DVD Takes a Big Step in Competition With VHS
nytimes.com
January 7, 2000
A Digital Step in Making the VCR Obsolete
By TERRY PRISTIN
ike many movie lovers, Victor Rosa has run through most of the titles
available at the local video store.
But not long ago, Mr. Rosa, the assistant
manager of a fast-food chain restaurant in
midtown Manhattan, found himself at a
Blockbuster outlet near Times Square renting
"Enemy of the State," a 1998 thriller he had
watched on his VCR before. Now, thanks to a
Christmas gift from his wife, he was eager to see
the movie again.
"I want to check it out on DVD," said Mr. Rosa,
who has amassed a personal library of more than 200 videotapes at his
home in Brooklyn.
About 3.9 million digital videodisc players, many now priced under $300,
were sold last year, vastly exceeding industry projections. The surge in
sales suggests that the new technology is not only catching on where other
consumer electronics innovations like laser discs did not but that it is also
on track to overtake videotape in a few years as the home entertainment
format of choice.
Until, that is, it is supplanted by "video on demand" -- the opportunity to
retrieve any movie via cable, satellite or, ultimately, the Internet -- which is
still some years off.
Analysts and retailers say the growing popularity of DVD's -- which
resemble compact discs that play music but are also capable of storing
enough additional digital information to provide moving images as well -- is
also expected to reinvigorate the video retail business by giving customers
like Mr. Rosa a new reason to visit the video store. "It's making people
interested in video again as a medium of entertainment," said Michael
Becker, the owner of the two Video Room stores in Manhattan.
But video retailers reported mixed success yesterday. The Hollywood
Entertainment Corporation, the second-largest video store chain, said its
same-store overall sales were stronger than expected for the fourth
quarter, rising 4 percent, but Blockbuster's same-store sales rose 3 percent
in the fourth quarter, less than the 5 percent to 6 percent growth expected
by some analysts.
For now, DVD's are simply an added feature at video stores. But they are
quickly grabbing more and more shelf space. "It's an enhancement to our
business," said Dean Wilson, the chief merchandising officer of
Blockbuster, the nation's largest video chain. Blockbuster, a unit of
Viacom Inc., began stocking some stores with DVD's when the
technology was introduced two years ago. It now carries them in more
than 90 percent of its 4,500 owned and franchised outlets.
Tom Adams, president of
Adams Media Research, an
entertainment media research
and consulting group in
Carmel, Calif., said he
expected video store
revenues, including both tapes
and discs, to increase to $12.7
billion in 2002 from $8.7
billion in 1998.
"For what seemed to be a
quickly maturing marketplace
two years ago, that's a pretty
good growth rate," Mr.
Adams said.
Hollywood, which resisted
competition from new
technology in the past, was
slow to anticipate the
explosive sales of DVD players. But after some initial skepticism the
movie industry has welcomed DVD's, particularly as a lucrative new
revenue stream from old titles. Studios are busily issuing "collectibles,"
including boxed sets of James Bond films, the "Die Hard" trilogy and the
"Alien" films.
The reach of the technology now extends beyond the community of "early
adopters," who can be counted on to try out any promising new gadget.
These days, DVD technology is being embraced by ordinary consumers
because of rapidly sinking prices for the players (as low as $170 for an
off-brand model at Circuit City); a wider selection of movie titles, which
now reaches 4,500 compared with just 1,800 a year ago; and a growing
awareness that the sound and visual quality it offers is far superior to
videotape.
Isador Monsanto, a security guard from Jamaica, Queens, has been
hooked on DVD's since he bought his player in 1998. "When I used to
watch a tape," he said at a store where he was renting "Rush Hour" and
"Flubber," "I didn't realize how grainy the image was until I saw the same
movie on DVD."
The growing number of DVD drives in personal computers is also
increasing the appetite for the new format. The number is expected to
reach 33 million by this time next year, up from about 12 million late last
year, according to the Video Software Dealers Association, a trade group.
The computer drives are used not just to load software programs but also
to play music and show movies on computer screens.
Some consumers have gravitated to DVD because of certain special
features not available on VHS. Roberto Eliaschev, an advertising executive
who splits his time between Caracas, Venezuela, and New York, said he
preferred DVD because he could watch movies with Spanish subtitles.
Jesse Driskill, a computer technician in Olympia, Wash., likes not having to
rewind the tape. "No matter how careful you are," he said, "the tape gets
old and starts getting scratchy."
For Lisa MacKenzie, a public relations executive in Portland, Ore., the
selling point is the search feature that eliminates the need to rewind to find
a particular scene. "I also like the addition of movie trailers, music videos
and other fun stuff that makes the movie experience at home more like
going to the movie theater," Ms. MacKenzie said.
As DVD players are
becoming the latest
must-have item, many people
have also been upgrading
their video hardware to use
their new equipment to best
advantage. In November,
sales of color televisions and
projection televisions rose 8.4
percent and 10.9 percent,
respectively, over the same
month last year, according to
the Consumer Electronics
Association. And despite the
explosion of interest in DVD
players, sales of VCR's and
television and VCR
combinations continue to advance. The association said sales of VCR's
were up 18 percent year over year, while sales of combination units
jumped even more, by nearly 40 percent. The Best Buy Company, the
No. 1 consumer-electronics retailer, said yesterday that its fiscal
fourth-quarter profit would beat forecasts after strong demand for digital
devices and other items pushed December sales above expectations. And
Tandy, owner of the RadioShack electronics chain, said its overall
December sales were lower but it expected to meet profit forecasts.
Analysts say most people will hold onto at least one VCR until they are
able to buy DVD players that are capable of recording -- a development
that may be a few years away because of concerns about copyright
protection. But the versatility of the DVD player, which also plays CD's,
makes it possible to eliminate the need for a separate CD player.
Although sales of DVD players are taking off, disc rentals still represent
only a tiny portion of the market -- $85 million out of a total of $8.1 billion
in movie rentals. And while most video store customers expect to find
multiple copies of any popular movie title on VHS, people looking for a
particular title on DVD may walk away empty-handed.
Kathleen Pierce, a Manhattan publicist, decided on a whim to buy her
husband a DVD player for Christmas. "I'm disappointed that there's only
one of everything," Ms. Pierce said as the couple visited a video store for
the first time since the gift was unwrapped.
That disappointment will be allayed if the movie studios agree to the same
revenue-sharing arrangements with the retail industry that are in place for
videotape. Under these arrangements, large operators can buy multiple
copies of video titles for a fraction of their wholesale cost (as little as $8,
as opposed to $65 or more), thus insuring they can meet customer demand,
in exchange for splitting rental revenues with the studios.
At least one studio, Warner Brothers, a unit of Time Warner, is
negotiating with Blockbuster to work out a revenue-sharing agreement,
said Warren N. Lieberfarb, the president of Warner Home Video, the
DVD market-share leader.
The wholesale price for most DVD's is $15 to $20 -- whether or not the
item is to be rented or sold -- reflecting the fact that it is much cheaper to
stamp out a disc than to produce a VHS tape. As a result, sales are still
nearly equal to rentals as many people are choosing to accumulate their
own collections, perhaps because DVD discs are more durable than VHS
tapes and take up less storage space. The industry estimated that 45 million
discs were sold last year, bringing in $1 billion, about 15 percent of total
video sales.
Mr. Adams said the average
household with a DVD player bought
18 discs last year -- only one less than
the figure for 1998, when many fewer
homes were equipped with the
players. He said the typical VCR
owner buys only seven tapes a year.
Consumers seeking new DVD's are likely to shop for them at electronics
stores like Best Buy or Circuit City, discount stores like Wal-Mart, or
record stores like Virgin Megastore or HMV. But many video rental stores
are getting two bites of the apple by selling used DVD's at prices as low as
$12 or $15 after the prime rental period has elapsed.
"It's excellent for the consumer and a good return after the rental period
for the dealer," said Bo Andersen, the president of the Video Software
Dealers Association.
The inability to record movies is not going to slow the stampede to DVD's,
Mr. Lieberfarb of Warner Home Video said. "Consumers have shown a
willingness in droves to buy this product," he said. "DVD is the medium of
the millennium. It's a win-win for everyone."
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