WSJ Article on DVD advances in the marketplace.
WSJ September 8, 1998
Tech Center
DVDs Are Finally Coming of Age
(But Don't Junk the VCR Just Yet)
By BRUCE ORWALL
Staff Reporter of THE WALL STREET JOURNAL
Digital videodisks, the long-heralded "next-generation" technology for watching
movies at home, are coming of age.
The size of audio compact disks, DVDs are touted by many as superior to
videocassettes and videocassette recorders. But DVD virtues -- most notably,
a sharper picture -- were initially clouded by technological and political
hurdles, including the reluctance of movie studios and video retailers to in any
way injure the videocassette cash cow.
Now, a year after the disks' national rollout, studios, retailers and video dealers
are warming to DVD. The reason: Just as the videocassette market is showing
signs of maturity, DVD is growing more quickly than expected.
And after making a strong showing with "early adopters" -- the hard-core
movie and technology buffs who are always eager to try something new --
there are signs that DVD is making inroads with mainstream consumers.
Michael Johnson, president of Walt Disney Co.'s powerful home-video unit,
thinks DVD is more than just another new niche product. And Warren
Lieberfarb, president of Time Warner Inc.'s Warner Home Video, says, "The
vital signs are strong."
Time Warner helped develop the DVD technology, and its Warner Bros. unit
has been the format's strongest backer.
Blockbuster Announcement
One significant step for DVD is scheduled for Tuesday, when Viacom Inc.'s
Blockbuster unit plans to announce the national rollout of a new program to
rent movies in the DVD format, for the same price as renting a videocassette.
Blockbuster will also begin renting DVD players provided by Philips
Electronics NV, giving consumers a chance to try out the machines for five
nights at a cost of about $14.99. Blockbuster says the program will be
introduced in about 500 of its 3,400 stores.
Jim Notarnicola, Blockbuster's chief marketing officer, says the chain hopes to
be a catalyst in moving the DVD format into the mainstream. The ability to rent
DVDs is seen as critical to gaining widespread acceptance; to date, most
people have seen DVD as a movie format that consumers buy, rather than
rent.
Notwithstanding its DVD enthusiasm, Blockbuster isn't eager to hasten the
demise of the stalwart VCR. Nor will that happen anytime soon. For all the
attractions of DVD -- including a feature letting viewers jump to any point in a
movie with the click of a button -- DVD players can't record TV programs,
and models that can record are still several years away.
DVD made its debut in seven test markets in March 1997 before going
national. In all, about 500,000 DVD players have been sold to consumers in
the U.S. so far, and DVD backers expect that to rise to nearly 800,000 by the
end of the year. Shipments to retailers should top one million by the end of
1998. Both figures compare favorably with the earliest years of compact-disk
players and VCRs.
Sparking the growth has been a drop in the price of DVD players and wider
availability. Hardware prices have now dropped as low as $299. Meanwhile,
mass-market discount retailers like Dayton Hudson Corp.'s Target stores,
Kmart Corp. and Wal-Mart Stores Inc. are expanding their DVD hardware
offerings this fall, giving rise to hopes of a strong Christmas season.
Steve Birke, vice president and general merchandise manager for Target, says
that chain began carrying DVD in all 800 of its stores on July 1. "I don't think
it's a short-term fad, I think it's a long-term trend," he says. He is expecting a
strong holiday season for DVD but adds that "it's got to hit that magical $199
price point" to truly catch on.
Holdouts Relent
Also contributing to the momentum: All the major studios except start-up
DreamWorks SKG have finally agreed to issue movies on DVD -- and
DreamWorks is expected to announce its DVD imminently. The last two major
holdouts, Viacom's Paramount Pictures and News Corp.'s Twentieth Century
Fox, both agreed to participate in DVD this summer.
Altogether, about 2,000 movie titles will be available by the end of the year, up
from about 1,750 now. They can typically be bought for about $19.99 per
title; some are already priced at $14.99, though, and many may drop to
$10.99 in the not-too-distant future.Best Buy Co, which sells both hardware
and software, sells a robust 30 software titles for each hardware unit, says Joe
Pagano, vice president of merchandising for movies and music.
There are still stumbling blocks in Hollywood for DVD. Not all studios are
releasing films on DVD simultaneously with their release on videocassette.
Paramount Pictures sent box-office king "Titanic" sailing into the home-video
market last week without a DVD offering, and so far there are no plans for
one.
At Twentieth Century Fox, Patricia Wyatt, consumer-products president, says
that studio announced its entry into DVD last month because the format
appeared to be reaching a "critical mass." But Fox is being very cautious, not
wanting to drain business from videocassettes. "I think we need to look
carefully at the dynamic between the two formats," Ms. Wyatt says.
Many of the movies that aren't yet available on DVD are exactly the titles that
people build movie collections around. Steven Spielberg, director and
producer of some of the biggest movies ever made, has blocked the release of
most of his films on DVD. A spokesman for Mr. Spielberg says he is waiting
for the market to mature.
Disney plans to show its faith in the DVD format later this year when it hopes
to release its summer hit "Armageddon" on DVD and videocassette
simultaneously. Disney will also offer a DVD version of "Beauty and the Beast:
The Enchanted Christmas," a made-for-video sequel to the original animated
hit. But Disney's Mr. Johnson says the company's animated classics won't be
released on DVD until the format achieves broader market penetration.
Wild Card
A remaining wild card is Digital Video Express, or Divx, a videodisk format
developed by electronics retailer Circuit City Stores Inc. and a Los Angeles
law firm.
The Divx system, like DVD, comprises a player and disks. But under the Divx
system, a customer wanting to see a movie pays $4.49 for an encrypted disk
that can be played for 48 hours beginning with the first use; after that period,
encryption resumes. If the viewer chooses, the disk can be recharged
permanently, via modem, for an additional charge.
While Divx's encrypted disks can't be played on a DVD player, DVD disks
can be used with a Divx player. Divx's national rollout is a month away, but
there are signs that its start will be rocky. For one thing, the Divx partnership is
late in raising $100 million in financing for the next year of development and
operations. For another, industry insiders are saying that results in two test
markets -- San Francisco and Richmond, Va. -- aren't encouraging.
Nevertheless, a Digital Video Express spokesman says the company is
convinced its product will be a successful complement to DVD. He declines to
discuss specifics concerning the test markets but says the company is pleased
with the results. |
