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2 Sep, 2003 By: Holly J. Wagner

Just when DVD players are hitting the 50 million household mark, a Forrester Research analyst is predicting that the end of the DVD world is near. Well, maybe not near, but you can see it from here.

“We're not talking about DVDs becoming obsolete in five years, but we're talking about seeing the beginning of the end in five years,” said Josh Bernoff, principal analyst at Forrester and author of the report “From Discs to Downloads.”

Industry sources and DVD enthusiasts are not convinced the end is anywhere in sight.

“I still think there is something to be said about putting a DVD into your collection with the liner notes and the artwork. It sits there on their shelf and it's part of a collection and it's there whenever they want to enjoy it,” said Ron Epstein, moderator of the Home Theater Forum. “I love the fact that I've got shelves lined with these things. Some people collect miniatures. For those of us who are into this hobby, I can't see any other way obliterating the way we do this now — to go to the stores, browse the titles and hold something in your hand. They're always going to make money from the collectors.”

Video Software Dealers Association president Bo Andersen said the report misses the mark.

“The fundamental point that this report misses is that video sales and rentals are growing, and we predict they will continue to grow. We don't see DVD becoming obsolete any time in the foreseeable future. To the contrary — the next-generation DVDs are a perfect vehicle for movies in high definition.”

Forrester's Bernoff doesn't believe bonus materials or improved formats can save the disc in the long run.

“Five years from now they will find out that they put a lot of effort into something for nothing,” he said. “It is much easier to go to high-definition VOD than it is to go to high-definition DVD.”

Years of DVD Growth Still Ahead

But Andersen, like many others, believes there are still a lot of good miles left on DVD.

“Video has always been underestimated and has shown a remarkable ability to adapt to competitive challenges,” he said. “The consumer favors DVD over current online and cable movie services, and, in the future, enhanced DVD technology will allow DVD to maintain its predominance in the marketplace.”

Movie companies are already starting to follow music companies online, with legitimate downloading and streaming services like Movielink.com and Cinemanow.com to counter file-sharing piracy.

While 20 percent of Americans engage in music downloading and half of those admit to buying fewer CDs, video file-sharing has also become more prevalent. One in five young file-sharers has downloaded a feature film, Bernoff said.

VOD Households On the Rise

But the larger threat to rental is cable VOD, and along with other on-demand movie distribution channels it will account for close to 15 percent of the movie rental business by 2005, Bernoff predicts.

“Consumers right now perceive that they can't get a good title unless they go to the store. There is no difference between the MPEG stream coming off your DVD and the MPEG stream coming over your cable.”

What is different is the release window. For now.

“Studio executives are very rational about distribution,” Bernoff said. “They are willing to support cable and VOD. I think you will see the VOD window become day-and-date with the rental window. It's insane not to, when you have 10 million VOD households, 22 million in the next year and 30 million by 2007.”

The implications of a shift from hard media will shift the balance of power in the entertainment industry.

“I think that five years from now the DVD business will still be healthy. But 10 years from now, when they are trying to introduce new [high-definition] formats, people will say, ‘What's the point?' If you're a movie studio, that's great. If you manufacture discs, it's a disaster. If you rent discs, you're in trouble,” Bernoff said.

Although Forrester's data shows that movie piracy is on the rise, the film industry's problems lag the music industry by three years.

“Entertainment executives [who are] focused on the short term — fighting piracy — are losing track of the long-term consequences,” he said. “On-demand services are the future of entertainment delivery. CDs, DVDs and any other forms of physical media will become obsolete.”

On-demand movie distribution will generate $1.4 billion by 2005, while revenue from DVDs and tapes will decline 10 percent between 2006 and 2008, Bernoff predicts.

“Music and studio executives are finally beginning to understand they must create new media services through channels that consumers will pay for. Consumers have spoken — they are tired of paying the high cost of CDs and DVDs, and prefer more flexible forms of on-demand media delivery,” he said. “Additionally, technology trends like increased broadband adoption and cheap, widespread storage have made it possible for consumers to easily manage their digital entertainment at home.”

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