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Glass Houses: Optical Disc: Down, but not Out
Posted Aug 19, 2003 Print Version     Page 1of 1

Will new strategies like limited-play DVDs or the resurrection of the "45RPM single" on disc really keep consumers renting and buying rather than illegally downloading and burning their entertainment? Not likely. Those who are comfortable and technology-savvy enjoy downloading. But there are tons of other people who don't know the difference between video-on-demand, pay-per-view, broadband, or any of the other technologies that let them get their movies or music via "alternative" delivery methods. Most consumers still see DVDs and CDs as the best way to get their entertainment, so replicators certainly shouldn't put their houses up for sale and apply for unemployment just yet.

Recently, I attended Yankee Group's Connected Consumer Conference in New York. I sat in on several round tables with people talking about networks and convergence devices and all kinds of fun and unique ways to give consumers what they want now! Blockbuster CEO John Antioco's closing speech put it all into perspective. "With the purchase of some wireless home networking hardware and software and perhaps a computer science degree, you can transfer a file from your PC to the television," he said. "Why would you do all that when it's just as easy to drive five minutes and rent a $4 DVD?" For most consumers, driving to the store is actually faster than downloading.

Here are a few other interesting statistics revealed at Yankee Group: 90% of U.S. households have televisions; 65% have PCs. But all those home PCs are useless for entertainment downloading without broadband connections. Right now, according to Yankee Group, only 16% of PC households connect to the Internet in this way, although that number should rise to 21% by 2003. Use of VOD will rise as well. By 2006, the research group says there will be 32.5 million subscribers. In 2002, that number was only 6-8 million.

Yankee Group also did a separate survey of 13-24 year olds who said they download because they can't get a particular song or movie anywhere else, and because it's convenient. Flexplay's new limited-play technology, EZ-D, approaches convenience from a different angle. Consumers will still have to go to the video store and get the DVD they want. However, as long as the package is not opened, they can take up to a year to watch it. Once it's opened, though, they have 48 hours to view it. After that, it becomes unwatchable. I'm not sure if I like the 48-hour thing, considering that sometimes (as a working mom) it takes me five days to get through a movie. But Buena Vista Home Entertainment is sold; they'll test-market the product beginning in August with the release of five movies: The Recruit, The Hot Chick, 25th Hour, Frida, and Signs.

The good news here for replicators, according to Flexplay's Art LeBlanc, is that although Flexplay uses a new polycarbonate copolymer developed by GE Plastics, it processes similarly to traditional polycarbonate. Replicators can also use the same molds, molding machines, and mastering techniques they use to produce a standard DVD. There's also packaging automation, but it will require replicators to purchase new machines. Technicolor will be the first replicators to make Flexplay discs.

EZ-D discs are recyclable, and as distribution points are expanded, LeBlanc says Flexplay will find new ways of getting the discs back to the stores for recycling. However, before even the first disc ships, LeBlanc says there a recycling plant will be ready to take in product. Ultimately consumers will have to bring the discs to a drop-off place as they do with soda cans, but there is no time limit as to when they have to do so, LeBlanc explains. No late fees!

Everyone knows that DVD is keeping the optical-disc business alive. CD sales, on the other hand, continue to drop. Sixty-seven percent of the 13-24 group said they have downloaded music in the last three months. The reason: they don't want to purchase a CD for $20 if they only want or know one song. Enter the "single," finally making a comeback. Arista (a BMG label), has recently released RIAA-certified DVD singles from Avril Lavigne, P!nk, Usher, and TLC. RCA (another BMG label) is also pushing American Idol CD singles from Ruben Studdard and Clay Aiken. Arista senior VP Jordan Katz says they expect to sell about 200,000 of each.

While some would argue that singles cannibalize album sales, Katz disagrees, as do I. I bought Aiken's single, and I know I'll buy the full CD when it hits the stores this fall. "I've always believed different audiences buy the single versus the whole CD," says Katz. "We did a test with Universal in three markets last year. We released radio singles commercially in Boston, Detroit, and Houston and found no cannibalization of full CDs." Arista has released 13 singles (CD or DVD) in 2003 so far, but I sure hope they start to release newer songs. This summer, Arista is planning to release Lavigne's "Complicated." That's old news; we need Billboard's Hot 100!

The National Association of Retail Merchandisers (NARM) is going from label to label to ask them to put singles back on the front burner. Virgin Entertainment Group (VEG) has launched a new initiative called "Save the Single." Virgin Megastore locations will devote more rack space to singles and actively promote product in-store. Billboard reports that Virgin is putting more than 70 singles on sale at two for $10 in order to stimulate consumer interest. Fifteen labels have reportedly committed to releasing more singles.

While no one would deny that downloading is an important part of our culture, and that it's growing, there the need for brick-and-mortar shopping remains. Blockbuster's Antioco notes that only 37% of people know what title they want when they enter the video store. I'd guess the numbers in record stores are similar. Browsing is key. Antioco must be onto something: Blockbuster reported record earnings for first quarter 2003, up 14 percent from the same time last year. And all those DVDs came from replicators.

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