Today @ VSDA: Wednesday, July 8th

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page created: 7/9/98

Today @ VSDA!

Wednesday, July 8th

The Las Vegas Convention Center.

At last, we're at VSDA '98! By word of explanation, the Video Software Dealers Association is an organization that works to promote and support the large network of video retailers here in the U.S. - anywhere from mom and pop video stores to big chains like Blockbuster and Best Buy. Their annual convention is like a giant supermarket for home video product. All of the major and independent video software producers come here to show off their latest and upcoming product. For example, Fox is already crowing about this fall's VHS release of The X-Files: Fight the Future, and of course Paramount is pushing Titanic. In addition to software vendors, dozens of companies that produce support materials for video stores are present - people that manufacture shelving units, cases for VHS and DVD rental players, rental packaging for video product - you name it. The goal of everyone who exhibits here at VSDA: to get video retailers to buy their product.

The entrance to VSDA. Note the inflatable Robot from Lost in Space.

The first order of business was to hit the Press Room. It's here that the latest press releases from the studios are posted, so that reporters can send them out to their respective publications in time to make their deadlines for the day. In this case, once the VSDA doors open at 10AM, there is a two hour window for any big announcements to be made, before the noon cutoff. So if an announcement isn't made by noon, it isn't happening that particular day. As most of you know by now, the only announcement made today was confirmation of Warner's new three-tiered pricing structure for DVD (a move I'm pleased to say that was revealed first in the Digital Bits Rumor Mill). I've included the full press release for those who wish to check it out. As far as other DVD announcements we all hope to be made this week, read on... I've got some insight later in today's update.

The DVD Video Group luncheon.

In addition to displaying product, VSDA is a resource for information about the industry. So after checking the press room, I shared a cab with Image's Garrett Lee, to the DVD Video Group's luncheon at the Mirage Hotel. I knew in advance that the meetings of this group would constitute the 'inner sanctum' of DVD activity here at VSDA, and any good report of the DVD goings-on here, would be remiss without a summary of this event. But even I was surprised at the heavy-hitters present. Among those in attendance, were representatives of nearly every major studio, hardware and retail supporter of DVD, including Warren Lieberfarb of Warner Bros., Ben Feingold of Columbia/TriStar, and Eric Doctorow of Paramount. Other speakers at the event included Emiel Petrone (chairman of the DVD Video Group and executive vice president of Philips Electronics), Michael Fidler (VP DVD at Sony Electronics), Joe Pagano (DVD and video buyer for Best Buy), Jeff Yapp (president of Hollywood Video), and Jeffrey Eves (president of VSDA).

Warner Bros. president Warren Lieberfarb addresses the DVD Video Group.

The DVD Video Group was formed at last year's VSDA. A non-profit corporation, the Video Group exists solely for the purpose of promoting customer awareness about DVD Video. In the 15 months since DVD was first introduced, the Group's membership has climbed to some 39 members, although two conspicuously absent studios still remain to join - 20th Century Fox and DreamWorks SKG.

This day however, was about celebrating the success of the DVD format thus far. The first order of business, was to officially welcome Paramount to the DVD fold (although no specifics about their DVD plans were given - more on that later). According to Petrone, DVD's growth has been swift and impressive. Some 1,500 non-adult DVD titles have thus far been released - a number expected to climb to well over 2,000 by year's end. A total of more than 4.3 million units of DVD software have been sold to consumers, 2.8 million during the first half of 1998 alone.

Michael Fidler of Sony, told those gathered that hardware sales have been exceptionally strong - so much so, that Sony is still working to fulfill orders placed during the format debut last year. "Clearly, this is a successful product, and one of the most successful products the consumer electronics industry has even produced, " he said. In June alone, a month normally very soft for electronics sales, 63,000 hardware units were sold to retailers, making it the single best month for DVD player sales to date. 40 player models are currently available from 20 different manufacturers. Players are selling so well in fact, that CEMA apparently believes that 1 million will be sold into retail in the U.S. by the end of the year. Furthermore, Fidler noted that, "DVD impacts other areas of the C.E. industry as well," meaning that consumers who purchase DVD players, often also purchase new surround sound receivers, speaker sets, and televisions to take the greatest advantage of the format. And with more than 1,300 Wal-Mart stores, and all Target stores, now rolling out DVD product nationwide, the format's growth is likely to accelerate dramatically in the 3rd and 4th quarters of 1998.

Joe Pagano of Best Buy echoed these sentiments. "DVD is the fastest growing new technology in our company's history," he said. In fact, Pagano quoted a very interesting statistic: for every 1 player Best Buy has sold, 28 units of software are sold, meaning that consumers who adopt DVD do so very enthusiastically.

Pagano listed 4 things he believes are critical to DVD's continued success: the support of all the studios, day & date releases, more sell-through retailers (with tiered pricing similar to VHS), and active rental participation. To reinforce his own company's enthusiasm for DVD, he informed the group that Best Buy is again about to double the amount of space allocated to DVD in all their stores, from 28 to 56 linear feet.

As usual, it was Warren Lieberfarb who made the most vocal and compelling case for DVD. "There is a high probability of getting 10% DVD market penetration by the end of 2002," he began dramatically. This does not include the number of DVD-Rom drives expected to be in circulation then, nor the number of digital TV 'set-top boxes' that will also have DVD drives built in. But meeting that goal is dependent on two factors: there must be aggressive day & date DVD title availability with VHS, and it is essential that all of the studios supplying Divx provide DVD also, to create what Lieberfarb calls, "a level playing field." That way, consumers can decide which format is best for them.

To help place DVD into wider distribution, Warner Bros has created a three-tiered price structure for their DVD product - one which bases price on the strength and age of the title. They are also aggressively promoting their Warner Rental Program to retailers, which is designed to make it easy for smaller video rental stores to add DVD to their rental inventory.

Lieberfarb outlined the two biggest threats to DVD. The first is competition with digital transmission (digital cable, DBS and the Internet). But he noted that history has proven that consumers will still buy hard-copy product even when the same title is available on cable TV and VHS rental. The second, and more serious threat... is of course Divx. Lieberfarb played a Divx TV spot that has begun playing in the test markets. The spot (while in my opinion, more effective than any open DVD spot I've seen) characterized video renters as a herd of buffalo. Divx, the spot claims, offers "no more mad rush to the video store!"

Jeffrey Eves, the president of VSDA, quickly countered that, as video retailers, "we kind of like that mad rush to the video store," that Divx seeks to eliminate. In fact, it is vital to the future of the video retail industry. Eves gave the Group a preview of a new Yankelovich / VSDA study of the market, which shows a bright future for DVD. In the last 6 months, consumer awareness of DVD has increased by 105% (from 18% to 38%). "This kind of jump is extraordinary unusual," he said. 17% of those surveyed indicated that they were either extremely or somewhat likely to buy DVD in the near future, a statistic which Eves says, "portends a substantial growth for DVD in the next 12 months." But the key factor for most of those surveyed, was rental availability of DVD. Of the entire DVD market, Generation X men and women are projected to make up some 54% - a very attractive statistic indeed. Eves concluded by saying that, "I couldn't agree more, that those who have no yet jumped on the DVD bandwagon should do so quickly."

Overall, I found the DVD Video Group's meeting to be quite interesting, particularly the Yankelovich research (the full details of which will be made available on Friday). But as someone who is 'in the trenches' so to speak, with thousands of DVD consumers on a daily basis, I have some suggestions which I think the Group needs to take to heart. First of all, there must be more aggressive open DVD advertising, to increase consumer awareness of the format. More importantly, this advertising must be substantive! At the start of the meeting, Petrone showed a 5 minute open DVD promotional video, which was nothing but flash. For all it's sexy imagery, little useful information about DVD was conveyed. On the other hand, Divx's brief and simple spot clearly explained the concept. I couldn't help but think the Group is wasting a LOT of money on hype.

There is a major public misconception right now, that DVD will never be successful until it is recordable. This makes absolutely no sense whatsoever. Until all broadcasting goes digital, making DVD recordable is ridiculous. In order to convert current analog TV signals into good looking digital images on DVD, every DVD player would require complex and expensive compression software and hardware, that would make prices soar to many thousands of dollars. On the other hand, once all broadcasting is digital, the source signals are already compressed, making DVD recording as simple as copying a floppy disc is in computers now.

Clearly, positioning DVD as some sort of replacement for VHS makes no sense. So, note to the DVD Video Group: here's the ad slogan you should be using - "DVD does for movies what the CD did for music." Period. People will understand that, and instantly, DVD will be positioned in the minds of consumers exactly as you need it to be. By the way, that's a free one guys - if you use it, just send me a hat and t-shirt.

The second thing the Group should do, is create a more effective web site. Petrone mentioned that the Group's current web site (www.dvdvideogroup.com) currently gets some 5,000 hits per day. Hit counts do not equal readers, so their site probably gets some 2,000 unique readers daily. That's very surprising. The Digital Bits currently gets some 15,000 - 20,000 readers each day, and I know Steve Tannehill's DVD Resource Page can quote similar numbers. In my opinion, they clearly need to do a little more to get the word out about DVD.

But enough editorializing. The meeting was at least interesting, and all the indicators are that DVD has a bright future indeed. And I must say, I found it fascinating to have a glance at those individuals that are steering the future course of the format. But the thing I found most interesting, was seeing which studio executives who (upon seeing my name tag) either said, "Oh, you're The Digital Bits - I just read your site the other day!" or those who simply rolled their eyes, having long ago made the mistake of dismissing the tremendous power of the Internet as a marketing tool. Go figure. Anyway, click to the next page (using the link below) for a look at VSDA Day One on the show floor.

L to R: Warren Lieberfarb, Jeffrey Eves and Emiel Petrone.

Wednesday, July 8th (Page 2)