Tuesday, November 6, 2001

DVD killed the Video Star
By Tamara Chuang and Stephen Lynch
Knight Ridder Tribune

Perhaps you bought one because the price dropped below $200. Or maybe it was a trip to the local video store, where the format has gobbled up shelf space. Then again, it could be that the title you’ve been waiting for — “The Godfather” or “Snow White” — was finally remastered and released.

Whatever the reason, if you bought a DVD player this year, you’re not alone. So far, five million machines have been sold in 2001, and analysts are expecting DVD movies and players to be the hot holiday buy — again.

If there was any doubt that consumers have fallen in love with DVD, this fall has erased it.

“The format is exploding,” says Steve Bicksler, owner of the Southern California store chain Penny Lane, which has switched much of its stock to DVD. “The interest has surpassed even that of the compact disc.”

In fact, in four years, the digital versatile disc has become the fastest-adopted consumer electronic product in history. One-third of American homes now have one, according to the Consumer Electronics Association.

For evidence that the format has hit critical mass, one need only look at DVD movie sales, which continue to break records. Early this month, 2 million discs of “The Mummy Returns” sold in one week. But that feat was soon eclipsed by “Star Wars: Episode 1 — The Phantom Menace,” which sold 2.2 million copies last week. That $45 million opening weekend rivaled the film’s theatrical debut.

This year marks another turning point for DVD: the release of the first mass-market recordable drives. Pioneer will introduce a DVD-R machine next month, which works much like a VCR. Though sales should be slow at first - especially considering the $2,000 price tag - this is the last hurdle for DVD to completely usurp VHS as the home video format of choice.

“VCRs took 20 odd years to get into 60 percent of U.S. homes,” says Danielle Levitas, an analyst with market researcher International Data Corp. “DVDs are on track to do that in 10 to 15 years and it’s probably closer to 10 because prices have come down, more titles are available and (manufacturers) are adding more functionality to players.”

DVDs have become so successful so quickly because movie makers have been enthusiastic about the format from the start, and that enthusiasm has rubbed off on consumers.

Unlike laserdiscs, which were few and expensive, studios threw their full support behind DVDs. Some 10,000 movies are available in the DVD format and dozens of new releases come out monthly. Many cost less than $20. And the average consumer easily recognizes the improved picture and sound quality, not to mention the extra features such as bonus scenes or director commentaries, says Randy Hargrove, a spokesman for video-rental giant Blockbuster.

“It took a little longer for VCRs to catch on because people had to learn what they were useful for,” he says. “With DVDs, they’re used to the idea of renting and buying movies.”

The result is that many DVD owners are doing what music lovers did a decade ago: migrating their movie collection from a inferior format (cassettes) to a better one (digital).

Blockbuster is doing the same thing. Last month it scrapped 25 percent of its VHS inventory and expanded each stores’ DVD offerings. Next year, Blockbuster expects 40 percent of its rentals will be on DVD, Hargrove says. That figure will be 50-50 by 2003.

The bet already has paid off for the nation’s largest video rental chain. This week, Blockbuster reported a 92 percent increase in third-quarter revenues, attributable mainly to DVD, which have 10 percent higher margins than VHS.

But no matter how superior digital video is over analog, it could be years before the DVD permanently replaces the VCR.

“People are buying DVD players but they probably aren’t trashing their VCRs,” Levitas says.

People still need VCRs to record off TV and watch old videos. Levitas gives DVDs 12 months before they start outselling VCRs. But the demise of the VCR?

“You’re looking at the end of the decade,” is her best guess.

An estimated 12.5 million DVD players will be sold in stores this year, according to the Consumer Electronics Association. Next year, sales will hit 15 million and then 17 million the following year. But DVDs still have a long way to go — VCRs are found in 98 million U.S. households, says the CEA.

“Our surveys show that 90 percent of DVD owners still use VCRs for recording or watching movies they own on VHS,” says Sean Wargo, senior analyst with the CEA.

“When you add recording features to DVD, it does add interest. But not for that price.”
DVD recorders are available and currently selling for $1,000 to $2,000, down from $4,000 last year. In addition to the high price, there are three competing standards of rewritable DVD players that are not compatible with one another.

Once prices do come down and the format issue is resolved, Wargo said, recordable DVD players will be a no-brainer for consumers. With VCRs in the majority of U.S.

households, pretty much everyone can understand the concept of recording video.

Ken Crane’s Home Entertainment store in Westminster, Calif., still sells VCRs, but more shelf space is dedicated to DVDs. The new Panasonic recordable DVD player is prominently displayed for $998.

“Movies are being released on DVD first. No tapes to break, no heads to clog, it’s all optical,” said Tom Campbell, corporate director for the Torrance, Calif.-based retailer.

“I would say it’s going to be a slow death for the VCR. As prices come down for DVD recorders and people have another option of recording, that will be the end of the tape.”