CC TO DVD OWNERS: DROP DEAD
The message from Circuit City's CEO Richard Sharp
by David J. Elrich
e-town.com
NEW YORK, September 10, 1997 -- Forgive us, dear readers, for stealing a 20-year-old headline from the New York Daily News. That was how the tabloid characterized President Ford's approach to the NYC fiscal crisis when Ford turned his back on a city on the brink of bankruptcy. And that seems to be the attitude of Circuit City Chairman and CEO Richard Sharp toward the 100,000 or so current DVD owners and the thousands of retailers about to ramp up for the new format, as expressed in an hour-long telephone press conference yesterday.
Although he spoke in generalities -- as do CEOs of most public companies -- Sharp said that while it was "regrettable" people might be upset about the forthcoming DIVX encryption techology, "that is the risk consumers take in the high technology world. New features come out every day. Early adopters do take some risks. We regret they're unhappy but that's true of many products. It's a risk of the market. It's regrettable but unavoidable." Sharp emphasized current DVD players are not obsolete.
Forgive us again, but this was a totally disingenuous comment. Sure, new features come along, such as 486 PCs advancing to Pentiums, but that didn't mean 486 computers couldn't run hot new programs at all -- new software ran slowly, yes, but at least you'd see something. That's not the case with a DIVX-enhanced DVD disc. For example, if Paramount decides to release Star Trek X on DIVX, it won't play on a current machine. As my favorite philosopher Stimpy the Cat said: "Joy, joy, joy."
Sharp was rather magnanimous. When asked if Circuit City would accept returns from disgusted consumers, he said stores would honor the company's return guarantee policy. He also noted Circuit City salespeople would inform people of the new technology and there would be adequate showroom signs highlighting those studios committed to the different formats. If sales slow down due to consumer confusion, hey, things happen. Once DIVX encrypted players hit the streets next summer, sales would zoom (pun intended) again.
In Sharp's view, competing retailers will have no problem giving money to an archrival via the DIVX licensing fee included in hardware costs: "They'll sell the product because they don't want customers going to another store." Software retailers will have no problem selling DIVX discs for $4.99 because of the margins (at least a quarter, we're sure). And consumers just love to rent rather than own, so they'll embrace this new model. At least that's the theory.
If we seem more sarcastic and bemused than usual, what can you expect? We've covered DVD since day one and it was really exciting -- and exasperating -- to witness the birth of a new format, enjoying the spectacle of intelligent people fighting jihads over one arcane item after another. Finally the format arrives and is embraced by home theater enthusiasts and retailers. It may not be a home run like DSS but it looks like a line-drive double. Then this giant curveball gets thrown at everyone. Way to go, guys!
E/Town will be interviewing Toshiba's Steve Nickerson today, ostensibly talking about the new $30 million marketing plan they're doing with Warner Home Video. You can be sure we'll ask him about DIVX and what it means for the format. We'll try to track down the folks at Sony too. Stay tuned.
How DIVX works
During the press conference, Sharp filled in some details about DIVX and how consumers will interact with the technology. Here goes:
Circuit City is the majority partner in Digital Video Express, LP (DIVX) and own two-thirds of the company. The law firm of Ziffren, Brittenham, Branca & Fischer owns the other third. Circuit is investing $100 million to develop the technology and for marketing campaigns.
Two test markets will be chosen next spring and a national rollout will occur late spring/early summer.
When you buy the DIVX player -- which has a $100 premium over current models -- you connect it to a phone jack and must establish an account. Sharp expects the premium to quickly drop to $50.
Consumers will buy specially encrypted discs for $4.99 which includes physical ownership. It's not necessary to return it to the store. Packaging will be jewel boxes.
You can play it for as many times as you'd like during the initial 48 hour period.
If you play it after the initial time period, you'll be automatically billed for a lesser price (to be determined). Some titles will offer one-time fees that convert the discs to unlimited usage. But you cannot take the disc over to a friend's house -- unless you want to be charged again. You'll be billed monthly.
They will not use your viewing habit information for anything other than "normal" marketing purposes like the local Blockbuster.
Select DIVX Gold discs will be strictly sell-through -- just like today's DVDs.
Disney, Paramount, Universal and DreamWorks have signed multiyear agreements to support the technology.
They've promised day-and-date DIVX releases with VHS tapes.
Thomson (RCA, ProScan), Matsushita (Panasonic, Quasar) and Zenith are current hardware licensees. DIVX DVD players are expected to be unveiled at January CES.
The DIVX encryption system requires a hardware solution -- not software.
Add-on upgrade boxes will not be available for current owners.
DIVX is talking to the PC makers about incorporating the technology into DVD-ROM drives.
Circuit City has been working on this project for three years.
DIVX encryption does not affect picture quality in any way. |
