Emerging format war may strike down DVD in its youth
San Francisco Business Times - by Douglas Robson Business Times Staff Writer
It's still early to say whether DVD, the next-generation digital videodisk product, will become a standard feature in American households. But five months into its promising launch, a distant cloud has formed.
The threatening storm: A company backed by Circuit City Stores Inc. plans to produce a rival DVD format that could unravel hard-fought efforts to maintain a standard version and undermine the still maturing DVD market.
Up to now, DVD has enjoyed what is generally considered a decent start for a new consumer technology. While most buyers of the $500 to $700 players are so-called early adopters, some 180,000 have been shipped to dealers worldwide, according to the Consumer Electronics Manufacturers Association. Experts estimate that more than half of those have reached end-users.
Meanwhile, Hollywood, led by Time Warner Inc.'s Warner Bros., is ramping up production of movie titles. Warner has released about 100 of the $25 titles to date, with 200 expected by year-end, while closely watched Walt Disney Co. has announced it will jump on the DVD bandwagon.
According to tracking service VideoScan of Hartsdale, N.Y., U.S. videophiles had snapped up 464,000 titles through mid-September.
"It's taking off, no doubt," said a spokesman for Warner.
All this smooth sailing hit rocky seas on Sept. 9 when Arlington, Va.-based Circuit City announced the formation of Digital Video Express. The company's new Divx format -- which will allow consumers to play single or multiple viewings similar to rental video cassettes -- won't be playable on standard DVD players, creating a compatibility problem.
Divx is not expected to hit stores until at least next spring.
"From an overall perspective, it will have a depressing effect on the market," predicted Dale Ford, senior analyst at Dataquest in San Jose, who expects to lower his forecast numbers on first year unit player sales.
"You've got a number of problems now," Ford said. "Manufacturers have to choose where to put resources, stores will have to reeducate sales forces, and the consumer is in the worst position of all."
Hollywood support is also split down the middle, with four major studios -- Disney, Dreamworks SKG, Viacom Inc.'s Paramount Pictures and Seagram Co.'s Universal Studios -- agreeing to back Divx. Supporting standard DVD -- and in some cases, both versions -- are Warner, New Line Productions Inc., MGM Inc., Sony's Columbia TriStar, Disney, and Universal, among others.
John Keating, merchandise manager for Brisbane-based Good Guys Inc., said that with a format struggle akin to VHS and Beta looming, consumers may be less willing to plunk down big change for pricey DVD players.
"Some customers may feel that uncertainty and hold back purchases," he said.
Nonetheless, he's bullish on the future of DVD, noting that sales have exceeded expectations and that some of the chain's 76 stores have been understocked.
"High performance models are selling extremely well, and we think it's another opportunity for customers to have an enhanced system," said Keating. He concedes, however, that competing formats "could create confusion among customers."
Not everyone is convinced the introduction of Divx means an all-out format war.
Ted Pine, president of InfoTech, a Vermont-based research and consulting firm, calls it a "try-before-you-buy disc" that "solves the rental conundrum for DVD, which is a sell-through medium."
In other words, consumers can use the Divx to sample titles and then buy a permanent DVD copy. Unlike current DVD players, Divx will be able to play both formats.
"These guys are competing on features," Pine insisted.
Steve Nickerson, vice president of marketing for Toshiba Consumer Products Inc., part of the 10-company consortium of manufacturers that fought to maintain a single DVD standard, said Divx was an "adjunct format" and didn't preclude the existence of both in the marketplace.
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