Media Suppliers Looking Toward New Millennium

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"Will the future be optical, magnetic, solid state? Will those new hard drive VCRs ultimately replace VCRs?" These were some of the questions that Charles Van Horn, president of the International Recording Media Association (IRMA) posed to the audience at the association's 1999 marketing summit held recently in New York City. "Consumers like choices. They demand as many choices as possible," he said, noting that a number of new formats are already in the works, including DVD audio, flash memory, SACD, DVD-18, new hard drive technologies, digital video tape and electronic cinema.

"We are in the content delivery business," he stressed. "Media formats will come and go, and many of them will linger on for many years, but as an industry we can navigate down that road successfully well into the next century."

The association also presented information indicting that approximately 24 million households will be receiving digital TV programming from various sources by the end of 1999, with North America accounting for 67 percent, or nearly 12 million households. The worldwide number is expected to increase a compound annual growth rate (CAGR) or 79 percent, to reach 81 million households by the end of 2001.

IRMA statistics also indicate that near video on demand (NVOD) and video on demand (VOD) services are growing and will significantly reduce the rental and purchase of video programs. It estimates that there will be 78 million NVOD households and 3 million VOD households, by the end of 2001.

In a presentation titled "Consumer Technologies Change the Recording Media Mix," Tim Herbert, senior research analyst with the Consumer Electronics Association (CEA), noted that audio, video and interactive (including PC, telephone and video games) areas are converging. VCR sales are expected to peak at about 21.5 million in 1999 and then drop to about 19 million by 2002 - but that it is still a very large market. "Ninety-two percent of households own VCRs," he said, "with one in two households owning more than one and 31 percent owning three or more."

"DVD, however, is the most successful consumer electronics launch ever," Herbert said. He noted that sales are expected to reach 12.5 million by 2003, up from 349,000 in 1997, 3.5 million in 1999 and 80 million in 2001. He cited data showing that there was a 41 percent awareness of DVD in 1998 and 61 percent awareness in 1999, and that 43 percent say recordability is a necessary feature.

In other areas, Herbert noted that home theater has a 20 percent household penetration at 21.3 million households, and that is expected to grow to almost 35 million in 2003.

Personal video recorders are also a growing area, he said, noting that sales are expected to reach 825,000 in 2000 and jump to 4.2 million by 2003.

As for personal computers, he noted that 40 percent of households have some form of home office and that 25 percent of multimedia PC users have listened to Internet radio, and 34 percent have listened to music samples. Ten percent have a PC home network, 71 percent have used their PC's CD-ROM to play music and 31 percent have expressed an interest in writable CDs.

As for MP3, he noted that there is a very low awareness rate among adults (less than 20 percent), but that there is strong activity in younger age groups.

Speaking on the Recording Media in The New Retail Economy, Carl Steidtmann, chief retail economist at PricewaterhouseCoopers, cited broad retail trends such as the resurgence in markets, chance in globalization, a change in technology.

The resurgence in markets is creating a global middle class, he said. "There will be about two billion consumers in the global middle class in the next decade," and that is positive for retailers and consumer electronics manufacturers because more and more people will be able to afford these products."

This will also force suppliers and retailers to focus on consumers not products, he said. "Manufacturers will want a share of lifestyle, not a share of market. This represents a fundamental change."

As for a change in globalization, he stated that "we are seeing an Americanization of the Internet. There are approximately 100 million domains of which 80 percent are American and 90 percent are in English. America is more of an idea than a place. Of the top 100 brands in the world, two-thirds are American and all of the top 10 are American."

As for changing technology, he said that the share of the GDP spent on information technology is growing at 40 percent a year. It is at 12 percent now, up from 2 percent in 1990 and 4 percent in 1995. "This affects everybody, every business," said Steidtmann. "Ninety-nine percent of the economy will be affected."

In conclusion, he said that a lot of old business models will be "found dead;" that we will see the emergence of a bidding system where there won't be jus tone price, but many prices, similar to the airline model. In addition, there will be a supply chain revolution as the difference between the manufacturer and retailer blurs and businesses will have to become consumer concentric as the middle class around the world expands.

Another speaker Marty Homlish, president of Sony Media Solutions, said that recording media is poised to take its place alongside hardware, rather than playing a supporting role.

He noted that by the end of 2000, 300 million people will be surfing the web and this is driving the need for more bandwidth. "By the end of 1999, 1.5 million US homes will have high-speed cable models," Homlish said. "By 2002, this will grow to 5.5 million and thee will also be 2.5 million DSL customers."

He also sees sales of 11 million digital cameras in 2002, all with either embedded or removable media, along with the availability of 70 million sound and video files on the Internet already. Sales of audio/video recorders such as TiVo and Replay will reach households by the end of the decade.

The final trend fueling the need for media, he said, is mobility, with the growth of notebooks, handheld PCs, phones and GPS receivers.

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