Click here to learn more about anamorphic widescreen!
Go to the Home Page
Go to The Rumor Mill
Go to Todd Doogan's weekly column
Go to the Reviews Page
Go to the Trivia Contest Page
Go to the Upcoming DVD Artwork Page
Go to the DVD FAQ & Article Archives
Go to our DVD Links Section
Go to the Home Theater Forum for great DVD discussion
Find out how to advertise on The Digital Bits

Site created 12/15/97.

The Digital Bits logo
page created: 1/12/99

Panel Discussion:
A Look at DVD Technologies


Thursday, January 7th

The DVD Technologies panel
The DVD Technologies panel.

The following is a transcript of the panel discussion, A Look at DVD Technologies, which took place at noon, at the Las Vegas Convention Center. The panelists for this event represented a Who's Who of the DVD industry, among them Warren Lieberfarb (Warner Home Video), Mike Fidler (Sony Electronics), John Thrasher (Tower Records & Video), Larry Pesce (Thomson Consumer Electronics), John Marmaduke (Hastings Entertainment), John Keating (The Good Guys), Jeff Yapp (Hollywood Entertainment) and Richard Sharp (Circuit City & Divx). The panel was moderated by Paul Gluckman (TV Digest). Several hundred people were packed into the standing-room-only hall for the occasion. Gary Shapiro, the president of CEMA (which sponsors CES), started the event with a brief introduction.

Gary Shapiro: My name is Gary Shapiro, and I'm president of the Consumer Electronics Manufacturers Association. And on behalf of the association, and its board of directors, I want to personally welcome you to the Consumer Electronics Show. It's a fabulous show, and it's breaking a lot of records, as is DVD, which is what we're here to talk about today.

Your moderator today, is an accomplished journalist. He created a well respected newsletter, Audio Week, and now is New York bureau chief of TV Digest, which is part of the Warren Publishing family. Ladies and gentlemen, please join me in welcoming Paul Gluckman. (applause)

Moderator (Gluckman): Good afternoon. This is A Look at DVD Technologies, 1999. Thank you all for being here. The DVD business has certainly occupied a lot of our attention - some controversy, some satisfaction. Whatever their outlook, or political agenda, all key players in the DVD industry will agree that 1998 was at least a banner year for the format that was launched here, only 21 months ago. CEMA reports that shipments to dealers roughly totaled 1.1 million DVD players for the 1998 calender year. What proportion of those machines have wound up as consumer installations in U.S. households, remains somewhat of a bone of contention, however all agree that DVD was a big banner Christmas selling season hit. DVD movies also had a phenomenal Christmas, according the VideoScan tracking service, which just for the week ended December 27th, reported DVD software sales at a record 722,000 movies. For year to date, VideoScan, through December 27th, pegged total software sales at 8.83 million dollars. I also want to emphasize that VideoScan doesn't track some key retail locations, and doesn't track Internet sales, as a result of that total pie.

Fourth quarter '98 also market the arrival of the Divx system at retail, principally under the banner of RCA and ProScan machines, but also with Panasonic and Zenith participating in the launch. Thomson executives last evening told reporters that they had shipped over 100,000 Divx-enhanced DVD players to retailers in the fourth quarter. They described Divx has one of their most successful product launches their company had ever been associated with. This morning, Circuit City announced that seven participating retailers had sold in excess of 62,000 machines to consumers in December, and a total of 87,000 in the fourth quarter - that's all combined. They said those same retailers sold 375,000 Divx discs to consumers in December, 535,000 for the fourth quarter, again including all seven, what they call, primary participating retailers. As you'll see, Circuit City and Thomson executives are here to discuss these results, and side by side with them on today's panel, are prominent members of the DVD community, who combined, give us a reasonably representative sample of the overall DVD pie.

Panel moderator Paul GluckmanWarner Home Video's Warren Lieberfarb

Paul Gluckman (left), moderator of the DVD panel discussion, and
Warner Home Video president, Warren Lieberfarb (right).

I'd like to introduce our panelists now - we're very fortunate to have them here with us. Starting immediately to my left: Warren Lieberfarb, president of Warner Home Video, Mike Fidler, VP DVD marketing for Sony Electronics, John Thrasher, the key mover at Tower Records in the area of sell-though video, Larry Pesce, a manager of DVD product management worldwide for Thomson Consumer Electronics, John Marmaduke, a key management of Hastings Entertainment, John Keating, to his left, who is the point man in the DVD business at Good Guys, Jeffrey Yapp, of Hollywood Entertainment, and finally Rick Sharp, chairman and CEO of Circuit City. He also wears those titles for the Divx venture.

I'd like to begin by asking - Mike Fidler recently spoke before the International Recording Media Association, and at that point, Mike, you had some figures that showed the overall pie with regard to specifically the extent to which DVD shipments had exceeded even the most optimistic expectations going into 1998. If you wouldn't mind reviewing it?

Mike Fidler (Sony): Certainly, Paul. DVD, since its introduction in April of '97, has clearly been one of the fastest growing consumer electronics product categories ever introduced. And looking at - obviously, the sell-in of DVD as a format, as Paul had mentioned - based upon current CEMA numbers, about 1.4 million units have been shipped into retail, life to date. Now that's a remarkable number, given the obviously new technology and support infrastructure required to really expand this business for the industry.

Our estimates, and this is not an exact science, as you all know, are really based on the current industry conditions, meaning what our retailers are telling us about their current inventory levels. I know that I have no inventory, so clearly we're pretty sparse at our house. And we're estimating that at this point in time, and at the end of the calender year '98, that over 1 million units have been installed in consumer households. This is clearly a breakthrough for a new format, and clearly represents an opportunity to take this format to the next level in 1999, with a tremendous advocacy already built from a consumer, and a very strong infrastructure both of hardware and software retailers, that are supporting and building this foundation for DVD's growth.

Moderator: I wanted to - we have representatives of the DVD software community here. Hastings Entertainment has been very active in sell-through and rental, if I'm not mistaken. John Marmaduke, do you want to talk about how some of that business filtered - to the extent to which your own personal and professional expectations were exceeded or met...?

John Marmaduke (Hastings): Well, they were both exceeded, both personally and professionally. I think I have the most confident news to tell you. And that is that the markets that we service are generally under 150,000 population communities - often times, they don't even have a retailer that's selling hardware - and what we have done to encourage the adoption, is we actually rent the hardware. And we've had a remarkable adoption, from very following, non-trend-setting markets. And I think that speaks well for the future.

Initially, we were very excited about DVD, because it gave us a chance to reacquaint that laserdisc customer back into our video departments. But it's gone much broader than that over the Christmas season, and we're looking very forward to enlarging our assortments. We're already building dedicated departments to DVD in our video areas, and rental is uppermost, in the very front portion of our best rental walls. So we look forward to a great '99.

Moderator: I wanted to first ask Warren if you could comment on of some of Warner Home Video's activity, with regard to duck-tailing. And I'm gonna ask Jeff Yapp to comment, as he was one of you key contributing software retailers, on the promotions that you did for fourth quarter. Warren, do you want to tell how effective, from Warner Home Video's standpoint, those were?

Warren Lieberfarb (WHV): Well, I think the ultimate effectiveness of the program, which was tri-part venture between Hollywood Entertainment, another video chain West Coast Video, Best Buy and Warner Home Video... and Toshiba, was a $299 leader price on hardware, 5 free movies, 13 free rentals. I think the acid test of the performance, first is from a hardware standpoint. When we look at the business, we look at how the marketplace functioned from September through December, which we think was the essence of the full promotional program, from all the different parties that were involved in the DVD category. If you look at sales, from that period, we think that the industry sold 675,000 pieces in the four month period. We think that is an extraordinary off-take for hardware, and speaks to the popularity of this format.

Moderator: Jeff Yapp - you're on the retailer end of these fourth quarter promotions - a first hand account of fourth quarter results?

Jeffrey Yapp (Hollywood): Yeah, I think - to tack on to what John had to say - both personally, and professionally, DVD has far exceeded our expectations. And like John, we operate stores in a number of markets that we did not expect to see DVD perform. I've spent the last two weeks in markets such as Murfreesboro, Tennessee, and the number one opportunity in our stores is DVD. It represents a little over 2% of our sales, in some markets as high as 3% of our total revenue, which is just incredible for us. We had a fairly limited selection - about 200 titles - we look to improve that in the future.

But, I think what's exciting for us, is the consumer acceptance across a broad demographic. What you're seeing is consumers who are upgrading VCRs, and making the decision of buying DVD. The experience that they're getting, when you talk to them about the play, the quality of the picture and the sound, has far exceeded their expectations. They're renting more, and an exciting thing for us - they're renting catalog titles - titles that they had not rented in a long time, and we're seeing a lot of activity in that area too. So for us, the commitment we made to DVD early on, to roll it out nationally in our chain, has been terrific, and like John, we look forward to an outstanding new year.

Moderator: Ah, we're fortunate to have two key retail representatives on the panel, beginning with John Keating. I'd to have him please talk about the results of Christmas, and the activity of DVD, specifically with regard to what we were lead to believe was a rather tight inventory supply of certain categories of DVD hardware.

John Keating (The Good Guys): The Good Guys was extremely pleased with the results of DVD sell-though this holiday season. In December alone, The Good Guys sold almost 15,000 DVD players, and we estimate that we could have sold another 6,000 or 7,000 more if we'd had the inventory. There definitely was a shortage of inventory, and that certainly bodes well for the future. The demand is there. Not only did we sell a lot of DVD units, which we're very excited about, but customers are also buying a lot of other products along with DVD. This isn't just DVD sales for us at The Good Guys, we also interested in other products as well, and we're seeing a high percentage of consumers walking out with other products on the same invoice. And these consumers are also coming back to the store on a regular basis, and buying other products as well. So it's a very affluent customer, and a very profitable customer, as well.

Moderator: The Good Guys is somewhat unique, in the environment, because you cater to a large element of step-up buyer. And in speaking recently with Bob Gunst, with regard to the step-up profile of The Good Guys, and specifically how it related to your Divx involvement - in particular, about the ProScan model being a better seller - do you want to comment to that point?

John Keating (The Good Guys): Yes, Divx sales continue to gain momentum at The Good Guys chain on the west coast, and we're excited about that as well. It offers consumers another great home entertainment option, and the ProScan player was one of our best unit sellers in the month of December - the ProScan 8680 - was a phenomenal seller.

Moderator: Bob Gunst had made some statements at the out-set, that he didn't think that Divx would be anything but a very minor factor for '98. Is that still the outlook - the report card for '98? Did Divx have a significant impact?

John Keating (The Good Guys): Divx certainly did have a significant impact on our results. And we expect that to continue to grow and gain momentum going forward as well.

John Marmaduke (Hastings) and John Keating (The Good Guys).
John Marmaduke (Hastings - left) and John Keating (The Good Guys - right).

Moderator: Rick Sharp - a unique panelist, wearing a key retailer hat, and also the Divx chairmanship hat - if you could briefly reprise some of the key figures that were released to the financial community and also to reporters earlier today?

Richard Sharp (Circuit City & Divx): Sure. Digital Video Express announced today, that since the national launch over the last three months basically, October, November and December, that we sold - the Divx seven retailers that Paul mentioned - sold about 87,000 Divx-featured DVD players. And more than 62,000 sold in December. So it was - again, I'd be interested to know what various people think about the total DVD sell-through in December. There have been various estimates about that, and we're certainly not qualified to pine on the total industry sell-through - but we think that Divx had a very respectable share of that - the Divx feature.

In terms of Circuit City, we had a pretty good month as well. Circuit City sold 75,000 DVD players in the month of December. And a total of 106,000 for the quarter. So we were pleased with the performance. You know, there's been some question about whether the Divx feature could be explained to a broad market, and would be attractive to a significant number of consumers, and obviously I think we've demonstrated - the truth is that we didn't have our four models fully in stock in our stores until early December. I won't speculate about how many we might have sold had we had some other set of conditions, but the reality is that we were struggling for inventory throughout the quarter, and found strong consumer acceptance of the Divx feature. I'll point out that we sold a significant number of non-Divx DVD players as well, for those consumers who decided that the feature was not the right choice for them. And we were delighted to do that.

Moderator: If I'm not mistaken, you have not released the ratio of non-Divx open DVD to Divx-enhanced DVD players that you sold in December of fourth quarter, is that correct?

Richard Sharp (Circuit City & Divx): Ah, we have not. But it was clearly a multiple in Circuit City stores - a multiple of Divx-featured players to those that did not have Divx.

Moderator: Larry Pesce from Thomson, you and Rick, and Circuit City, share a common philosophy, not only in the sense that Thomson is the most devoted Divx hardware partner, but you two have very similar, positive, upbeat projections for 1999, of Divx as a portion of total industry sales for 1999. You want to state what those projections might be?

Larry Pesce (Thomson): Sure - in 1998, we were actually in a sold-out mode for both our standard DVD products, as well as our Divx products, essentially beginning in August. Every month, every piece we could manufacture, we got out the door. And we're going into the new year with virtually zero inventory, which is almost unheard of from a factory position. We anticipate next year that the industry could run well beyond 2 million units. And just from our own market demographics, having sat down with consumers who have purchased DVD and purchased Divx, we see that the Divx area will grow very significantly in the 1999 time frame, and will be a very significant portion of the total volume.

Moderator: What role did - um, let me make this a more open-ended question in the interest of promoting debate. (laughter from the audience) What is the take on the different philosophies and how they manifest themselves into the factors that made 1998 such a successful year? One thing, right of the bat, is that the very obvious huge amount of promotion done on TV. Another thing - wouldn't all the panelists agree that hardware pricing reached into mass market levels that were not foreseen at the beginning of 1998. Mike?

Mike Fidler (Sony): I would probably agree with that last statement, Paul. I think the one thing that is clearly, probably the most important part of this growth, and sustained growth and success of the format, is the consumer acceptance of this format. There is a consumer advocate that has been built. They understand benefits, they appreciate the benefits of what the DVD format offers. Clearly and demonstrably, it's not a stretch for consumers to go into retailers, and see the dramatic impact of what DVD does to their home entertainment system.

But along with that, clearly some of the things that Sony had talked about early on, was making sure that we took the pace to build the appropriate infrastructure. We now have all of the studios supporting the DVD format. We have over 15,000 combined store-fronts, both in hardware and software, that are selling, renting, both hardware and software product. We clearly have an open standard that has allowed for an expansion of the application of DVD as a format, with the introduction, and expected explosion, of DVD-ROM product. The introduction of DVD portable products, the introduction of new technologies here at the show for car applications, and navigations applications. So clearly, the opportunity is there to take this to the next level, and clearly the positive things that happened in 1998, set the stage for unprecedented and continued growth in 1999.

Moderator: I don't want to overstate, or put words in the mouth of what Thomson said last evening, but they seem to give a huge amount of credit to the Divx success, for the overall industry success for DVD in general. Larry, again to be faithful to what role Divx might have played...?

Larry Pesce (Thomson): I think - I'd like to take credit for it, but unfortunately I can't - it really comes down to the amount of advertising that was put into the fourth quarter of the year. It was absolutely tremendous, for Divx specifically, as well as for DVD. I don't think you could have picked up a major magazine, that didn't have a DVD or Divx ad in it - it was incredible. And I think what we have noticed now, is that consumer awareness now is probably in the 45% range, which is a very nice increase from where we were. And it's now to the point where friends are telling friends about how satisfied they are with the product, and that's putting more pressure, I think, for titles and even earlier releases, which I think Divx fits that very, very nicely.

Moderator: Rick, your company was extremely aggressive on the sales floor, in bringing people in for Divx demonstrations. Are you going to continue that level of intensity on the sales floor?

Richard Sharp (Circuit City & Divx): Well, I'd like to believe we have an intense sales floor for every product we sell.

Moderator: This was extraordinary. (this gets a huge laugh from the audience)

Richard Sharp (Circuit City & Divx): Well, actually it wasn't. Not only were we the leading retailer of Digital Video Disc in December, we were the leading retailer of Direct TV systems, as we have been every month since its inception, to my knowledge. We're the leading retailer of digital camcorders, we're the leading retailer of projection TVs. This is nothing unique, about what Circuit City is doing with DVD and with Divx. This is an attractive product to the consumer. We present it to the consumer, and point out the features and the benefits, one of which of course is the fact that Divx is a feature, and the Divx players will do everything the DVD players will do, plus give the consumer additional options. And we performed well, just as we've performed well with a whole variety of other products over the years. And I would be willing to wager that we'll be the leading retailer of Digital television as it comes to market too.

Larry Pesce (Thomson): One other comment I'd like to make, is that when we polled customers after they purchased a Divx player, one of the things that consistently came to their lips and told us, was very simply this: when they actually bought their Divx player, they did not necessarily buy it because they wanted to use the Divx feature immediately. What they typically did, was they told us they bought it because they were planning on the future. And this was still a $300 or $400 investment for them. They saw this as a product that was going to be around for a while, and they did not want to lock themselves out to the options for the future. And that was something that kind of surprised us. It was not just use it today, it was looking forward.

John Thrasher (Tower) and Larry Pesce (Thomson).
John Thrasher (Tower - left) and Larry Pesce (Thomson - right).

Moderator: John Thrasher, with regard to the sell-through mechanisms at Tower - we obviously have two very respectful philosophies as to the future applicability of movies to own as a DVD model, and those who want to rent. Could you talk about the sustain quality of DVD as a sell-through item at Tower?

John Thrasher (Tower): Well, I think that certainly, we've always believed that our society is a collector's society. And that there are groups of folks out there, that are going to buy packaged goods and keep them, whether it's baseball cards, or filmed entertainment. And from our standpoint, DVD's success, in terms of this particular year, has been phenomenal. At this particular point, we're getting over 5 turns in our entire inventory, which is 40% higher than any other format that we carry. So it's something that people want to collect. However, on the rental side, I think that it's a consumer confidence issue - as you build and try to establish rental departments - to let them know that this is not a niche product like laserdisc was. Certainly, it's far more sexy in its look, and its ease and convenience, also its interactivity. So that's our stance.

Moderator: Warren, do you have anything? No? Jeff Yapp, with regard to your very positive visibility in DVD rentals, talk about the 1999 landscape for DVD rentals.

Jeff Yapp (Hollywood): I think what's exciting for us in the rental business, and you have to realize that the rental business is an enormous category - almost $9 billion - it's gone through a fundamental change this past year, as we've seen two of the most significant issues that have historically faced the rental industry, both product availability and discussions of late fees, and how that adversely affects our business. You have seen the industry shift, this past year, to a revenue-sharing proposition, which has really addressed the single biggest issue - product availability - and then as we go to multi-day rentals, we've also seen the continued reduction of our late fees. And I think, for the first time in a long time, you're seeing the rental business growing upwards of 7%, some estimates are as high as 9%, this year - really on the back of finding a model that satisfies customers' demands. We believe that same model can be applied to DVD, as we roll it out next year, and continue to broaden the expanse of rental - making the title available day-and-date consistently, as well as the depth at which they want to have that product available. So to us, I think '99 and the changes that have been happening in the rental business are very exciting.

Moderator: Rick, you had a comment?

Richard Sharp (Circuit City & Divx): I'd just like to agree with the last two panelists, that in fact society is a collector's society. And in fact, we do have people who collect, and we also have a society that rents, and who wants temporary access to this content. Because if Hollywood puts out 150 or 200 new movies next year, undoubtedly, not everyone will want to buy every one of them at $20 or $25. So we see here represented on this panel, both characteristics. We've got Tower that serves consumers that predominantly want to purchase and own their titles, and we have Hollywood that serves the rental market, which Jeff correctly pointed out is a huge market in terms of transactions. It has a 5 or 6 to 1 advantage in transactions. All we're attempting to do, is to present an option to consumers to collect those titles that they want to collect, and provide perhaps a more convenient way - a less expensive way - to collect the titles that they may only want to watch once or twice.

I would point out that we just completed some research with our Divx owners, that have had the product for four to six weeks, and they purchased about 11 Divx discs on average, which we found interesting. We were also pleased to find, on average, that they had also purchased on average between 4 and 5 basic DVD discs. And it's a behavior that is perfectly rational to us - they purchased those titles that they view as collectible titles for them, and they've made the additional financial investment to buy those in a completely unrestricted manner, and they've also said, "well, gee... here's some movies that I'd like to watch once or twice, and I'd like to have them conveniently available at home, and at a lower cost." And so, we're optimistic that Divx will continue to expand the market for DVD, by providing these options for consumers.

Moderator: Rick, did the research you mentioned now, and this morning, did it get into further elaboration as to why people bought those discs, rather than buying the Divx discs?

Richard Sharp (Circuit City & Divx): Well, it may in some cases be that those titles were not available on Divx. (laughter from the audience) Or it may be perhaps - the short answer is that research did not. We have talked to consumers in focus groups about this, and the answer is in general - look, in the VHS world, they make a rational decision about whether they want to rent a title, or whether they want to buy it. And there's no reason why that behavior won't continue in the new format of DVD. They'll choose to own some, and some they'll want to acquire in a less expensive way, whether it's through a packaged good media, or whether it's in the increasing electronic media. I know some of my panelists are not enthusiastic about some of the characteristics of the Divx product, but I would point out that it is a brick-and-mortar retail store-based concept, unlike what happens when, as digital cable rolls out and continued penetration of direct-broadcast satellite, which delivers content to the consumers electronically, and totally removes the retail channel from the opportunity.

Moderator: Warren, I believe you had a comment?

Warren Lieberfarb (WHV): I think the central issue is exactly what Rick is alluding to - what is the distribution model by which consumers are going to get movies in the future? Are they going to shift their rental habit from brick-and-mortar, be it Divx or VHS, to electronic, digital cable or satellite, or other broad-band distribution systems? So will the rental paradigm of the future, be it Divx or VHS, be done in a packaged media, or will it be done electronically? And that then goes to the question, what will consumers pay for the functionality, convenience, utility, of paying a low price to own it, program it and schedule it, at each family member's own individual election, as many times as they want, in as many different segments as they want, with portability perhaps, as a new utility associated with the PC? So I think what we're really talking about here, is not a static view of today's business, but a dynamic view, of a very dynamic media landscape, in which the interrelationship between brick-and-mortar retailers, be they sale retailers or rental retailers, Internet retailers, who are selling it in a package, or electronic retailers, who are transmitting it, and charging for it on a buy-use basis - how that equations solves, and who owns what piece, is really what the issue is here.

From a content owner's standpoint, Time Warner has very clear views about the co-existence of packaged media and broad-band electronic media. We are the largest cable company in America. We are at the forefront of bringing about digital broad-band transmission of all types of content. We are also the largest publisher of magazines, one of the largest movie companies, the largest book companies, and have a very clear view about how packaged content, be it a book, a movie, or a magazine, will co-exist, at very lucrative economics, with transmitted media. That is the central issue behind all of these competing means of getting entertainment to the home.

on to page 2

(back to main CES '99 menu)

E-mail the Bits!

Don't #!@$ with the Monkey! Site designed for 800 x 600 resolution, using 16M colors and .gif 89a animation.
© 1997-2015 The Digital Bits, Inc., All Rights Reserved.