US Report: DVD seeing off Divx threat

Consumers confused by two standards in the digital video disk market may not have to wait much longer for the smoke to clear.
Written by ZDNet Staff, Contributor

The reason: Consumer electronics retail chain Circuit City Stores Inc. -- a strong proponent of Divx -- has failed to realise its ambitious plans for the digital video market, according to industry executives and analysts. "Divx is the Beta format that will never make it," said John Freeman, the president of Strategic Marketing Decisions, a consultant in the US.

Freeman estimates that 5.3 million DVD players will be sold this year while another 8 million DVD-capable drives will be installed in PCs. Conversely, he expects Divx -- which will have its nationwide launch in October -- to result in sales of fewer than one million units.

Tuesday marks the one-year anniversary of Circuit City's announcement of its partnership with Los Angeles-based law firm Ziffren, Brittenham, Branca & Fischer to create the digital video rental model known as Digital Video Express, or Divx.

Divx allows consumers to buy a disk for $4.50 (£2.50) -- about the price of a video rental. From the time the disk is inserted into the special Divx player, customers have 48 hours to watch the movie. After that, they'll pay a fee every time they watch the movie. The advantage, said Josh Dare, spokesman for Digital Video Express LP, is the absence of late return fees. "We are aiming for convenience," he said. Normal DVD movies would have to be rented like VHS tapes.

Looking at it from a different angle, Divx allows retailers to cut into the lucrative video-rental market, which averages 10 million rentals a day in the United States, according to Divx's Dare. The format debuted in June in Circuit City and Good Guys stores in San Francisco and Richmond, Virginia. Yet, the reception has been muted. "We have only sold about five to seven Divx players a week," said one Good Guys store manager in San Francisco, who asked to remain anonymous. The consumer electronics retailer will sell Divx players in 70 stores nationwide from October. DVD players, on the other hand, "are selling really well," said the manager. The Consumer Electronics Manufacturers Association reports that more than 440,000 DVD players have been sold this year, driving the sales of more than 4 million disks.

Circuit City delayed its nationwide launch from September to October. What's more, its first manufacturer of Divx-compliant players, Zenith, has dropped the offering from its line due to unrelated financial troubles. While all the major Hollywood studios are planning to release movies on DVD, Time Warner Video and Sony Pictures Entertainment (the owner of Columbia and Tri-Star) have refused to commit their large library of films to Divx. Both Time Warner and Sony are part of the DVD Forum, and have a vested interest in the future of DVD. "We are not really going to read anything in what has happened so far," said Dare. "It's after the fall rollout that counts."

Dare said that the company expects to inundate the market with about 2.8 million Divx disks and new Divx players from Panasonic, RCA, and Proscan by the October kickoff. Still, that does not add up to more titles. Already, DVD has racked up over 1,600 movies re-mastered to its format, while Divx has a little over 300. Just an early lead, or something more? More, according to SMD's Freeman, who suggested that Divx was a high-tech way of squeezing more money from consumers. "I can't imagine having kids and a Divx player," he said. "The first time that you get a $200 bill after letting the kids play movies over the weekend -- that player is history."

Divx's Dare thinks the criticism is misplaced. "We are not in the race with DVD," he said. "All the titles that can play on a DVD player can play on ours as well." Yet, the reverse is not true. And that has many videophiles teed off. Freeman is not alone. Sites are popping up across the Internet attacking the nascent format. Other sites are trying to attack the convenience of the Divx format.

On Tuesday Blockbuster Video in the US announced plans to rent DVD to customers through 500 of its 3200 stores. Netflix.com, an Internet-based company, is already letting customers rent DVD disks. "We can beat Divx on both its claimed advantages," said Te Smith, spokeswoman for Netflix.com. "Convenience -- we can deliver right to your door and our return mailer is prepaid and pre-addressed. Lower cost? For $4, you can watch a DVD disk in your home for 7 days." Netflix allows users to order movies, which it will deliver within 48 hours. If you like the disk, you can keep it and Netflix will discount the price of the rental from the purchase price.

On Tuesday, Internet service provider America Online announced a three-year, $15m (£9.15m) deal to give online store DVD Express Inc. premiere placement on its sites.

With interest like that, Divx's battle to convince consumers that a second format is necessary will be entirely uphill.

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