Near Future Uncertain for DVD; Divx Debut Delayed

Is DVD hot news or merely lukewarm? Will it sell like hotcakes this year or more like day-old bagels? It all depends on whom you consult.

On the up side, the DVD Video Group has declared the new format a success after one year on the market, and it predicts that a cumulative total of as many as 1 million players will have been sold to dealers by the end of 1998. The group---consisting of manufacturers, disc duplicators, and movie studios---is seeking to boost the format by building the DVD rental business. According to John Powers, Warner Home Video DVD market-development VP, the key to DVD's success is getting "the rental dealers to embrace this technology." Rental giant Blockbuster Video is making a big move into DVD this season with the support of corporate parent Viacom and sibling company Paramount Pictures.

Video Scan, the rental industry's accountant and watchdog, estimates that 3.3 million DVD movies will be sold to dealers this year. The Consumer Electronics Manufacturers Association has tallied 470,000 machines sold to dealers through March of this year; 149,000 of those were sold to consumers in the first four months of 1998. In April of this year, 42,800 DVD players were sold, a 24% increase over the same month in 1997. A May 18 CEMA press release predicts a sales total of 676,000 players this year. (Because DVD has not established a seasonal sales pattern, the prediction is based on a VCR sales model.)

CEMA's estimate for 1998, added to last year's total sales of 437,000 units, yields a cumulative 1,113,000 players sold in the format's first two years---more than 10% higher than the DVD Video Group's prediction.

Less optimistic are retailers, 173 of whom were surveyed by Neretin Associates regarding their view of DVD's near future. According to Neretin, the group of retailers who participated in the survey account for "90% of the DVD market" in the US, having sold almost 208,000 players and 2.2 million discs to consumers last year. Total DVD sales last year were approximately 25% of the dealers' early projection that 800,000 units would find homes with consumers within the first 12 months. (Fun with statistics: If 208,000 DVD players represent 90% of the total sold to consumers, and 437,000 were sold to dealers, the implication is that dealers, on average, moved 53% of their DVD-player inventory.)

Dealers attribute the format's "slow takeoff" to consumer confusion, lack of manufacturer promotional support, and uncertainty over the introduction of Divx. From its inception, Circuit City's pay-per-view DVD alternative has suffered constant battering by the home-entertainment press, not to mention the recent defection of some of its early studio supporters, such as Paramount, to the "open-format" camp. On May 27, Variety reported yet another delay in Divx's bicoastal test marketing. Citing quality-control problems and insufficient software, a Divx spokesperson said the trial run would be delayed until June 8, when approximately 25 Divx movie titles will be available at Circuit City stores in Richmond, VA and San Francisco, CA.

Circuit City and its Divx partner, LA entertainment industry law firm Ziffren, Brittenham, Branca & Fischer, expect to have more than 50 titles available by July 1. The national rollout of Divx is expected shortly after that. West Coast retail chain The Good Guys is also a Divx participant.

Success is a relative term. Dealers may have been expecting bags of gold to drop from the sky when DVD first entered the market. CEMA and the DVD Video Group believe its inaugural year was quite good. Year-one DVD-player sales were higher than for both the CD player and the VCR. Nobody would call either of those formats a market failure.

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