DVD TO BECOME A 'MUST CARRY' -- PETRONE

DAN ALAIMO

LOS ANGELES -- Technological revolutions are old hat to Emiel Petrone.

Petrone, founder and chairman of the DVD Video Group, Los Angeles, and executive vice president, Philips Entertainment Group, Beverly Hills, Calif., was a key player when compact discs were introduced in the early 1980s and founded the Compact Disc Group of America to bring manufacturers together to increase consumer awareness of the new music format. He now leads a similarly constituted industry effort to market and promote DVD video.

The Compact Disc Group resulted in the very successful launch, and now with DVD, the old sales records for an introduction of a new electronics format have been shattered. At the beginning of 1999's fourth quarter, it appears that DVD will become a mass market entertainment format far more quickly than anyone anticipated when it was launched in early 1997.

DVD hardware has plummeted below the critical $200 price point, most major home video releases are coming out on DVD the same time as VHS and the DVD Video Group has coordinated a huge fourth quarter marketing program involving five studios and seven DVD hardware brands. As a result, DVD will soon become a "must carry" product for supermarkets serious about offering home entertainment software, said Petrone in an exclusive interview with SN.

"The demand is going to be there. This is not for the videophile, this is for the mass market and as the number of machines proliferates, you are going to see more and more stores carrying it," Petrone said.

"I haven't come across any segment of the market that's carried DVD and come back to say, 'These things are not selling or renting as fast as I would like them to.' Those who started out in the DVD business have continued in the DVD business, and have expanded. The supermarket people will have the same experience," Petrone said.

"DVD is a total consumer product. I don't see any retailer that is selling any kind of video product today that shouldn't be selling or renting DVD," he said. With penetration of only 2% or 3% of U.S. households, DVD sales so far have been mostly incremental business "and that is a very positive thing for both sides of the software world, the retailer and the supplier. But when you go into stores now and you look at how drastically the DVD titles have expanded, it's only a matter of time before consumers will demand only DVD and that will eventually cannibalize some of the VHS business," he said.

During the July convention of the Video Software Dealers Association, Encino, Calif., the DVD Video Group reported revised projections for DVD hardware sales. The group expects the installed base to grow to 3.5 to 4 million units by the end of the year. There are now over 2 million DVD players in U.S. homes, the group said, citing numbers from the Consumer Electronics Manufacturers Association, Arlington, Va.

Hardware sales increased 300% for the second quarter of 1999 over the second quarter of 1998, rising from 170,000 units to 730,000 units. Software is making similar progress. Over 56 million DVD software units have shipped to retail since the format's spring 1997 launch, more than 200 new titles are being released on DVD each month, and the DVD Video Group predicts that there will be about 5,000 titles available by the end of the year.

"It's above our projections, and I think you are going to see even more aggressive projections after the second quarter results." Consumers have embraced DVD because of the improved resolution and other technical enhancements, but another key reason is the studios releasing the vast majority of new titles on DVD the same date as on VHS, he said.

"We envision the penetration of DVD getting stronger and stronger as time goes on," said Petrone. "I've never seen numbers like this for a new technology and I've never seen promotions like this, where the industry is clamoring to get the message out to the consumer. So I think you'll see an unusually big fourth quarter this year for DVD for both the hardware industry and the content providers," he said.

The fourth quarter promotion put together by the DVD Video Group will help build awareness. "You see two monster industries promoting together with a single goal of sending a very strong message to the consumer that DVD is here, and if you buy a DVD player you're going to get X number of movies free of charge. That's a big incentive," he said.

From the beginning, the hardware manufacturers and the studios have been working together "to bring consumer awareness to the media, to the trade and ultimately to give the consumer another strong rationale to get involved with DVD," he said.

DVD hardware sales for the introductory period outpaced VHS by 10 times and are four times greater than CD, he said. "So this is the largest and quickest market introduction in consumer electronics history."

The studios are taking advantage of DVD technology to put extra content on the discs, such as outtakes, making-of featurettes, director's commentaries and Internet links. "That's the part of the perceived value of DVD that I think people really feel strongly about," said Petrone.

With hardware price points dropping below $200 and important content coming out on DVD, like "Titanic" and the Disney masterpieces, consumer resistance is dissipating. "The consumer is not only embracing this technology, but feels very confident because the trade is carrying it, the (electronics) brands they are accustomed to have DVD players in their lineups, and there's no more confusion about DVD and Divx," he said. The limited-play Divx feature, backed by Circuit City, Richmond, Va., and a Los Angeles law firm, was discontinued in June.

Many questions have yet to be resolved, such as whether DVD will follow the VHS rental pricing model, and how secondary titles -- also known as B movies -- fit into the DVD market. "The video industry is committed to DVD as a natural extension of what they did with VHS," Petrone noted, adding that eventually DVD will replace VHS.

"Don't forget, one of the big consumer demands on DVD is the recordable aspect of it and that's coming right down the pike," he said. Petrone said recordable DVD players are about a year away.