Divx........................
vsda.org
Special Report
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DIVX (ZOOM TV) COMES OUT OF THE CLOSET
Circuit City Unveils Plans For New Video System
After months of whispers, rumors and speculation, the ZOOM TV cat is out of the bag. In a press release issued last week, retailing giant Circuit City Stores, Inc. spoke openly about its plans for "Divx" -- the new name for ZOOM TV.
Circuit City also increased its investment in the system, committing an additional $100 million to Digital Video Express, LP, the partnership that developed "Divx." Circuit City is Divx's majority partner with roughly two-thirds of the equity. The remaining equity is held by prominent L.A. entertainment law firm Ziffren, Brittenham, Branca & Fischer.
Many retailers first heard about Divx during VSDA's annual Convention last July in Las Vegas. During his yearly "State of the Association" address, VSDA President Jeffrey P. Eves described Divx as "a first cousin to the DVD, but with a very different impact on video retailers. It is what could be described as a home video combination of Pay-Per-View and revenue sharing, disguised as a disposable DVD."
Here's how it works: A consumer buys a Zoom TV disc for about $5, takes it home and inserts it into a modified DVD player which is also connected to a telephone. After watching the movie once, the consumer can either choose to view it again for a lower transaction fee or convert it to a permanent sell-through product using the phone connection on the player. The disc is not returned to the store where it was purchased.
Consumer electronics manufacturers supporting the Divx system include Zenith Electronics Corporation, which expects to introduce the first Divx players to consumers in a limited launch next spring. Thomson Consumer Electronics (RCA and Proscan brands), and Matsushita Electric (Panasonic) plan to ship players by next summer.
The home video divisions of Disney, Paramount, Universal and DreamWorks SKG have signed multi-year agreements to provide all new titles and almost a thousand catalog titles for release on Divx discs on the same date as VHS tapes. Product launch is scheduled for early next year.
However, other major studios such as Warner Brothers, Sony (Columbia TriStar), MGM, Twentieth Century Fox and New Line have thus far withheld support, and concerns are being voiced as to the impact a second DVD system will have on consumers.
"The potential for consumer confusion is quite serious," says Warren Lieberfarb, president of Warner Home Video, who added that the Divx system is "already obsolete before it's introduced" when compared with cable and satellite pay-per-view services. Lieberfarb also predicts a "a backlash from the video rental stores" against studios supporting Divx.
VSDA President Eves voiced similar concerns in interviews last week with major news media including The Wall Street Journal, CBS Radio, CNN and The Los Angeles Times.
"For retailers, the economic model for the product seems inadequate when compared with the typical profit margin on rentals and sales of videos on tape and DVD," Eves wrote in an advisory letter to VSDA's Board of Directors. Eves cited the products' initial economic plan that would give retailers a slim margin of profit on initial Divx sales, "and there is no potential for retailers to participate in revenue from subsequent transactions or viewings of the disc," Eves added.
Eves characterized the one-way rental system as "a design to make video rental stores obsolete. In addition, the product might actually have a negative impact on the home video industry by confusing consumers and igniting a new format war just when DVD appears to be enjoying a successful launch," Eves said.
Despite retailers' small profit margins, consumer costs for Divx would actually rise significantly. While videos typically rent for about $2.75 on average, the cost of a two-day viewing period for Divx products is estimated at $5.
In addition, Divx players, which must include a modem and special encoding technology, will reportedly cost at least $100 more than regular DVD players, which currently start at about $500.
"We certainly understand any studio's desire to explore potential new revenue sources," Eves said, "but we have to question if this venture would be good for video retailers or, indeed, the industry as a whole."
Following last week's announcement, Eves met with Circuit City Chairman and CEO Richard Sharp at VSDA's Los Angeles offices. During that meeting, Eves told Sharp that he thought VSDA members would have little enthusiasm Divx and expressed his concerns about the possibility of starting a new format war.
The meeting was polite and courteous, with both parties agreeing afterward to keep the lines of communication open.
As always, we'll keep you posted as to further developments. |
