Digital format makes its retail debut

With the first home videos for the new digital video disc players launching late this month, retailers and studios are anxiously awaiting an indication of what consumers think of the new technology....
March 1, 1997

With the first home videos for the new digital video disc players launching late this month, retailers and studios are anxiously awaiting an indication of what consumers think of the new technology.

The software that could become the next big home video platform is the same shape and size as a compact disc, but can hold nearly seven times more information than a CD in its single-layer, single-sided format. DVD can contain not only video, but also audio and computer data, which is why it is also referred to as digital versatile disc. Compared to the VHS format, DVD offers higher visual and sound quality. And its large storage capacity enables it to present the featured movie with multiple language, subtitle and screen format options, including the widescreen version shown in theaters. DVD’s one drawback is that it’s not yet recordable.

Warner Home Video, Columbia TriStar Home Video, PolyGram Video, MGM Home Entertainment and New Line Home Video are banking that DVD’s advantages will make it as popular in the home video market as CDs have become in the music business. DVD titles under these labels are in the works. Meanwhile, it has been reported that Buena Vista Home Video, Paramount Home Video, MCA/Universal Home Video and Twentieth Century Fox Home Entertainment are sticking with proven formats until they’ve seen the initial consumer response to DVD.

The first, and what appears to be biggest, launch of DVD home videos will come from Warner Home Video. During the week of March 24, 40 titles will hit stores in New York, Los Angeles, Chicago, San Francisco, Dallas, Seattle and Washington, D.C. Most of its fare also consisting of titles from MGM Home Entertainment and New Line Home Video, which are distributed by Warner will be adult-targeted, but kids will recognize Space Jam, Batman and The Wizard of Oz.

Titles will carry a suggested retail price of US$24.98. ‘Our strategy all along has been to release DVD at a price that consumers can buy,’ says John Powers, director of marketing for DVD at Warner Home Video.

Warner is teaming up with about 20 major retailers, including Borders Books, Circuit City and Montgomery Ward, and is in negotiations with video rental retailers such as Blockbuster. To promote its titles, Warner plans to roll out coop ads with retailers in newspapers and magazines, which will complement television spots for the DVD players by hardware manufacturers, and is discussing promotions with individual retailers. In-store DVD demonstrations will also appear in several retail outlets. ‘Overall, [retailers are] being very aggressive,’ says Powers, ‘particularly those that carry hardware and software.’

‘We’re very bullish on DVD, and have included it in our promotional plans for launch and through the rest of the year,’ says J’e Pagano, merchandise manager for Best Buy. Warner titles will kick off in 77 stores in five of the seven designated markets. The retailer will showcase the home videos ‘in highly visible locations’ adjacent to the DVD players.

‘We will devote space [to DVD] on multiple levels,’ says Bob Douglas, vice president of purchasing for HMV Record Stores. Its four Manhattan stores will offer the Warner titles, which will be available in freestanding displays near the door and in the video department. Pre-awareness efforts in the stores are designed to generate excitement surrounding the launch.

With this kind of support from studios and retailers, how long will it take for DVD to catch on? ‘All the research we’ve done shows that consumers are extremely interested in the technology,’ says Warner Home Video’s Powers. A study conducted by the BASES Group on behalf of Warner estimates that 2.8 million DVD players could sell in the U.S. within the first 12 months. If all the studios get behind the format, 29 million to 37 million home videos could also sell during the same period. Powers predicts that the hardware ‘will quickly reach mass-market pricing levels’ and pricing will be ‘very aggressive’ by the fourth quarter of this year. HMV’s Douglas predicts that DVD players will be a popular purchase among consumers by the 1998 holiday season. And on the software side, says Douglas, Warner’s DVD titles are ‘well priced to get a good bite.’

But that’s the optimistic outlook. On the other hand, there’s the possibility that DVD could become a niche-market product, as laser disc has done. Best Buy’s Pagano estimates that laser disc players have penetrated just two percent of U.S. homes compared to 80 percent for VCRs.

If DVD d’es catch on, it could be a boon to the sell-through market. ‘There probably will be more sell-through-type titles on DVD than there ever has been on VHS,’ says Tom Adams, president of Adams Media Research. Warner, for one, is bringing out its titles at sell-through prices that are competitive with those for new VHS releases. This sell-through pricing structure could work to the advantage of video rental retailers, says Adams, because it would be less costly to buy the titles for their stores.

The biggest question surrounding DVD is, what impact will it have on existing formats? ‘We fully anticipate it will be incremental to our VHS business,’ says Powers. In the near future, VHS home videos will far outnumber DVD titles.

But HMV’s Douglas anticipates that DVD will erode the demand for existing formats, just as the CD has done for the audio cassette and the vinyl record. ‘I think the time is right for a replacement for VHS,’ he says. Previous attempts, such as the laser disc, ‘have failed because the product has had technological constraints,’ but DVD appears to resolve those problems. People will also respond favorably to DVD because they are familiar with CDs. Still, Douglas expects the VHS format will last into the next century.

In the end, says Best Buy’s Pagano, there’s only so much that retailers and studios can do to influence the fate of DVD. ‘Our job is to inform the consumer of what products are available and present them in as attractive and exciting a mode as possible. But ultimately, it’s up to the consumer to decide.’

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