Happy Birthday, DVD!

Happy fifth birthday, DVD. My, how you’ve grown.
Five years ago this fall, a revolutionary new movie-viewing format ó shiny discs the size of CDs ó rolled out with fanfare across the North America.
Many studios and filmmakers eyed the newcomer with suspicion: Were the discs too good? Were they an open invitation to piracy? Would people really want to own movies ó and did the studios want the public to possess pristine copies of their treasures?
Those concerns have long since faded. Now Hollywood is in the content business, as eager to sell discs as they are theater tickets. Moviemakers produce DVD extras while filming so they can appeal to a public hungrier than ever for outtakes and backstage banter. And home viewers don’t just turn on the TV to watch the discs they have bought. They fire up the home theater.
This holiday season DVD will rule, thanks to a slew of summer blockbusters and favorites arriving on disc ó from box-office champ Spider-Man (Nov. 1) and Star Wars, Episode II: Attack of the Clones (Nov. 12) to E.T. the Extra-terrestrial (Oct. 22) and the Back to the Future trilogy (Dec. 17).
Consider the rest of 2002 a coronation. “If you have a DVD player, you are facing an absolutely unprecedented level of choice,” says Tom Adams, president of Adams Media Research, an entertainment industry research and consulting firm.
Among DVD owners, 38% plan to buy five or more movies on DVD by the end of the year, according to a survey of 904 last week by the DVD Entertainment Group. And 19% of those who do not own a DVD player plan to join the movement.
The public’s affection for the 5-inch disc has flourished more quickly than it did with CD or color TV. Those technologies took eight and 17 years, respectively, to sell 30 million, a mark the DVD surpassed in only four. Further evidence of the boom:
* In nearly one-third of North American homes, a DVD player is the video component of choice, having pushed aside the VCR. By the end of this year, about 37 million DVD players will have been sold in the USA, Adams Media estimates. An additional 55 million PCs and video game systems also play DVDs.
* Because DVD movies look twice as good as those on videocassette and have surround soundtracks, many living rooms are sporting new big-screen digital TVs and home theater sound systems.
Nearly 2 million digital TVs have been shipped to dealers already this year, about twice the amount at this time last year, according to the Consumer Electronics Association. Average price: $1,635. And sales of sound equipment remain brisk, with sales of home theater systems expected to triple 2000’s total.
“DVD is the biggest driver of it all,” NPDTechworld senior analyst Tom Edwards says. Consumers “get the DVD home and they know its quality is there, but the chances are they have an old television set. They end up wanting to upgrade.”
On average, DVD owners now buy 16 titles each year, compared with the six videocassette movies VCR owners bought at that format’s peak in 1996.
“I never used to buy VHS movies, but I’m totally into buying DVD,” says Heather Young, 30, of Denver, who watches those DVDs with her husband on a 55-inch TV screen. “We have two kids now, so we don’t get to the movies much. It’s easier to buy (a DVD) and watch it at home, and the quality is as good as going to the movies.”
By the time the last holiday sale is scanned into the register Dec. 31, home video sales will have set a record of $12.4 billion this year, about two-thirds of that from DVD sales, Adams Media Research estimates. This will be the second year that DVD movie sales surpass sales of videocassettes.
The DVD effect is so strong that even Hollywood, which typically changes at a glacial rate, is taking its cues from the growing format.
In VHS’ heyday, movies released on video often were never meant for consumers to buy. Priced as high as $100, they were sold to video rental chains such as Blockbuster, which would turn around and recoup their investment through rentals. Only in special cases ó Disney classics such as Pinocchio and blockbusters such as Star Warsó did they carry mass-market pricing of $20 or so.
“There was no product development,” says Peter Staddon of Fox Home Entertainment. “The product got slapped onto tape, and (viewers) watched a diluted version of the theatrical experience on a smaller TV and no surround sound. Now it’s presented in premium sound, and they have all the additional material.”
These days, separate DVD production crews prepare an expansive home version of a movie even as directors create the movie itself. As a result, movies such as Steven Spielberg’s Minority Report, in theaters June 23, arrive in stores on DVD chock-full of extras less than six months later. “It has become a huge business for studios very, very quickly,” says Kelley Avery of DreamWorks.
For an idea of how important DVD can be to Hollywood, look at the first-week sales scared up by Disney’s Monsters, Inc. The 7 million DVDs sold in the week after its Sept. 17 release is the largest DVD opening so far, amounting to retail sales of about $175 million. That’s more than the $122 million the film made in its first 10 days at the box office. To date, Monsters has sold 9.2 million copies, and its DVD gross is approaching the film’s box office total ($256 million).
The seeds for DVD’s success were sown in a 1996 agreement on technical standards by competing consumer electronics giants such as Panasonic, Philips, Sony and Toshiba, as well as the home video arm of Warner Bros., avoiding a repeat of the VHS-Beta battle at the beginning of the video era.
Yet that wasn’t the end of the fledgling format’s hurdles. When the first DVD movies arrived in March 1998, they were stocked only in seven cities. And major studios Disney, Paramount and Fox were sitting on the sidelines at the start. Players started at $500 and ran up to $1,000 or more. Some observers wondered whether DVD could even surpass the niche-market sales of laserdisc, the film fan’s format of choice in those days.
DVD is just now hitting a pocketbook sweet spot. The price of players keeps falling; the average is about $163 now, compared with $222 last year. Within seven years, DVD is expected to be in more than 90% of homes, something it took the VCR 25 years to do.
“People are used to buying little shiny discs in the CD world, and I think it naturally tapers to the DVD world,” says NPD’s Edwards. “And it’s not that expensive.”
DVD is now sounding the death knell for VHS. Circuit City in June became the first major retailer to announce the phase-out of pre-recorded videotapes in stores. “We started noticing that people coming into our stores were buying DVD movies, not VHS, so it made sense,” spokesman Jim Babb says.
Blockbuster Video is in the process of reducing one-fourth of its VHS library to devote more space to DVD. The chain also is testing a monthly rental program that lets subscribers watch all the DVDs they can watch for a flat fee.
In rentals, too, movie fans increasingly opt for discs over tapes. That is reflected in the drop in VHS rental revenue from 1999’s $10 billion to $7.1 billion this year. In contrast, DVD rental revenue is expected to almost double this year, to $3.2 billion from 2001’s $1.7 billion.
Other retailers and rental outlets also have given increasing space to DVD movies and players. Today you can even buy players at grocery stores, sometimes for less than $70. And discs have become impulse buys; some are priced at $8 or less. More than 18,000 movies and music videos have been released on DVD. (Some notable holdouts include the original Star Wars trilogy and the Indiana Jones movies.)
Studios continue to release ever-more-elaborate DVD packages.
The Lord of the Rings: The Fellowship of the Ring, in theaters last December, arrived on DVD in August. But a “special extended” four-disc edition, with 30 additional minutes of footage added to the film and two discs of extras, is due Nov. 12 ($40). A premium collector’s edition ($80) also comes with a pair of Lord of the Rings bookends.
The Spider-Man DVD, a two-disc set that is perhaps the most hotly anticipated upcoming release, could net the top spot from Monsters, Inc. Columbia TriStar is shipping 25 million DVDs and VHS copies to retailers for the release, says Benjamin Feingold, president of Columbia TriStar Home Entertainment. “We hope it is the biggest seller of all time.”
The DVD has two documentaries, one on the making of the movie and another on the history of the Spider-Man character, plus an exclusive art gallery and comic book archive. “It’s completely loaded,” Feingold says. “We want to make the DVD even more exciting than the movie.”
For many movie fans, the extras make the sale. Los Angeles attorney Richard Simmons, 50, has recently bought MGM’s collections of James Bond films.
“You get segments on the directors and histories of each of the movies ó so much more than was ever made available on VHS,” he says. “You get a much higher level of enjoyment both from an audio and a video perspective.”