Can DVD and Divx peacefully coexist, or will they slug it out in a battle to determine which will challenge VHS and the VCR for home entertainment supremacy?

There’s no doubt that both systems offer better video and audio quality than VHS, but until either platform becomes mainstream, they will only dent the well-entrenched VHS market, especially in the family and children’s areas since many families have already invested in building VHS libraries. The problem lies in explaining to consumers why they should add yet another piece of hardware to the home, especially when they still haven’t figured out how to set their VCR clocks.

DVD and Divx lurk as sleeping giants. But the alarm has sounded, and Hollywood studios have awakened to embrace their long-term potential for all categories, including family releases.

DVD (digital video disc) has the head start, launching last March, and exceeding expectations, with over half a million players sold. Divx debuts this summer in two test markets, Richmond, Virginia, and San Francisco, California, prior to a national rollout supported by a US$100-million awareness campaign to be implemented in the next year.

DVD offers superior video and audio quality over VHS on discs that don’t deteriorate. DVD players provide a menu of viewing options, such as a widescreen format and subtitles, that make the viewer a more active participant. Players range from US$399 and up, discs from US$20 to US$30.

The number of DVD units shipped has surpassed the number of CD players sold in the same time frame of its growth curve, according to the DVD Video Group, an L.A.-based, industry-funded nonprofit corporation that promotes consumer awareness of DVD. Early acceptance of the medium has encouraged studios to ramp up the number of titles available on DVD. Approximately 1,100 titles are currently on the market, with projections of over 1,500 by year’s end. More recent titles are being released on the same day as their VHS counterparts.

‘The bigger selection of players and lower prices have helped push this toward the mass market, but titles will really drive it,’ says DVD Video Group spokesperson Rob Williams.

As with any new piece of hardware, technophiles have been the first to embrace DVD. As a result, most DVD titles have been of the action and sci-fi genres, which make full use of the audio and video enhancements DVD offers.

Family movies represent about 10 percent of titles on DVD. Many studios are waiting for DVD to be accepted by the mainstream before releasing general-interest titles on the new format. Warner, the first to launch titles on DVD and to throw a major push behind the platform, has been monitoring the market to see who is buying the hardware before it aggressively releases family titles on DVD. Disney has no immediate plans to release its classic animation titles on the format because company research has shown that the family consumer isn’t buying DVD right now. It releases one or two family titles on DVD per month, such as Mary Poppins, Air Bud and George of the Jungle.

‘You’re not going to get middle America buying DVD players when they know they can’t buy Disney products for their players,’ says David Miller, DVD marketing manager at MGM Home Entertainment. Miller projects that the studios will leap into putting family movies on DVD with both feet when hardware sales top two million, which could happen by the end of 1999.

Universal has taken a bullish stance, racing to get ahead of the demand rather than reacting to it. ‘Once the hardware is accepted by the consumer, the next piece of the equation is making sure there is adequate software,’ says Bill Clark, executive vice president and chief operating officer of Universal Studios Home Video, explaining why Universal is day and date with all new releases on DVD and VHS.

Divx (short for Digital Video Express) machines play DVD and Divx discs. Divx discs are specially encoded and give purchasers a 48-hour window to view movies at a cost of about US$4.50. After the two-day period, consumers can view the movie again for a subsequent fee of US$3.25, or can upgrade to unlimited viewings (Divx Silver) for a charge between US$10 and US$15. Divx players, which will initially cost about US$100 more than their DVD counterparts, are hooked to a modem that transmits billing information to the company on a bimonthly basis.

Divx doesn’t want to compete against DVD; it is focusing its efforts on being an alternative rental option, targeting the technophobe rather than the technophile. ‘We’re looking at the mom and dad videotape renter,’ says Digital Video Express spokesperson Josh Dare. (Digital Video Express is a joint venture between Circuit City and law firm Ziffren, Brittenham, Branca & Fischer.) ‘We think that we’re going to improve the family room as much as the microwave improved the kitchen.’

Divx hopes to grab a 20 percent slice of the home video rental market within five years of its debut this summer. Unlike VHS or DVD rental, Divx discs never have to be returned, thus consumers never incur late fees. And that’s the selling point Divx has been hammering-ease of use. ‘Our intention isn’t to sell a new technology, but to sell a lifestyle change . . . of unprecedented convenience and satisfaction in the video rental business,’ says Dare. Divx will concentrate on current over catalogue titles, and expects to have over 400 titles available in its format by the end of the year, including the family-oriented releases Liar, Liar, George of the Jungle, Flubber and The Nutty Professor.

Divx players can play DVD discs, but Divx movies are of the pan-and-scan (full-screen) format, without the bells-and-whistles options that come with DVD. What Divx can’t do is retrofit current DVD players with Divx technology, forcing early DVD adopters interested in the Divx format to purchase another player.

Divx has received a lukewarm reception by Hollywood, with most studios taking a wait-and-see approach before fully supporting it. Only six studios-Disney, Paramount, Universal, DreamWorks, Fox and MGM-have signed licensing agreements with Divx. Warner Home Video senior vice president Thomas Lesinski has come out strongly against Divx, calling it a ‘loser for video retailers and for studios alike.’ Ken Graffeo, senior vice president of marketing for PolyGram Video, agrees. ‘Divx confuses the issue and confuses the consumer.’

Participating studios look at Divx with a more optimistic eye. ‘Divx is only going to increase awareness of the DVD format in general,’ says MGM’s Miller.

As DVD and DIVX become more accepted, affordable and perhaps even have the capability of recording, the reigning champions of home video entertainment-VHS and the VCR-may be facing serious threats to their crowns.