Disc makers eye the PC market; movies on the small screen?

Electronic News, Feb 23, 1998 by Carolyn Whelan

Glendale, Calif.--The number one driver of DVD disc purchases will be the integration of DVD-ROM drives into PCs, says Frank LoVerme, VP of Sales within Warner Media Services's Advanced Media unit. Last year the unit shipped over 5 million DVD discs--or 60 percent of the world supply of DVD discs, says Warner Media--or $50 million worth of movies worldwide. But less than half (2.2 million) were sold through to consumers. Still, the company anticipates tripling DVD disk sales this year, largely due to DVD drives replacing CD-ROM drives in PCs. Mr. LoVerme thinks that will happen by fall.

"The word of mouth on DVD is great," said Mr. LoVerme, "And we are right on track. The market will continue to be really good, particularly with that huge installed base of PC owners that will watch movies on PCs and realize how much more powerful the experience is than anyone thought."

Not so, says Michelle Abraham, PC and Peripherals Analyst at In-Stat.

"Sitting on a chair to watch a movie from your PC is just a whole lot less comfortable than lounging on a sofa in front of a TV," she said. The screen just isn't big enough." Additionally, Mr. Abraham said, consumers aren't used to it and the small screen limits viewing numbers to one. "I can't really see that over time a PC will have anything to do with watching a movie," she added.

Though Ms. Abraham agrees that the number of DVD-equipped PCs will skyrocket largely due to low prices of DVD drives (last year's million drives shipped should jump to 12 million this year, says In-Stat) she doesn't foresee hordes of households switching to watching movies from PC screens. That might be why over 50 percent of the DVD discs that Time Warner said it sold are still in inventory.

DVD drives currently sell for around $100, compared to $50 and $75 for CD-ROMs. That price differential means that DVD drives won't be incorporated into sub-$1000 PCs, which, incidentally, is the price point home buyers have been seeking. Eventually the drives will be incorporated into all PCs, but right now the cost is prohibitedly expensive on the low-end.

Mr. LoVerme, on the other hand, considers the cost of DVD drives to be so minor that retailers may use it to lure consumers to spend more.

By 1999, when the price drops even further, DVD drive shipments should equal those of CD-ROM drives, according to In-Stat. By 2001 In-Stat anticipates that recordable DVD-RAM drives will account for more than one third of all DVD drives shipped worldwide.

Ms. Abraham called the percentage of DVD discs sold through to consumers nearly identical to that of DVD players sold. Less than half of 349,500 players shipped to retailers in the U.S. last year were actually bought--162,000 were sold, according to Intelect ASW Marketing Services, leaving more than half to languish in inventory.

Worldwide, 650,000 DVD players were shipped, according to In-Stat--a fraction of extremely optimistic forecasts in January 1997 for sales of 3.8 million stand-alone players.

Industry watchers have been skeptical about DVD ROM uptake due to insufficient content, costly players and low awareness about DVDs among consumers. As recently as December last year research from the Yankee Group found that only 28 percent of over 1,900 households surveyed were familiar with DVD, with only about 13 percent of them very or somewhat likely to purchase a DVD player over the next 12 months.

Last August, there were only 35 DVD titles in the U.S., but by the end of the year Hollywood rolled out an additional 200-250 titles.

Over 1997, Warner Media Services saw a jump from 1.5 to 3.5 million DVD disks shipped from the first half to the second half of last year, for a more than 130 percent growth rate.

So if movies aren't being watched on PCs, who bought those 2.2 million DVD disks? Consumers with players, though those haven't been selling as briskly as forecast, either.

But consumers are starting to buy DVD players. Last year, Dataquest estimated that 670,000 players were shipped worldwide. That number should nearly triple this year to around 2 million units.

Warner Media said that historically speaking, the growth of DVD players--both set-top players and DVD drives in PCs--has outpaced the growth that VCRs had in the 1970s and CD-ROMs saw in the 1980s. Time Warner said that in 1974, the year following the launch of VCRs, 30,000 players were sold. 40,000 CD players sold in 1984, the year after they were launched, while CD-ROMs launched in 1991 sold 100,000 within their first year. Time Warner estimates that by next month, one year after DVD players were launched, 400,000 DVD players and PCs with DVD ROMs will have been sold.

The affordability of set-top players--which currently sell for around $500, or only slightly more than VCRs with a drop to the $200 range by next June--should also help DVD ROM uptake, Mr. LoVerme added, as will portable players on notebooks. Additionally, because CDs can be played on DVDs with the same or better quality than CD players, prospective CD player buyers may opt for DVD players instead.