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June 22, 2003
DVD in 50 - Studio Execs Discuss The Future of DVD

Last week DVD studios, producers and press all converged for the annual Video Store Magazine DVD Conference. Last year everyone gathered to celebrate the 5th anniversary of DVD. This year it was another big landmark, 'DVD in 50,' as DVDs found their way into over 1/2 of all US Homes.

Unlike last year, which was more like a 'DVD Love Fest,' this year's conference had a clear and persistent theme - what comes next? Much of the full day conference focused squarely on the discussion of the next generation of DVD - HD-DVD (High Definition DVD). It was clear by the end of the day that the 'honeymoon' period for DVD is quickly coming to a close and that the next few years will be filled will less 'love' and more 'struggle' as studios and hardware manufacturers wrangle over the future of home video.

A Rosy Picture for DVD
The picture for DVD couldn't be better. In the United Stats there are now over 50 million set top DVD players. This number is expected to grow to 60 million by years end. When you add other devices which can play DVDs (including PC's, PS2 and X-box) that number jumps up to between 90 and 100 million DVD capable devices. In 2002 there were 1.14 Billion DVDs shipped world wide and the average home bought 15 DVDs. For the first time DVD has overtaken VHS in the rental space. During the week ending June 15, 2003, for the first time ever, more DVDs were rented than VHS videocassettes. According to VSDA VidTrac, 28.2 million DVDs were rented while 27.3 million VHS cassettes were rented. DVD Rental stores also are singing the DVD praises which is now a $9 Billion industry. Old style DVD Rental companies like Blockbuster and Hollywood Video have more to celebrate (though renters won't be crazy to hear this) as 25% of DVD renters are reported to pay late fees at least HALF of the time they rent DVDs and in 2002 Video Rental companies collected an estimated $1 Billion in late fees - yes, that's Billion with a 'B'. The explosion in DVD doesn't end there. DVD is seeing growth into the portable market, into cars, dorm rooms, playrooms and multiple rooms in the home. Twenty-nine percent of US homes now have two or more DVD players. Barreling full steam ahead DVD is expected to continue to have 'double digit growth' from now until 2007.

With all the amazing news about DVD you'd think the studios would be jumping with joy. They are, and they aren't. This year their excitement over the explosive growth of DVD was tempered with a sense of urgency and concern, a realization that the DVD party would start to 'level off' in 2007 and if they don't start making headway towards making HD-DVD a reality, things might be a lot less rosy in years to come.

HD-DVD: Good News and Bad News
For DVD consumers there's some good news and some bad news about the future of DVD. The good news is that you won't have to worry about chucking out your DVD collection any time soon for HD-DVD. The bad news is that there is going to be a format war. I have absolutely no doubt that there's a format war coming and it'll make the wars between Betamax & VHS, DVD-A & SACD, heck even Coke v. Pepsi, look like school yard skirmishes.

As it stands now there are five formal proposals for an HD-DVD format. Two of the format proposals are based on a 'blue' laser, a technology which uses a laser with a shorter wavelength enabling more info to be put on a disc. The bad news about blue laser is that it isn't compatible with existing red laser discs, meaning the DVDs you have now won't play on a new blue laser player. Three of the proposals for the a HD-DVD format are based on a 'red' laser, the same kind of technology you'd find in existing DVD players. One of the key benefits of red laser formats is that they can more readily be backwords compatible enabling new players to play both standard and HD DVDs. Of the five competing format proposals, it looks at this point if it's going to all come down to two: The Sony backed 'Blue Ray' (blue laser) and the Microsoft backed Windows Media 9 (red laser). The battle for the next generation of DVD is shaping up to be a mega battle between Sony and Microsoft in a 'winner take all' battle for the central home entertainment device of the future.

Sony - Blue Ray HD-DVD and Its Ties to PS3
Make no mistake about it, Sony IS doing Blue Ray. The Blue Ray format is currently being sold in Japan as a recordable format and they're making it clear that they intend to pursue the Blue Ray format for the US. So far Sony has lined up Panasonic, Phillips, Samsung, Pioneer, Sharp, Hitachi, and Mitsubishi who all have pledged their support for Blue Ray. It seems like Sony may green light Blue Ray with or without the broader support of the DVD Forum. In a talk about the future of DVD and HD-DVD Benjamin Feingold, president of Columbia Tri-Star Home Entertainment (A Sony Company) tipped his hand when he suggested that Sony was looking to the capacity provided by blue laser, not only for moves but also video games. He also suggested that the next generation Sony game systems could very well use Blue Laser. I strongly believe that Sony is so determined to be on the winning side of a format (Betamax, Mini Disc, SACD), that they're going to be betting the farm on Blue.

Microsoft: The Next Big Home Video Player?
On the other side of the battle lines oddly enough stands Microsoft, who more and more is crafting a strategy to be a key media player for the next generation of home entertainment. For many years the PC has moved closer and closer to being a key media component in the home. With the boom of peer to peer music swapping, more people have turned to their computers as a source of entertainment. I was fortunate enough to get a demo of the High Definition version of Artisan Entertainment's T-2 Extreme DVD, played from a little 'black box' PC running Windows Media Center. The picture was stunning, and it felt like the future of HD-DVD could arrive care of Microsoft a lot faster and more cross compatible than Sony's plan. This tiny PC from Alien Ware looked very little like a PC and much more like a shoe box with a DVD drive. These Pentium 4 based systems are poised to move closer to the 'sub $1000' mark within a year and could quickly bring the 'Home Theater PC' into a significant number of homes by 2004 or 2005.

Microsoft has all the pieces to bring together to battle Sony over the final home entertainment frontier: Standard Definition DVD Playing and Recording, HD-DVD Playing and Recording, Internet VOD, Home Video Editing and Recording, Music, Digital Photos, 'Time Shifting' and Recording of TV content, Gaming all with Advanced Digital Rights Management (an essential component for studios) all connected to the Internet [For more of how the pieces fit together check out their "Media Center Edition of Windows XP" as well as "Ultimate TV" and "X-Box"]. If I were a betting man, I'd put my money squarely on Microsoft. They're leveraging so much more than just HD-DVD here that I'd be very surprised if they don't beat out Sony.

HD-DVD The Real Issue
But a format war might be a moot point if the studios can't figure out how to make the next generation of DVD compelling for people to buy. As it stands now the key selling points for HD-DVD are: 1) it's got much better copy protection than DVD (something that was repeated over and over and over again through out the day); 2) it has higher resolution picture; and, 3) "Interactivity". When pressed about what exactly 'Interactivity' means, the best response I could get was a 'Wow Experience', but throughout the day no one could really quite define or describe exactly what that was. Unfortunately, I believe no one can define 'Interactivity' because they simply don't have any idea what it really is. Studios on the whole seem to be a little surprised at just how successful DVD is, and just how popular all special features are with consumers, I think they are hard pressed to come up with anything to 'one up DVD'.

When you really boil it down, the rush to HD-DVD is less about what consumers want or need and more about the needs of the studios. The two biggest issues facing studios are copy protection and an end to the explosive growth of home video. Studios somehow think that they can capture lightning in a bottle and re-create the DVD explosion with HD-DVD. Several presenters at the DVD in 50 convention likened the launch of HD-DVD to a 'PS-2' type event with visions of consumers quickly tossing aside their DVD Players and collections and re-purchasing their favorite titles again in HD. I think some of these studios are going to get a serious wake-up call. Home Video isn't games and the jump from DVD to HD is no where near the tremendous leap between PS1 and PS2 or Nintendo 64 and Gamecube. Studios look at the consumer behavior surrounding game systems and think it can be emulated in the Home Video Market. It can't. I believe that DVD buyers are going to take more of a 'wait and see' approach to HD-DVD instead of fire selling their DVD collections on Ebay to jump on the HD-DVD bandwagon. I also think that studios are over estimating how quickly people are going to actually be upgrading their standard TVs to view HD content. Currently the FCC has a 2006 deadline for total broadcast conversion to HD. Most of the big name retailers I spoke with at the show admit that the 2006 deadline won't be met and they don't expect HD to be as mass a product as DVD until as late as 2010! All this combined with a format war, I fear HD-DVD has a fairly rocky road ahead of it.

Music On DVD - Getting Lost in the Picture
It's unfortunate, with such a big focus on HD-DVD, that there was very little time or attention paid to one of the most important issues facing DVD today - music. Many conference panelists pointed to the failure of DVD-Audio and the mass of the format battle with SACD, but few had any solutions. Music companies were notably absent from the conference and the chasm between them and the Home Video departments of the studios has never seemed wider. But this omission might be a disastrous mistake both for studios' Home Video departments and their Music counterparts. Music has been considered by many to be a vast growth area for DVD, and DVD is seen by many to be the great white knight that can help save a dying music industry. But many see the battle between DVD-A and SACD as one without winners and the only high note on the music front came from Image Entertainment who seems to realize just how important music on DVD is.

When talk shifted from the future of DVD to the present, things seemed a lot rosier. Studios seem to have an extremely clear vision for DVD and have voiced their commitment to delivering better and better DVD products to consumers. Last year at the conference there was a consensus that DVD consumers don't want more special features, they want better ones and the studios have really delivered. It's now common for DVD productions to follow films from Day 1 and more and more directors are not only taking an active role in the DVDs of their films; they're actually integrating work for their DVDs into their production schedules. The general drive seems to be focused on continuing to make DVDs both an extension and enhancement of a movie's theatrical experience.

2003 DVD Titles Mentioned
In terms of title specific info Columbia Tri-Star showed a reel of movies coming in 2003 including: Identity, Bad Boys II, Charlies Angles Full Throttle, Once Upon a Time in Mexico, Underworld, SWAT, Hollywood Homicide, Daddy Daycare, Radio and Mona Lisa Smile. Other studios DVDs discussed for 2004 include: The Hulk, Bring it On Again, Casper, Finding Nemo, X2, The Fast and The Furious 2, Legally Blond 2, Sinbad, and of course The Lord of the Rings Two Towers Extended Edition.

The Lord of The Rings
A tiny bit of info on the Two Towers DVD. At the DVD in 50 Conference we learned that Peter Jackson has held back some exceptional stuff from the first two Extended Edition DVDs which is slated for inclusion in the final Return of The King Extended Edition. This was done in an effort not to spoil the third film for movie goers before it was released. One scene which was at one point part of The Two Towers Extended Edition (a flash back to the creation of Gollum) has been actually pulled from the Extended Edition DVD to be used in actual upcoming theatrical release for The Lord of The Rings - The Return of The King. One very encouraging note for Lord of the Rings fans who have bought or are planning to buy the Extended Editions - New Line has stated that they are not going to punish loyal fans who buy their Extended Editions buy putting out some sort of other 'Super-Ultimate' Edition or Collection after the third film is out. So your investment in the Extended Editions is safe.

Final Thoughts
Even though there's some bad news and real possible trouble ahead for the next generation of home video, the present is simply fantastic. Now may very well be the 'hey day' for home video. There is, however, a ray of hope for the future. The Studios do acknowledge that the customer is now in the driver seat when it comes to entertainment, so despite all their obsessions with copy protection and getting people to buy the same film over and over again, they do have a sense that they can't do it alone. Without the excitement and enrollment of movie fans the DVD phenomenon won't be repeated.

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