DVD Reality 101

The following is the speech given by Mike Fidler, Senior Vice President of Sony Electronics at the opening of the second day, August 5, 1999, of the DVD ë99/IRMA Conference held at the Universal City Hilton Hotel, next to Universal Studios in Universal City, California.Thank you Charlie and good morning everyone.Itís my pleasure to welcome you to todayís opening session which is appropriately titled ""DVD Reality 101."" In case any of you fail to gasp the significance of this, let me begin by reiterating the primary message of yesterdayís session ñ DVD-Video is an overwhelming success.This message was emphasized in speech after speech throughout the day. From Ben Feingoldís opening keynote address ñ to the dayís final presentation regarding the prospects for DVD in the video game business.All of this explains why DVD-Videoís success is almost staggering y the end of this year ñ less than 36 months after the formatís launch ñ DVD-Video will enjoy an installed base of approximately 4 million in the U.S. alone. And DVD-Video software shipments will approach nearly 50 million units! In the history of packaged media, these numbers are simply astonishing for any new format. However, it should be noted that in reality, DVD-Videoís success is a somewhat qualified one. Because simply stated, this launch has been tempered by many misperceptions that have plagued the format from the very beginning. And left unattended, these misperceptions could have had a fatal affect on the prospects for the entire DVD platform in the future.To illustrate, consider that less than two years ago, DVD-Video was perceived by even some people in this room today as anything but a sure thing. Perhaps you may remember some of the more visionary comments about the format that were made at the time. Comments like ""ÖD-V-D Dead, Very DeadÖ"" And ""Öunless every studio is initially involved, the format will dieÖ"" As well as ""Öno one will buy it if it doesnít recordÖ"" Along with the ever-increasing mantra of the digital age ""Öforget about it ñ packaged media is deadÖ"" And of course, the old chestnut ""Öitís just too damn expensiveÖ""Even the industryís sales projections were all over the map. Depending on your politics and persuasion they ranged from practically zero players being sold to more than 5 million players during the first year. And if all of this wasnít enough, along came Divx to add yet another wrinkle to DVD-Videoís already confusing landscape.Yes despite all of this, DVD-Video succeeded, and as time goes on, the reasons why have become quite clear. From its inception, a small group of people in this industry zealously believed in this format. And they worked diligently to set realistic expectations for its growth ñ and then they exceeded them.Most important of all, as an entertainment concept, DVD-Video delivered. So millions of entertainment enthusiasts began to notice the formatís superb picture quality ñ variety of enhancement features ñ and astounding digital surround sound. However today, just as DD-Video is poised to explode, other misperceptions are appearing on the horizon. So a number of steps must be taken before we can truly realize DVDís full potential and achieve further exponential growth.First, hardware distribution must continue to reach mass market levels. This will allow us to more effectively target the nearly 14 million U.S. households with home theatre systems that have yet to experience DVD-Videoís benefits. Furthermore, hardware manufacturers have only recently started to offer a variety of different models. This is essential because it reinforces to consumers that DVD-Video is truly a universal lifestyle product. A product that encompasses everything from portable players that fit in your pocket ñ to players that work in your car ñ to 200 disc changers that can store your complete DVD and CD library.On the software side, we must also dramatically increase the number of DVD rental outlets. This will help to establish DVD as the consumerís primary entertainment option.And speaking of entertainment, thereís room for lots more. Not just more movies with day-and-date release, but more music video albums, complete with artist bios, interviews and discographies, as well as music video singles, which can be released in conjunction with the videoís appearance on MTV.And of course, we need more DVD-Video programming for children and the entire family. Along with more instructional videos and interactive content that can be used in applications ranging from Web site links to enhanced CDs.As you can imagine, weíve only touched upon the possibilities. Because the full impact of DVD will not be achieved until we undergo a complete paradigm shift in this industry, through the creation of a variety of new business opportunities. Take for example the opportunity presented by the PC industry. Currently the perception exists that DVD software is being driven by the sales of millions of PCs equipped with DVD-ROM drives. But in reality, DVD merely represents yet another ""technology of the month"" to the PC industry. And this impression will not change until multimedia content developers and authoring facilities become far more committed to the format.There is also a growing misperception that DVD-Video will quickly expand beyond home theatre systems into the tens of millions of new digital set-top boxes and video game consoles that are being developed. Although this may ultimately occur, this transition will not happen overnight. In reality; many questions still remain concerning this type of convergence and whether it can be easily translated into affordable products that are convenient to use.Speaking of convergence, DVD-Audio is another aspect of the platform that holds great promise. In fact, some people are so enamored with its capability for high-resolution multichannel sound that they believe that DVD-Audio will do for music what DVD-Video did for movies. Here, once again, the reality may be somewhat different. For unlike DVD-Video, which was conceived as a totally new type of movie carrier, DVD-Audio must contend with the established compact disc, which is currently enjoyed by 700 million music enthusiasts worldwide. In addition, the infrastructure that is necessary to support DVD-Audioís multichannel capabilities is not yet fully realize and to make matters even more complicated, this launch will coincide with the introduction of yet another high resolution pure audio format known as Super Audio CD. Plus when you talk to many music industry executives, theyíre more likely to be excited about downloading audio files from the Internet, than any kind of new packaged media.But all of these format issues pale in comparison to the challenges that are facing the successful launch and implementation of recordable DVD. For despite its complicated development cycle, thee are a slew of incompatible write-once and rewritable DVD-based formats. And each has yet to address all of the many issues that still remain concerning copyright protection. Furthermore, recordable DVD also faces the threat poised by other new digital recording media, including everything from solid state flash memory to a new generation of high capacity a/V hard drives. And letís not forget ñ NONE of these recording formats will be warmly embraced, by either Hollywood or the music industry. As you can see, expanding the DVD platform will not be easy. For while the technologies are certainly viable, the ability to support these technologies is currently not in place.So in order to avoid the many misperceptions that have plagued us in the past, each of us must be diligent in striving to address these issues in the future. It all begins by setting the right expectations for each of these new formats. For although DVD players may eventually become universal and multifunctional, consumes by their very nature are not. Therefore, we must develop the kind of strategies that are necessary to market each and every one of these formats successfully. As part of this process, we must also acknowledge that the new digital world is a complex environment, where success is measured more in relative terms than in absolute ones. So, even if these formats do not achieve the level of success that DVD-Video enjoys, each of them can still be successful in their own right.Finally, we must remember to keep our perspective about the delicate balance that exists between consumer demand and any given technologyís capabilities. For in the final analysis, the success of new formats is more often related to the nuances of the marketplace than ANY type of benefit that technology provides. That helps to explain why consumers reacted so different emotionally to the concept of Divx versus DVD-Video.In Summary, the story of DVD is only just beginning. And over the next few years, Iím confident that this exciting new platform will offer up many other important new insights and lessons for us to learn.Thank you for your attention.