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DVD Emerges as New PPV Rival

Cable operators will have more than just the
home-video-rental business to deal with in the next millennium: Heading into the holiday
shopping season, the DVD business is poised to go well beyond industry expectations for
the year.

Earlier projections for a 4 million-unit installed-hardware
base by year-end "look like a slam dunk," one industry executive said. And
software sales could easily double last year's 9.3 million-unit total tracked by

Industry observers hesitated to predict how high the format
will go this year. "Every time our research department makes a projection," a
Consumer Electronics Association spokesman said, "they have to go back and make it

"How high is high? How quickly are people going to
adopt the interactive side with DVD-ROM?" asked Emiel Petrone, chairman of the DVD
Video Group and executive vice president of Philips Entertainment Group. "The
computer side is showing great growth."

They may not be able to predict how high sales will go this
year, but most seasoned observers can pinpoint when DVD sales took off. In September, the
format took a great leap forward on the heels of three big titles: Paramount Home
Video's Titanic, Warner Home Video's The Matrix and Universal
Studios Home Video's The Mummy.

During that month, hardware shipments virtually doubled to
just past the 500,000 mark. Software sales shot up significantly, too, and they
haven't really dropped back, according to VideoScan general manager Tonya Bates.

Titanic got the ball rolling as the first title to ship
1 million units into the retail pipeline, but The Matrix really energized the
marketplace. Geared to the format's core demographic and chock full of extras, The
has outsold Titanic at many locations. Its simultaneous release with VHS
has definitely helped, retailers said.

"On The Matrix, we bought three times more than
the biggest DVD title previous to that, and in the first four days, we sold three times
more than we did in a previous title's lifetime," said Vinny Losasso, director
of video purchasing and operations for Hastings Entertainment. "Titanic is a
great movie, but unless a DVD is released day-and-date with VHS, it doesn't do nearly
as well. Even 30 days makes a difference."

At Tower Records' Tower Video, The Matrix has
outsold Titanic by five-and-a-half times, according to vice president of video John
Thrasher. According to VideoScan tracking, The Matrix holds a 2-to-1 margin over
New Line Cinema's Blade, the format's second-best seller.

Hit titles like The Matrix stimulate hardware
demand. Whenever software sales spike, hardware demand rises accordingly. "It's
driven by hit movies," Petrone said.

And because hardware and software sales are so
interdependent at this early stage of the format, additional player sales in turn spur
software sales.

"DVD has grown to a phenomenal percentage of our
sell-through business," Losasso said. He had positioned the chain to be ready as
DVD's popularity grew beyond early adopters in its Southwest stronghold, and he
"took a lot of potshots about it. Now we're the dominant player."

The format contributes up to 30 percent of video revenue to
some Hastings stores, and Losasso expects the numbers to rise even higher as player prices
dip lower for the holidays.

At Tower, DVD is approaching 40 percent of the chain's
video revenue, according to Thrasher, and buys for major hit releases have doubled since
the beginning of the year. Based on the strong showing by The Matrix and other
holiday releases, Tower revised its DVD strategy even further upward.

Diane Garrett is senior editor for Video Business, a
sister publication to
Multichannel News.