General DVD Info...
'Disposable' Video Disk Could
Undercut Nascent DVD Market
By BRUCE ORWALL
Staff Reporter of THE WALL STREET JOURNAL
A company backed by Circuit City Stores Inc. and a Los Angeles
entertainment-law firm unveiled plans Monday to produce a competing
version of the new digital videodisk that can be disposed of or reused, threatening to undercut the still young market for DVDs.
Digital videodisks, the new generation of home movie-playing technology that is expected to one day replace video cassette recorders, have only been available to consumers for less than a year. The new DVDs, to be called Divx, not only threaten to compete with the existing format, but the new technology is also perceived as a threat to the nation's specialty video retailers.
A partnership called Digital Video Express, backed by Richmond, Va.,
electronics retailer Circuit City and the law firm of Ziffren, Brittenham, Branca & Fischer, unveiled plans for the new variation Monday. While existing DVDs are aimed at consumers who want to buy and keep movies and the technology is touted as the successor to VCRs, the Divx system looks to capture those who might want just a single viewing, like those who now rent video cassettes.
It allows viewers to pay a rental-like price of under $5 for a disk that doesn't need to be returned to any stores. That's because the movie stored on it will be locked and unavailable 48 hours after it is first played.
If consumers don't want to see the movie again, they could simply throw the disk away. If they want another viewing, they would save the disk and, at any time in the future, complete an electronic transaction via modem to pay for it. Or, if a consumer wants to own the movie permanently, a one-time fee would be paid for unlimited viewing. That fee is likely to be under $20. The first Divx players and accompanying software will begin appearing in some areas next spring.
Four Hollywood studios -- Walt Disney Co., DreamWorks SKG, Viacom
Inc.'s Paramount Pictures and Seagram Co.'s Universal Pictures -- have all agreed to provide titles for Divx release. Divx players will be manufactured initially by Zenith Electronics Corp., Matsushita Electric Industrial Co. and France's Thomson SA. All of those companies also manufacture standard DVD players.
The new system is a challenge to DVD systems and accompanying
hardware that have come on the market in recent months. A number of
Hollywood studios, led by Time Warner Inc.'s Warner Bros., are already
issuing titles in the compact-disk-like format. The existing DVDs are aimed mostly at the so-called sell-through market, in which consumers buy a disk that contains permanently stored information. The hope is that movie lovers will rent less, instead building movie collections the way music buyers do.
Richard Sharp, the Circuit City chairman and chief executive who also holds those titles at Digital Video Express, said Divx is intended to be complementary to existing DVD systems. "We think this product ought to be put into the market to let the consumer decide what they want," he said. A Divx player is expected to cost about $100 more than a standard DVD player. Mr. Sharp stressed that Circuit City will not promote sales of Divx players in its stores at the expense of standard DVD players. Circuit City holds about two-thirds of the equity in Digital Video Express, and said it will have invested about $100 million in Divx between last June 1 and the end of next May. The companies that have developed DVD to date, such as Time Warner, are not expected to greet the new entrant warmly, however. Existing DVD machines will not be able to play Divx disks, although Divx players will be able to play standard DVDs.
"This has a potentially injurious effect by creating consumer confusion, and could result in a slower take off for the [DVD] product," said Warren Lieberfarb, president of the Warner Home Video unit of Time Warner and one of standard DVD's biggest proponents.
Jeffrey Eves, president of the Video Software Dealers Association,
attacked the Divx format, saying it offers nothing that isn't available to consumers through standard DVD or video cassettes. He added that it isn't attractive to video retailers. With no need for consumers to return the disk, the Divx product could be stocked by any retailer, not just specialty video stores like Viacom's Blockbuster stores.
"It would seem on its face to be designed to eliminate the need for 30,000 specialty stores throughout the country," Mr. Eves said. Yet Viacom's Paramount is one of the studios that has agreed to provide movies on Divx, even though it has not yet agreed to issue titles on standard DVD.
In a statement, Paramount said that Divx technology addresses its concerns about piracy. The company also said Divx presents a good retail opportunity for video stores, but it would not comment on the concerns of other video retailers. Blockbuster officials could not be reached for comment.
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