DVD leads race for movie discs, for now
N.Y. Times - Posted at 5:00 p.m. PDT Sunday, July 5, 1998
WASHINGTON -- The companies backing DVD, the CD-size digital
disc that contains a feature-length movie, are boasting a lot these days,
telling anyone who will listen that their product is selling faster than
either compact-disc players or VCRs did at the corresponding points
after they were introduced.
By late June, a little more than a year after the introduction of DVDs,
manufacturers had sold nearly 600,000 DVD players. By comparison,
in March 1985, 16 months after the compact disc was introduced, only
320,000 players had been sold. For VCRs in September 1979, the
number was 515,000.
As pleased as equipment makers and Hollywood studio executives are,
some acknowledge that in some ways the achievement is hollow
because DVD is in a race for its survival, sprinting to gain a significant
foothold in American homes ahead of two headstrong rivals. The odds
of success are uncertain at best.
One of the competitors is Divx, an upstart hybrid DVD format that
went on sale last month in two test markets, Richmond, Va., and San
Francisco. A full-scale national introduction is scheduled for
September.
But the other more important adversary is digital cable television, which
is expected to make picture-perfect, digital, pay-per-view movies a
ubiquitous feature in American homes within a few years, said Warren
Lieberfarb, president of Warner Home Video, the largest distributor of
DVDs.
''This is kind of a horse race, not just against Divx, but against AT&T
and TCI, against Comcast cable -- and the whole migration to digital
pay per view,'' he said.
Last month, AT&T Corp. agreed to buy Tele-Communications Inc., the
United States' second-largest cable company, for $31.8 billion. One
goal of the merged company is to bring pay-per-view movies on
demand to millions of homes. Comcast Corp. and other cable
companies have similar plans, as do some broadcasters, after digital
broadcasting begins in the fall.
Liebfarb fears that movies on demand will short-circuit the sale of
movies on discs. Why buy a DVD when you can dial up the same
movie on your television set whenever you want? The medium will fail,
he says, unless DVD is already an entrenched part of family life, as
VCRs are.
''I think we have three years,'' he said. ''Three years from now we
need to be in 10 million homes.''
That is a tall order, given that the industry has sold only 578,604 DVD
players in the last 15 months, according to the Consumer Electronics
Manufacturers Association. Initial industry projections were that
800,000 DVD players would sell in the first year.
DVD originally stood for digital videodisc. But that name was
abandoned when the designers realized that the discs could be used for
computer files and audio recordings, too, offering seven times the
storage capacity of CD-ROMs and CDs.
Now the format is simply known as DVD. Though DVDs offer
high-resolution pictures and digital surround-sound, the format faces its
own daunting challenge: most Americans still know nothing about it.
A study commissioned by the Video Software Dealers Association,
which backs the format, found that 62 percent of those surveyed in
May had never heard of DVD. The study did find some improvement;
in a similar survey a year ago, the number was 81 percent. In the latest
survey, Yankelovich Partners interviewed 1,938 people, all of whom
were at least 18 and owned a VCR.
''Generally I think it shows that we are seeing an uptick in consumer
awareness,'' said Jeffrey Eves, association president.
But Eves, Lieberfarb and many others worry that Divx (pronounced
DIV-ix) may stand in the way of further progress.
Divx, a technology backed by the Circuit City chain of electronics
stores and a Los Angeles law firm, originally stood for digital video
express. But like DVD, the acronym has become the name.
Divx discs are DVDs with coding that allows them to be played only
once and only in special players. Zenith Corp. is making the first player,
which accommodates both Divx discs and regular DVDs and sells for
$499 -- a little more than the lowest-priced DVD players.
Each Divx disc costs $4.49, compared with about $25 for a DVD. But
if a viewer plays the Divx disc after an initial two-day viewing period,
the owner will be charged about $3. The accounting is done by the
Divx central computer, which is connected to the Divx player by a
phone line.
When Circuit City announced the Divx concept last fall, it was greeted
with howls of vitriol from DVD supporters who complained that the
new format would confuse consumers and threaten the success of
DVD. Lieberfarb was among the most vocal critics.
The complaints were so loud that some in the industry predicted that
Divx would never get off the ground -- especially because Warner
Bros. and a few other studios, including Columbia Tri-Star, have
refused to issue movies in the Divx format, fearing it would undermine
the success of DVD.
But on June 7, Divx discs and players went on sale in 45 Circuit City
and Good Guys stores in Richmond and San Francisco. Circuit City also
began advertising Divx on television and in newspapers in both places.
Warner Home Video countered with a program to encourage video
stores in those two cities and three others to rent DVDs and DVD
players. The Yankelovich survey showed that most people wanted to
be able to rent DVDs just as they do videotapes. But video dealers
have been slow to stock the discs because few people own DVD
players.
Both the Divx and Warner sales programs are so new that neither
company is ready to release results, though Richard Sharp, chief
executive of Circuit City Stores Inc., dismissively said: ''We've been in
some of their stores, and they are offering only about 40 titles'' for rent.
But Sharp is able to do little better. As of Wednesday, only 45 movies
were available in the Divx format. Sharp predicts the total will be 400
by the end of the year. By comparison, 1,400 movies were available on
DVD on July 1; 180 of those were issued in June alone.
When Divx players go on sale nationally this fall, Circuit City plans to
begin a $100 million advertising campaign. Warner, meanwhile, says it
will offer its DVD rental program nationally in the fall as well, though
Lieberfarb said Warner and allied companies would spend considerably
less than $100 million.
He thinks Divx, like DVD, must gain a foothold before pay-per-view
services proliferate. Sharp agrees but says he has five years before
that happens.
Sharp predicts that Divx will succeed because the concept offers
several advantages that his research indicates consumers appreciate.
Chief among them is that for about the cost of renting a videotape, a
Divx buyer can take a disc home and keep it, eliminating return trips to
the video store and late fees.
But those two attributes have turned out to be liabilities as well. The
nation's video-rental dealers hate Divx. ''It undermines the entire
business'' by reducing traffic in the stores, Eves said.
As a result, no video store has agreed to sell Divx discs. They can be
bought only at at Circuit City and Good Guys stores and the Divx site
on the Internet at www.divx.com.
''We're facing a kind of chicken-and-egg problem,'' Sharp said. ''In
time, I think the power of the Divx format will overpower this.''
o~~~ O |
