licensing costs and shifting technology and production models take enormous investments of time and money.
What remains very clear is that with the seemingly endless inbreeding surrounding component sales, module outsourcing, and all varieties of integration, small changes affecting one end of the optical drive manufacturing industry will affect the other. Technology developments and controversies--like the CAV/CLV issue or multiread--affect not only multimedia developers attempting to market titles to particular platforms and speeds, but the professional users of optical media equipment in corporations that need reliable access to stored information. |
