Ejected for good?

Fast-forwarding video consumers may forsake today's formats as more movies become available 'on demand.'

Two decades ago, when VCRs offered Americans a way to take the silver screen's best offerings home to the small screen, they embraced it.

Videos quickly became a home-entertainment behemoth. Sales and rentals topped $20 billion last year, nearly three times the domestic box-office take, according to Variety magazine. And consumer-electronics trackers note that sales of digital-video disc players, successor to the videocassette recorder, doubled last year. Nearly 6.5 million were sold in the United States.

But nationwide, video stores are struggling. According to the National Association of Video Distributors in Owensboro, Ky., between 1998 and the fall of 2000, more than 4,000 of the nation's 25,000 retailers shut down. And last year, the share price of the nation's top two video retailers - Blockbuster Video and Hollywood Entertainment Corp. - dropped more than 50 percent.

After 20 years of growth, many experts conclude, the video business may be cooling. One reason: A promising litter of fledgling technologies is nipping at its heels.

Two trends in particular stand out. Video-on-demand (VOD) services can "stream" DVD-quality films onto a TV or computer monitor via the Internet. And digital video recorders (DVRs) customize TV and movie viewing as never before.

They are designed for the digital age now dawning, in which immense amounts of data are stored in bite-size files and transmitted around the world in seconds - or less. Compared with the VCR, now a granddaddy of consumer electronics, these products have more power and flexibility. They save time and broaden choice. And, experts argue, they could make movie hardware like VHS tapes and DVDs obsolete.

The VOD concept, with its promise of remote access to a vault of Hollywood archives and new releases, has been long anticipated. Finally, a host of cable, Internet, and telephone companies are now rolling out competitive services.

This is similar to pay-per-view on cable, but with clear advantages. Because the movies are ordered and broadcast on the Internet, they are available at any time, not just at set hours. Viewers will be able to choose from among thousands of movies. Moreover, the films' digital packaging makes it possible to pause, stop, and rewind - just like a physical tape, but without the need for a VCR.

Not surprisingly, video-rental chains have taken notice. Some, notably Blockbuster, have even launched VOD operations. The Dallas-based retailer is now streaming movies directly to homes in New York City, Portland, Ore., Seattle, and parts of Utah. Current titles include "Dances With Wolves" and "Fargo." One viewing costs about $5.

Services like Blockbuster's are in their nascent stages, but interest is widely expected to accelerate. Some experts suggest that in five years, Internet-based video will be the No. 1 way in which people watch movies.

"It's significant that even the largest video retailer sees the future is in electronic direct home delivery," says Marcy Magierea, editor of Video Business Magazine. "Blockbuster is trying to leverage their brand name into the business because they definitely think it's going that way."

Other VOD providers include Time Warner's cable service, long-distance phone company Verizon, and websites like Insight.com. The movies simply require a means of travel - be it a cable or a telephone line. (Beware of most Internet services, experts warn. The quality is often terrible.)

Where VOD provides more of a movie-rental function, digital video recorders replace and expand the VCR's recording features. DVR services, most notably Replay TV and Philip's TiVo, are slowly finding an audience. They are set-top boxes about the size of a VCR. The device's hard drive converts television signals into digital data. When the user wants to watch the program, the data is converted back into a TV signal.

By accessing TiVo's playlist screen, users can set it to record as much as 30 hours of programming (a pricier model records 60 hours). The list, which previews two weeks of TV shows and movies, is updated daily through a phone connection.

Unlike VCRs, DVRs can record one show while playing a prerecorded program on-screen. Users can also pause or rewind the show as it records. Like VOD, the recorders give users more choice, save time, and reduce the need for tapes and DVDs.

"The ability to customize television watching is going to become extremely popular," says Kara Swisher, a technology columnist for The Wall Street Journal.

The hardware for Replay TV costs about $700. TiVo costs about $400, but with an additional $10 monthly subscription fee.

Barriers to a boom

Cahners In-Stat Group, a media research firm in Scottsdale, Ariz., predicts 23 million people will subscribe to video on demand through phone lines alone by 2005. (The number of cable subscribers will likely be much larger.) And 10 million digital video recorders will be shipped by 2004, according to IDC, a technology research firm in Framingham, Mass.

Still, the technologies face significant hurdles before they can attract a mainstream audience. One barrier: data-storage capacities are limited for both online content suppliers and home units.

Intertainer, a Los Angeles-based Internet VOD service backed by Intel, Microsoft, and NBC, now owns about 10,000 titles but can only offer 300 at any one time, and only in seven cities.

"Cost, not technology, is really the issue. Without a large base of customers, it just isn't profitable yet to store so many titles," says Jonathan Taplin, Intertainer's chief executive officer.

A new role for the VCR?

Similarly, a digital video recorder's storage capacity is expandable, but at a significant manufacturing cost. The current 30-hour limitation on most DVRs might be too restrictive for movie watchers who want to save many of their favorite films. They could hook up a VCR to their DVR and keep a pile of tapes.

But once consumers start streamlining, they may not want two big boxes with overlapping functions crowding their entertainment centers.

In addition, bringing all of this media into the home requires faster Internet access. VOD works best with high-speed, broadband connections to transmit a clear picture at a normal speed.

Broadband costs about $100 to install and about $50 a month in subscription fees. It's available via cable or on a digital subscriber line (DSL). But residents in most regions of the country, Silicon Valley included, are hard pressed to find a company offering the service.

"The video-on-demand market will grow in lock step with digital access in the home," says Derek Baine with Paul Kagan Associates, a movie-industry research firm. "We're expecting 50 million digital-cable subscribers alone by 2006. By that time [VOD] will be broadly deployed."

(c) Copyright 2001. The Christian Science Publishing Society

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