All dressed up and no place to go

DVD has been a long time in the making, but it has finally hit European shores. The only drawback is there aren't any applications yet.

With the first digital versatile disc (DVD) drives trickling into thean shores. The only drawback is there aren't any applications yet. European market, bemused punters will soon be asking the overriding question. What exactly does DVD do?

So far, the DVD debate has been a will-it, won't-it affair over hardware, copy protection, spin speed, capacity and disc standards, not forgetting the Dolby-against-Mpeg debate. What we're left with then is a market for European DVD-Rom applications that has several players and no applications.

Even in the US, where between 600 and 800 DVD films are already available, there's barely a DVD-Rom to be seen. In fact, the early DVD software market is almost entirely film-based, with world sales guessed at 1.5 million players and 1,000 separate titles by the DVD Forum.

'Realistically, the drive we are offering is a little premature,' admits Paul Nolan, marketing manager of distributor PPCP, which has quantities of a DVD drive for notebook users. 'Even in the US there are video and film applications for DVD and I suspect there will be a number of programs in the next few months, but not in the UK,' he adds.

Nolan makes the basic case for current CD-Rom interactive applications migrating to DVD: 'The programs are getting heftier and heftier, so there will be a need for commercial software to move. For the next six months DVD software will be confined to the professionally authored market, but after that date we will see in-house discs too.' And that, he says, will be the impetus for using DVD in the business environment.

The dramatic rise in the use of CD recordable (CD-R) in business provides a template for the way the DVD business market might move, but there are problems. A DVD-Rom player cannot play CD-R discs, and the DVD-Ram players that can record DVD discs are still not in production. But, if large companies want to put out a disc for commercial duplication like in-house training, for example, then the capacity does already exist. 'For catalogues and video training it could be wonderful,' Nolan claims. 'That's for international companies. Yet, the people driving DVD at the moment are undeniably film companies. But everyone is looking for more storage than is possible on CD-R and this is it.'

Sharing Nolan's optimism are the duplication houses Nimbus and Disctronics, that have both set up UK-based DVD duplication facilities. Nimbus plans a five million unit European capacity in 1998.

The applications market has been boosted by the DVD Forum's decision to use Dolby's AC-3 standard for the surround sound on DVD in Europe.

This is used on DVD drives in the Far East and the US, but in Europe, Philips wanted to provide a chipset which would use Mpeg-2 instead. Having failed to provide it in time, Philips was overruled and the European standard was set. But, by this time DVD had missed its Christmas 1997 launch date.

DVD Forum co-ordinator and Toshiba DVD head Koji Hase openly expressed his frustration in November last year at the brake the dispute had put on the European software market. 'Philips has used up all the time it has been granted,' he said, blaming Philips for costing the industry $670 million in lost European sales. The decision to use Dolby also means it will now be cheaper to redevelop applications for the European market.

Nevertheless, Hase was right when he predicted that the DVD Forum's estimate of between 10 and 30 DVD titles in the UK by Christmas 1997 was optimistic.

As it happens, they were 10 to 30 titles too optimistic.

Meanwhile, early adopters will pursue imported software - yet another problem for UK resellers. US DVD software is incompatible with UK DVD software because of the way the Mpeg video is encoded. PC manufacturers in the UK - of which Tiny Computers is one - that have released DVD-enabled PCs have used drivers from the US market and bundled US discs so users can get some value from DVD in the next six months.

But if users want to switch to European Region 1 drivers later, their existing US discs will no longer play. Knowing which drivers to supply until European applications become available is therefore a lose-lose situation for resellers and consumers.

With Creative Labs already marketing a DVD upgrade kit, the sooner Region 1 drivers become standard and useful, the better. Otherwise, the industry threatens to give itself a technical support headache that will make the early CD-Rom drive compatibility issues seem like a pleasant memory.

While we still talk about DVD as a single technology, the early indications from the rest of the world indicate that DVD is being marketed and bought as two distinct applications. One is as a replacement for VHS targeted at the consumer buyer, and also as DVD-Rom, a new medium for interactive applications targeted at the computer user. In fact, the situation draws a parallel with CDs, which split into CD audio and CD-Rom, with separate players, target markets and channels.

That's not the only difference, according to Fionnuala Duggan, director of multimedia services at Abbey Road interactive - the company that made Europe's first DVD disc last year. She explains that consumer DVD is driven by the availability of software, basically films, while DVD-Rom will be driven by the installed hardware base.

'The DVD-Rom developers will wait for an installed base because if you are a content provider you would be mad to develop a disc that could only be played by two per cent of the installed base.

'For a quality interactive product the up-front costs will be huge - you are talking about hundreds of thousands of pounds,' she says. Because filming, editing and digitising media is expensive, and because a DVD-Rom has a greater capacity for expensive properties like video and music, the cost of bringing a DVD-Rom to market will always be greater than that for a CD-Rom.

But Hollywood has its applications sitting on a shelf waiting to be dumped to disc. 'Putting a film in a DVD format costs between #10,000 and #20,000 - and for the studios it's an incremental sale,' says Duggan.

The only crossover between markets will be the discs bundled with early DVD-Rom drives. Manufacturers will include films in the package, but more as a technology demonstration than a serious application. 'People are not going to sit at a PC and watch a film,' she says. 'For the public, these are two separate markets.'

Duggan agrees that the confusion over audio standards has held back applications for the UK, but she is happy that the decision to use Dolby surround sound was made last December. Mastering a disc with two different audio standards would have made the development costs even higher - and effectively fragment the DVD software market. Even allowing for the opportunity to add separate language tracks to the same DVD-Rom, a single sound standard makes the entry cost for UK developers more realistic.

Yet with DVD's increased development cost, the UK's software industry may well be reluctant to develop early for DVD-Rom. Sam Phillips, director of application developer Content Content (sic) is typical when he claims customers are more likely to want applications developed for the internet or intranet. 'We switched to the Net about 18 months ago. Even if it is a CD-Rom, we rarely get involved unless there is an online tie-in,' he adds.

Although developing for DVD has few technical problems over those for CD-Rom, small creative units are geared to fast, low-cost applications, which work better on the internet than on a disc. And with companies putting their resources behind upgrading network bandwidth, applications for the intranet are often a higher priority than applications on optical media.

So in the short term, DVD-Rom will almost certainly be confined to a group of enthusiasts or CD-Rom buyers who are prepared to pay a couple of hundred pounds extra for future compatibility with the DVD software arriving in the second half of the year. But because that software will undoubtedly be dominated by the movie companies, selling DVD in the business environment will be one of the hardest prospects of 1998.

For once though, hardware supplies will probably not be much of a problem, and aggressive pricing to build up a technology base on which to sell software will quickly become the norm.

As Nolan concedes: 'We have the drives. They are easily available. That's if anyone has a purpose they can use them for.'

BIG CHIEF, SITTING BILL

If there is one company to ensure a quick DVD-Rom takeup and push manufacturers towards making it a must-have option, then it's Microsoft.

It not only dominates the desktop operating system market, especially for home users, but also sells many of the most popular CD-Rom products.

Microsoft's Windows 98 will include support for DVD. In its Beta 3 stage, support for Toshiba's Timpani I chip, which provides a decoder and player for DVD-Rom drives, is included for the first time. Thus, by including support in the operating system, Windows 98 will offer plug-and-play support for DVD from its launch.

If you want to use your Windows-supported DVD-Rom drive to play Microsoft DVD discs though, you may have to wait a little longer than the release of its OS. Although there's already a US version of Microsoft Encarta on DVD-Rom, European content will not be developed until Microsoft knows how well European drive sales are going, says Microsoft consumer marketing manager Gillian Kent.

'We need to see an installed base first,' she admits. 'We may see DVD applications next Christmas, but for Encarta there will be no European version before Encarta 99. And even then we may not sell it as a retail product.'

The problem for Microsoft is justifying taking shelf space for software that by next Christmas will be of interest to a minority of consumers.

Instead, Kent argues, it would be more cost effective to sell the DVD disc as an upgrade option.

With Encarta destined to lead Microsoft into DVD, it's extremely unlikely that resellers will be making any margin from DVD-Roms for more than a year. Kent also rules out the idea that the current Encarta Deluxe could put on DVD as a quick fix. 'We'll definitely move the products to DVD,' she says. 'But only when we develop new content specifically for the medium.'

BOUGHT IN THE USA

In its first year in the US, DVD had enough problems just getting to market. If caught in the SoHo sales slump in autumn, Forum members know they will have a huge job in marketing DVD to a sceptical public this year. But, from early indications, this hasn't happened.

Videoscan calculated the DVD US sales before Christmas to be 382,000, with one million discs sold. The DVD discs bought are almost 100 per cent remastered films, predominantly by Warner Home Video. Its success has encouraged reluctant US movie studios to bring forward their release schedules - the most notable being Disney subsidiary Buena Vista Home Video, which has committed to supply four or five titles a month on DVD. Out of the major US studios, only Paramount and Fox have no release schedule for DVD films.

The strategy from duplicator Nimbus is more positive still - last month it announced it has pressed more than one million DVDs. With capacity for 1998 in the US at 12 million, with more to add in the UK (see main text), Nimbus CEO Lyndon Faulkner has reported 400 orders, and the first enquiries from computer software companies. 'Hardware has just begun to ship and we are seeing a lot of early interest from both software companies and OEMs,' he says.

Infotech predicts that the worldwide interactive publishing market will expand to $26 billion by 2001, and that DVD formats will account for 85 per cent of software revenue.

But even in the technology obsessed US, awareness of DVD is still low, according to Yankee Group. In a survey of 1,900 households, only 28 per cent had heard of DVD, and fewer than one in 25 were planning to buy any type of DVD player in the next 12 months, indicating that the early-adopter consumer market may quickly become saturated.

With Europe lagging almost one year behind, UK demand for DVD applications may be minimal before the millennium.