Scott, Divx could be a huge hit for Zenith. Full text of the DJ release:
Circuit City Prepares To Introduce New DIVX Technology
By Mark Yost
RICHMOND, Va. (Dow Jones)--Circuit City Inc. (CC) thinks it has a hit
on its hands.
Walt Disney Corp. (DIS) and other Hollywood studios agree, as do some
analysts. But skeptics remain.
In April Circuit City will launch a trial of its new business, Digital Video
Express, or DIVX, in two test markets that it has not yet named. That will
mark the advent not just of a new technology, but of an entirely new
business for Circuit City.
The company has mostly concentrated on selling consumer electronics
through its retail outlets. Now, in a partnership with the entertainment law
firm Siffren, Brittenham, Branca and Fischer, Richmond, Va.-based Circuit
City is creating a new consumer electronic device.
DIVX is a close cousin of the digital versatile disc, or DVD: Both are
basically CD-ROMs that can digitally store and play movies. The similarity
is one reason for the skepticism expressed by some observers. They argue
that introducing DIVX when most consumers haven't made up their mind
about DVD will muddy the marketplace and hurt sales of both.
"I don't agree," said Kenneth M. Gassman, a retail analyst for Davenport &
Co. and a fan of both technologies. "I don't think that one system's success
means the demise of the other. I think there's room in the markeplace for
both and that today's consumer is smart enough to sort out the features of
the two and figure out which one best suits their needs."
Circuit City adds that the two systems are not incompatible.
"It's not a format war," Richard L. Sharp, Circuit City's chairman, told Dow
Jones. "Some people want to portray it as that, but it's simply not. DIVX is
merely an enhancement of DVD."
That's the theme Circuit City pushes during its DIVX presentation for
investors, electronics component manufacturers and the media. The demo
begins with a quick tour of the prototype DIVX machine, which Sharps
said will hit the marketplace in late spring. Four manufacturers are
commited to making the players: LG Electronics Co.'s (Q.LGE) Zenith
Electronics Corp. (ZE) unit, Thomson SA's (F.THM) RCA and Proscan
units, and Matsushita Electric Industrial Co.'s (MC) Panasonic division.
"Every DIVX player will have the ability to play both DVD and DIVX
discs," Sharp said. "So with that fact alone I don't see why people say
consumers will have to choose one or the other."
The DIVX players are still being tested and some of the bugs being worked
out of the system, but Circuit City CEO Sharp sees the DIVX system
working as a sort of lease-to-own arrangement.
Consumers will be able to buy DIVX discs at retail outlets such as
Wal-Mart Stores Inc. (WMT) and at video rental stores for about $4.50.
The disc will be good for unlimited play for 48 hours, Sharp said, with the
clock starting the first time the consumer puts the disc in the DIVX player.
After the initial 48 hours, consumers will have a number of options. If they
don't think they'll watch the movie again, they will be able to simply throw
the disc away or take it to a DIVX disc recycling bin. If they do want to
watch it again, they will be able renew it - another 48 hours for, say, $3.25,
or in perpetuity for perhaps $12.95. (Circuit City is still working on final
pricing, Sharp said.)
As a third option, the original disc purchaser could pass it on to a friend
who, through their DIVX player, could renew the disc for another 48 hours
or unlimited play.
That, in theory, is how DIVX will work.
One major difference between DIVX and DVD will be the price of each
disc, Sharp said. DVD discs, good for unlimited use, are priced at about
$25. Under Circuit City CEO Sharp's projections, the cost of an
unlimited-use DIVX disc will be about $17.50.
But some critics still have questions, including many that were raised in a
highly critical article in the December issue of "Popular Mechanics"
magazine. Among them: What about billing? How will DIVX keep track of
all those upgrades and of which disc belongs to whom?
Sharp's answers: Billing will be done monthly via a modem inside the DIVX
player. The player, which will store the month's charges, will automatically
call the toll-free number of the DIVX billing center and upload the
information at the end of very month. The charges will be applied to a
debit- or credit-card that the consumer presents at the time of becoming a
subscriber. The billing information upload will be made at about 3 a.m.,
Sharp said, so consumers won't have to install a dedicated phone line.
The modem can also be used to dial up DIVX and get online diagnostics
when players malfunction, Sharp said.
Keeping track of the discs will be even easier, Sharp said. Each will have its
own encrypted serial number. Every time a disc is loaded into a player, the
machine will scan that number and see if it's authorized for use in that
machine. If it isn't, a pop-up menu will automatically give the user the option
of buying time for that disc.
Sharp said the encryption code feature is especially appealing to Hollywood
studios, because it not only keeps unauthorized users from playing the disc,
but is sophisticated enough to thwart piracy as well.
That was a big issue for Hollywood when DVD first came out, Sharp said.
The technology that makes CD-ROMs possible is fairly easy to copy with
the right equipment.
Currently, there are 68 titles available on DIVX, a number expected to
climb to 100 by the time the players are launched in April and 500 by the
end of the first year. Movies from Disney and Seagram Co.'s (VO)
Universal Studios unit are aavailable in both DIVX and DVD. Viacom
Inc.'s (VIA) Paramount studios unit and Dreamworks SKG have
authorized just the DIVX format. Sharp said the latter two have gone
strictly with DIVX because of the encryption feature.
In addition to the encryption, DIVX has some other interesting options. For
one, as long as a disc stays in the player, the player will remember the point
at which it stopped playing - so users who watch half a movie and then
come back a day later can can either start again from the beginning or pick
up exactly where they left off.
The movies will be broken up into "chapters," too, so users will be able to
watch just the first three chapters of a movie in one sitting and then pick up
with chapter four. They will also be able to scroll through the chapters and
watch them in any order they wish.
DIVX films can also be viewed in multiple languages and multiple subtitles
and from camera angles other than the primary one chosen by the director.
"Directors always shoot scenes from a number of angles," Sharp said. "With
DIVX, we're allowing them to include those other camera angles. That's
something that's completely up to the director."
Circuit City CEO Sharp said that the most common rental options and
features available today are just the beginning.
"This is a technology that, like a lot of new technologies, has incredible
growth potential," he said.
He said that in addition to point-of-purchase sales, Circuit City plans to mail
a flyer to subscribers every month featuring new titles and "specials" that
may be offered by the studios.
"Let's say the studio releases a movie on DIVX and it's not doing that well,"
Sharp said. "Instead of $12.95 for unlimited use, maybe they'll offer a
special of $9.95."
He added that DIVX discs can hold more than one movie. Sharp thinks the
studios will eventually offer multiple movies on one disc, such as the Indiana
Jones or Star Wars series, or one disc that pairs a lower-grossing film with
a box office hit.
Sharp makes a case for DIVX both as a concept and as a boon for Circuit
City's bottom line. DIVX machines will retail for about $500, Sharp said.
That's about $100 more than standard DVD machines, but he thinks
consumers will conclude that the extra features make it worth the money.
And for those that don't, Circuit City stores will continue to sell standard
DVD machines as well.
So far, Circuit City has invested about $130 million in DIVX and maintains
a two-thirds ownership in the venture. Primary revenue will come from the
service fees DIVX will get from the studios, Sharp said. And, of course, the
company will earn royalties from the sale of DIVX players and discs.
Sharp declined to make any specific revenue projections. But he noted that
there were roughly four billion video rental transactions in the United States
in 1997. DIVX is shooting for a goal of 100 million transactions within a
year or two.
But at least one industry analyst, who asked not be named, sees doom for
both DIVX and DVD, and for video cassettes as well: In the not-to-distant
future, he said, most televisions will have modems to connect to the World
Wide Web. Instead of renting movies in any form, he said, consumers will
merely select the movie they want to watch, when they want to watch it,
from a huge database.
Sharp agrees that that's the way consumers will watch movies at home -
someday. But he thinks it won't happen nearly as soon as the analyst does.
According to Sharp, on-line services and others are just starting to realize
the huge costs associated with the infrastructure and memory required to
store digital movies and other video for home viewing.
"That's at least 10 years off," he said.
But interestingly, Circuit City has planned for just such a development.
Sharp said the company has already researched the possibility of putting a
Web browser inside the DIVX machine. The cost and technology, he said,
both make it "doable."
-Mark Yost; 804/698-7385 |
