Little Doubt About Future Of DVD

If Hollywood held any lingering doubts about DVDís breakthrough potential a year ago, theyíre gone now. The digital videodisc format took off like a rocket during its third year, leaving little doubt about its future as a replacement technology similar to the audio CD it closely resembles. Although DVD still has a long way to go before displacing videocassettes, the format passed several milestones during the last 12 months. The Consumer Electronics Association even proclaimed the DVD player in November the fastest-selling consumer electronics product in history. ""I think DVD surprised everyone in the industry with the strength of its growth this year,"" said Universal Studios Home Video President Craig Kornblau. ""Clearly, it is not going to trickle out like laser [disc].""In late August, ""Titanic"" became the first DVD to break the 1-million-unit barrier, quickly followed by ""The Matrix,"" ""Saving Private Ryan"" and ""Austin Powers: The Spy Who Shagged Me.""Disney finally deemed the market ripe enough for its animated classics. ""Saving Private Ryan"" was the first hit director Steven Spielberg approved for DVD release. In yet another first, New Line put ""Detroit Rock City"" on disc three weeks before videocassette. ""This is a home run,"" said Warner Home Video President Warren Lieberfarb, an instrumental force in getting the format off the ground. ""Nothingís going to stop DVD form going all the way.""Demand rose so quickly that the manufacturing plants pressing the DVDís couldnít keep up.DVD sales more than doubled in 1999 over the previous yearís 8.8 million units, according to Video-Scan, whose estimates cover about 70 percent of the market. Sales are expected to spike further as consumers stock up on disc for players they received as gifts over the holidays.The hardware base was expected to approach 4.5 million by the end of 1999, and grow to 10 million by the end of this year, a penetration of 10 percent of the U.S. market. Whatís more, computers able to play the software through DVD-ROM drives were projected to hit 10 million by the end of 1999.By comparison, VCR penetration is 90 percent.Warner showed what the format could do when it released ""The Matrix"" on September 21. Packed with nifty extras and priced at a relatively modest $24.98, nearly 800,000 discs were sold in a week ñ far more than any previous release ñ and now the total is more than 2 million. As of mid-December, it was easily VideoScanís No. 1 title for the year, followed by ""The Mummy,"" ""Saving Private Ryan,"" ""Austin Powers: The Spy Who Shagged Me"" and ""Armageddon."" Those titles appeal to the early adopters, who are typically male. But ""Titanic"" and ""A Bugs Life,"" which also made the top 10, appeal to a broader group, according to Video Scan General Manager Tonya Bates.""You have titles that are demographically wrong for DVD like ""Notting Hill"" and theyíre selling very well, showing the market is expanding,"" Kornblau said.Disneyís changing approach to DVD speaks volumes about the marketís shift beyond early adopters. Long a leader in videocassette sales because of its strong following by children, the studio dragged its heels before embracing the format.The studio finally unleashed its first wave of animated jewels on DVD in October. By November, Disney had revamped its catalog strategy to capitalize on consumer demand.Even more intriguing, the studio plans to release two versions of ""Tarzan"" in 2000 ñ one for families and the other videophiles ñ and each stocked with extras geared to the intended audience. That strategy mirrors moves by Universal, which released two collectorís edition of ""The Mummy,"" followed by rated and unrated version of ""American Pie.""Each cited the need to cater to different audiences with the decision. ""There are two different consumers,"" said Buena Vista Home Entertainment General Manager Mitch Koch. ""There are consumers who want family-laden features and there are film buffs that want behind-the-scenes information.""But rival studios question the need for two distinct cuts. ""I basically believe there should be one version that is feature-laden at a fair price so as to differentiate DVD from VHS and pay-per-view, and thereby provide benefits that are not available in other media to encourage consumers to purchase DVD,"" Lieberfarb said. As the formatís popularity has grown, so have rumors that studios are moving to embrace the same two-tiered rental-price model employed in the videocassettes market. Now, DVDs are sold to retailers at one moderate price ñ allowing them to sell directly to consumers.By comparison, studios sell retailerís videocassette for rental purposes at much higher prices ñ and are eager to protect that model and apply it to DVDs should they become a more dominant component of the rental market.Itís an especially sore subject for retailers struggling to complete with Blockbuster and Hollywood Video, which get breaks from the studios in return for cutting them in on the revenues.While some executives maintain that high rental prices for DVDs would make it harder for smaller retailers to stock the product, and therefore impede the formatís success, others arenít sure how pricing will play out. ""Itís hard to predict if there will be rental pricing and what that will be,"" said Jeff Fink, Division President of Sales and Marketing at Artisan Entertainment.However, several key executives say privately it is not a question of if, but when the shift occurs. ""If the economics change to the point when we find people are taking down a significant amount of space for VHS and replacing something thatís $60-plus for something under $20 [wholesale], I would say it would be inevitable,"" one division head said. DVD sales are starting to cannibalize the rental market, but studios donít consider it an issue yet. ""We see whatever cannibalization occurs on VHS is more than offset by growth of DVD so that by-title profitability has increased measurably,"" Lieberfarb said. ""VHS is still a huge business,"" said Kelley Avery, Head of Worldwide Video and Retail Entertainment at Dream Works SKG. ""Itís still the primary business. When you add DVD on top of that, itís a good time for the category.""

Source: The Los Angeles Times