Barron's Article.....
September 17, 1997
So Far, DVD Is a Dud -- But Its Future May Lie Elsewhere
By John C. Dvorak
We're already past the first year of sales of DVD -- digital versatile
disk players -- and there is no evidence that this product will be a
consumer success.
Companies such as Toshiba, Hitachi and Panasonic seem to have made the
biggest commitments thus far, and Toshiba is expected to drop another
$30 million into advertising in the months ahead.
The problem with DVD is obvious: It doesn't record. And when models are developed that do record, they'll be too expensive, as will the media onto which the recordings will be made. The public will simply not spend $400-$1,000 for a DVD machine when today's Stereo Hi-Fi VCRs sell for $250-$300. Similarly, a blank VHS tape costs $2-3. A blank DVD disk, when available will cost about $20. A blank tape can hold up to 6 or 8 hours (or more) of programming, while the blank DVD will accommodate only 132 minutes or so. The numbers don't add up: People won't pay ten times as much to record a third the amount of program time. Also, with a DVD recorder, you won't be able to copy movies due to tight copy protection, which simply won't allow a digital copy to be made. With VHS, on the other hand, most copy protection schemes can by bypassed.
When it comes down to it, the DVD player sold today -- which doesn't
record -- is really only an upgrade to the barely successful laser disc player, a device bought only by connoisseurs of high-quality video and by collectors of discs. So far this year, laser disk player sales have declined by 66 percent, according to the Consumer Electronics Manufacturers Association. VCR sales are up by 15 percent, with over ten million sold so far this year, compared to less than 200,000 DVD devices. Clearly DVD is not achieving critical mass.
Another potential DVD killer is the never-ending changes that the format is experiencing. Recently the adoption of a Divx (Digital Video Express) circuit by many major manufacturers has been announced. This circuit, which allows monitoring special disks that can be sold cheaply and played for only 48 hours before virtually self- destructing, is designed to revolutionize the video rental business by eliminating the need to return a tape to the video store. The circuit will be incorporated into 1998 DVD systems, effectively making all of today's DVD players obsolete.
Then there is the problem with the control freaks in Hollywood mucking
with what should be a straightforward technology. The various movies
sold into the DVD market will be "country-locked" to prevent someone in France from buying a U.S. DVD disc of a movie that might be on DVD here before it has been released in the theaters in Paris.
To make matters worse, the sound encoding on the U.S. disks is different from what will be used in Europe. We'll get Dolby sound and the Europeans will get MPEG-2 sound. In a global economy, I won't be able to go to a video store in Tokyo or Berlin and buy a DVD disc for my machine in New York. That's beyond ridiculous.
Then there is the content side of the equation. 20th Century-Fox won't
even commit to this format. Time-Warner announced a delay in Australia. This is blamed by the industry on "overwhelming demand." Economics professors take note: when there is huge demand, don't ship anything! In the same press announcement, it was noted that a Time-Warner launch of just six titles in Japan was a flop and the company feared a similar problem in Australia, so it will roll out 200 titles -- next year.
None of this deters the research companies from predicting the long-term success of this format. But there is no market evidence that many people care enough about picture quality to fork over the extra money for DVD. If they did, the old Beta format would have been more successful, as would S-VHS and laser discs. Overlooked in all this is the soon-to-be introduced D-VHS, the digital VHS tape deck. How will that affect DVD? Who knows? The emergence of digital, high-definition television -- which appears to be having problems of its own -- muddies the waters still more.
DVD does have a chance for long-term success in the traditional
consumer-electronics market, but through a "stealth" strategy -- as an
audio device that replaces the CD player and can also be used for
movies. (This assumes, of course, that people have their CD player in
the same room with their TV.)
There is one bright spot, though. Where DVD will shine is in the next
generation of personal computers. Computers need the 4.7-gigabyte
capacity of these discs.
It's expected that with annual sales of around 20 million machines a
year by the end of 1998, all new PCs will be equipped with a DVD reader replacing the current CD-ROM reader. (Incidentally, that DVD reader is "backward compatible" with the CD-ROM reader.).
The personal computer will also adopt and utilize the recordable DVD
called the DVD-RAM. Paying $20 for a blank disk that can hold over 4
gigabytes of data is cheap for this market. With the PC the economics of the DVD change drastically. This is where DVD will be successful, not connected to a TV.
[John C. Dvorak adds: For a comprehensive list of DVD-related Web links, go to the DVD page at unik.no. One of the best pages I've encountered which criticizes some aspects of DVD is at web.ukonline.co.uk. Also, check out e-town.com , written by a disgruntled Laser Disc reseller who sees parallels between laser disks and DVD. Finally, anti-Divx Web sites have cropped up all over the nternet in an effort to stop this circuit from being added. One such site is dvdresource.com.]
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