DVD the conquering hero...
DESPITE CONTROVERSY, CES HAILS DVD AS INDUSTRY SUCCESS STORY
01/18/99
DVD Report
(c) 1999 Phillips Business Information, Inc.
DVD was hailed as the conquering hero at the Consumer Electronics Show held in Las Vegas earlier this month, with just about everybody in attendance citing the format as a sterling example of how a new product can become a roaring success - as long as the industry cooperates on standards and marketing initiatives. The message seemed to be that, if the consumer electronics industry can make a hit out of DVD, high-definition television should follow in its path.
In truth, it still seemed a little ironic that DVD would be used as an exemplar for the burgeoning HDTV industry, considering that CES was a showcase for a whole slew of new DVD products, many of them not quite compatible with one another. Prototypes of digital video recorders were demonstrated by different manufacturers in several flavors - DVD-RW (Pioneer), DVD-RAM (Panasonic and Hitachi), and DVD+RW (Philips). Demos of progressive-scan DVD players only underscored the need for copy-protection standards, since a similar model from Toshiba was shelved last year. And the high-definition DVD player demonstrated by Thomson, using Divx's proprietary content- protection scheme, threatened to rekindle the long-simmering feud between Divx and open DVD advocates.
Warner's Lieberfarb Blasts 'Passive' DVD Strategy
As usual, Warner Home Video honcho Warren Lieberfarb led the charge to declare DVD a profit center for the industry, trumpeting gross title sales of more than $170 million "in fully incremental revenues" for the entire year at a cocktail reception sponsored by the DVD Video Group. DVD accounted for 17% of Warner's sell-through revenues in 1998, according to Lieberfarb. "In the next year, Wall Street will look at movie companies and judge those that are doing this with day-and-date availability, feature-laden discs, rental programs, and other strategies in a different way than they will look at those companies with passive strategies," he said, and proceeded to blast 20th Century Fox Home Entertainment for its lack of day-and-date releases, and Disney for not releasing its animated features. "I don't want to talk about pricing," sighed Lieberfarb, known for holding the line at $24.95 (or less) for all Warner DVD releases.
Lieberfarb offered evidence that Warner's strategy is working, noting that the value-priced U.S. Marshals ($19.95) has outsold heavy- hitters like Contact and Conspiracy Theory. Also, he noted that catalog titles have been a veritable gold mine on DVD, performing comparably to new releases in terms of unit sales. Lieberfarb also noted that one recent blockbuster, Lethal Weapon 4, sold 250,000 copies in the U.S. and another 50,000 in Canada.
Pundits See Near-Term Impact On VHS
While Lieberfarb insisted that DVD has not cannibalized the rental business, other speakers at the party suggested that VHS may have reached the end of a long period of growth. On the day after Christmas, according to Best Buy senior vice president Michael London, the chain sold $1.2 million worth of DVD software - the first day that Best Buy's DVD sales exceeded those of VHS movies.
At a panel discussion earlier in the day, Tower Video's John Thrasher said early sales data from his stores seemed to justify fears that VHS may be teetering just before a fall from grace. "The indications are that there is going to be fairly severe cannibalization of VHS in the very near term," Thrasher said, noting that many widescreen VHS consumers have already switched allegiance to DVD. "This first year has been great, where we are phasing out laserdiscs, we've got a very strong VHS market, and we have this exploding DVD market. So for our very near future, hey, you gotta wear shades, it's so bright. But you have to look two years down the road. The VHS market will be severely impacted. I think what you'll see is price erosion on VHS, where the standard will be $9.95. DVD offers a great value for both the studios and the retailers to protect that price point and stay in business."
Microsoft: 1.6 Mil. ROM Drives In December
On the ROM side, Microsoft's Chris Phillips, director of business development, was also at the DVD Video Group reception, stumping for DVD-ROM. Phillips said that between six and eight million DVD-ROM drives were sold on PCs this year, estimating that the attach rate in December was about 1.6 million drives - close to 10 times the sales volume of set - top DVD-Video players. By Christmas of 1999, Phillips predicted, 80 percent of new consumer PCs will be equipped with a DVD-ROM drive, and the installed base will reach 30 million. Once the installed base hits 20 million, Phillips said, software developers will finally adopt DVD-ROM as a viable platform.
1998 Selected Title Sales
Units Shipped Sales
Initial Total (Millions)
Conspiracy Theory 23,000 111,000 $1.8
Contact 29,000 226,000 $3.6
L.A. Confidential 83,000 232,000 $3.6
U.S. Marshals 86,000 309,000 $3.7
Source: Warren Lieberfarb, Warner Home Video
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