February 2, 2001 10:50 AM PST

DVD taking over living rooms, PCs

As sales continue at a rapid pace, analysts expect DVD players to eclipse VCRs in worldwide shipments within three years.

Shipments of DVD players are expected to be up 48 percent this year alone and will overtake VCRs in total units shipped worldwide by 2004, according to market researcher Cahners In-Stat Group. The firm forecasts 28 million DVD players will be sold worldwide in 2001, up from 18 million last year and 9 million in 1999. That number is expected to reach 60 million units by 2004, eclipsing VCR sales. Sales of VCRs typically top 20 million units a year in the United States and more than double that figure worldwide, according to Cahners.

That 60 million figure includes evolving DVD products, such as combo TV units, DVD changers and home-theater-in-a-box products. Many of those combo or home-entertainment devices, until now, incorporated VCR technology.

Holiday DVD sales again set a record-breaking pace, according to market researcher NPD Intelect. Retailers sold 2.4 million units, up 108.3 percent from a year earlier. While retailers sold more VCRs (2.9 million units) than DVDs, sales declined 4.5 percent year over year.

VCRs have held on this long because of their ability to record TV programs, said Cahners analyst Michelle Abraham. Most consumers buying DVD players, which offer crisper movie playback and audio than videotapes, still use VCRs for recording.

"Even if your VCR gives out and you have a DVD player, you're still going to go out and buy another," said Abraham. "People still need the VCR to record."

While Panasonic sells a DVD recorder and Pioneer is expected to offer one in the first half of this year, prices around $2,000 have scared off most consumers, say analysts.

"But Pioneer has said they intend to get that price down to below $1,000 in time for the holiday-selling season," said Abraham.

But PC Data analyst Stephen Baker said a $1,000 price tag is still too high. "You won't see a significant uptick in volume until $499," he said.

The problem is the chicken-egg scenario, Baker added. "Manufacturers say, 'We can't reduce the price until the volumes go up, but we can't get the volumes up until we reduce the price,'" he said.

Abraham agreed that $500 is the magic number and that "unit shipments would not reach the millions" before "falling to that price."

As DVD sales are booming, computer DVD drives are finally beginning to pick up momentum. Four years ago, analysts and PC makers expected DVD drive sales to rapidly overtake CD-ROM drives. But sales have plodded along, particularly as consumers have craved CD-RW (rewritable) drives for creating music discs.

Market researcher Dataquest forecasts DVD drive sales will catch up to CD-RW for the first time next year. By 2004, Dataquest predicts 105 million DVD drives will be shipped, vs. 28 million CD-RW drives.

The transition is starting at retail but has a long way to go, according to PC Data. About 22.7 percent of retail PCs sold in December packed DVD drives, up from 21.5 percent in October. But CD-RW continues to dominate, with drives on 46.3 percent of retail PCs sold in December, up from 38.2 percent in October.

DVD recording
DVD recording is expected to storm the PC market before reaching the home electronics segment. Pioneer this month is expected to ship to computer makers a DVD recorder drive for use in PCs. Apple Computer and Compaq Computer already have started taking orders for systems offering DVD recordable drives. Sources close to Dell Computer said the company also plans to offer the drives.

Interestingly, DVD caught on with PCs first before finding its footing in the consumer electronics market. In fact, Dataquest analyst Mary Craig said DVD-enabled notebooks helped fuel DVD player sales.

"People saw how good the movies looked and decided to get a DVD player for the living room," she said.

DVD recorder drives are expected to find their niche in the PC market and expand to consumer electronics. IDC forecasts the CD/DVD-recordable market will be the fastest-growing optical storage segment, expected to register 45 percent growth compounded annually through 2004.

Dataquest sees similar trends, projecting manufacturers will ship 1.8 million DVD recordable drives this year, up from about 600,000 in 2000. The market researcher sees the DVD recordable segment swelling to 13.8 million units by 2004.

But several problems could stall adoption, making analysts somewhat cautious about how quickly the market can grow.

Pioneer's standalone drive is expected to carry a manufacturer's suggested price of $950, selling for around $799 on the street.

"That's just too high," Baker said.

Abraham agreed, noting that PC makers are paying $350 for Panasonic's DVD-RAM. "I don't see them paying any more for Pioneer's drive."

But the bigger issue is bloated media cost. In January, Andy Parsons, Pioneer's vice president of product development, told CNET News.com that DVD recordable media would cost between $10 and $15. He projected DVD rewritable media, capable of recording multiple times on one disc, would cost $20 to $25.

Apple does not yet offer DVD recordable media, but Compaq sells five packs of discs for $99, although as a promotion the company offers six free discs.

"That's not what Pioneer was saying; $10 for the (recordable) discs, $20 for the RW discs," Abraham said. "It sounds like they have a long way to go if the media is coming in at $20.

For comparison, CD-RW drive sales remained modest when recordable media cost an average $2 but soared after prices fell below $1, say analysts.

The other issue affecting sales is competing DVD recordable formats, and this equally affects DVD recordable drives and consumer devices, Abraham said. DVD-RAM, the first format to reach the market, has lost some momentum. Longtime DVD-RAM supporter Apple, for example, has unofficially stopped offering the recordable drives.

Abraham and Craig predicted fierce competition between Pioneer's DVD-R/RW format and DVD+RW, which is backed by Hewlett-Packard, among others.

"The real question is whether consumers will ignore a couple of competing formats," Abraham said. "I spoke with a local consumer electronics store manager recently, and he wasn't too excited about the competing formats." She believes this will be a fairly typical reaction.

When two competing 56kbps-modem technologies vied for dominance, manufacturers were later able to offer software upgrades that met the finalized modem standard. That is not currently the situation with competing DVD recordable formats.

"I haven't heard that manufacturers could fix what's already installed," Abraham said. Only Sony has committed to releasing products supporting both DVD-RW and DVD+RW, but that is not expected until sometime next year, she said.

"Absolutely, uncertainty about formats could be a problem," Abraham said.

 

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