• DVD sales continue strong after hitting peak.
• Price cuts to drive DVD recorder sales in 2006.
• Blue laser HDTV optical disc formats ready for war in 2006.

The picture and sound quality of DVD players combined with a remarkably fast decline in unit pricing ignited the fascination of U.S. consumers like no other video category. This fascination, fostered by the increased awareness of high resolution video through the nation’s digital television transition, will keep the category selling heavy volumes in 2006, although natural category maturation is expected to lead to year-to-year unit sales declines for the third consecutive year.

A highly competitive market landscape has produced player prices that were unheard of in other high-tech categories in the past. Day-after-Thanksgiving holiday sales in 2005 produced DVD player prices starting below $50. However, average pricing on component DVD players in 2005 was $110, according to CEA.

As a result, more than 36 million DVD players were sold to U.S. consumers in 2005, reflecting a one percent decline from the previous year, according to figures compiled by the digital entertainment industry promotion group, Digital Entertainment Group (DEG), based on data from CEA, manufacturers and retailers. More than 16 million DVD players sold in the fourth quarter alone, the DEG said.

Since the launch of the format in 1997, more than 164 million DVD players, including set-top and portable DVD players, Home-Theater-in-a-Box (HTiB) systems, TV/DVD and DVD/VCR combination players, have been sold to consumers, bringing the number of DVD households to 82 million (adjusting for households with more than one player). Approximately 50 percent of DVD owners now have more than one player, the DEG said. 

A true hybrid technology, DVD players originally were designed to deliver digital quality pictures and surround sound primarily to analog television sets and audio receivers. However, with the introduction of digital TV sets and monitors, the digital signals these players decode from optical discs are being displayed in their full potential on high-scan video screens.

DVD’s role as a high-volume category will continue in 2006, although CEA forecasts call for a slight decline (9.8 percent) in unit sales of separate component DVD players from 15.2 million to 13.7 million. The CEA forecasts a slight increase in DVD component player pricing to $113 as consumer purchasing trends shift more toward combination systems, including DVD/VCRs and portable DVD players, which are included in the DVD component player sales estimate.

DVD Software Sales Benefit
Consumers spent a record $22.8 billion renting and buying DVDs in 2005, the DEG said. DVD retail sales grew to $16.3 billion in 2005, an increase of ten percent over last year. In addition, consumers also spent $6.5 billion renting DVDs.

More than 1.6 billion software units shipped throughout 2005, bringing the total number of units shipped since launch to 5.6 billion discs.

Disposable DVD Discs Appear
In 2003, the Walt Disney Company’s home video division, Buena Vista Home Entertainment (BVHE), began test marketing new "self-destructing" disposable DVD movie discs called EZ-D discs. An EZ-D disc is playable for 48 hours after its vacuum-sealed packaging has been opened. Consumers can play the movie as many times as they want in that period.

Discs are initially bright red, and gradually turn an unusable black with exposure to the air. The red disc is compatible with all players, DVD drives and gaming systems that can play DVDs. The system was reminiscent of an earlier pay-for-play disc system called Divx, which allowed users to pay a rental fee to unlock a disc for a 48-hour viewing period. That system eventually failed to generate a sustainable market.

Progressive Scan Progresses
Since 2000, DVD player sales have included a progressive-scan output feature, which is designed to feed a 480p format picture to DTV-capable sets and monitors. Most progressive-scan units now in the market use a system known as 3:2 pull down, which is a special process for converting films shot at 24 frames per second to the 30fps rate of video. Like the progressive scan system, the technique helps to further clean the image of artifacts to produce a film-like appearance. Audio Takes on Bigger DVD Role

As for other new product trends, more DVD players are adding the ability to play back different forms of audio files such as the Internet-friendly MP3 and Windows Media Audio (WMA) compressed audio formats. Additionally, many step-up players will decode one or both of the new high-bit-rate, multi-channel audio formats: DVD-Audio and Super Audio CD (SACD). In addition to presenting higher-fidelity stereo music than CDs, these formats will allow the use of high-resolution, multi-channel music playback. For more information, see the Audio Chapter of Digital America.

DVD Combo Systems Proliferate
Manufacturers increasingly are adding DVD in combo TV systems (TV/DVDs or three-way TV/DVD/VCRs). In other cases, DVD players show up in integrated HTiB shelf systems, digital satellite TV decoders and hard-drive-based personal video recorders (PVRs). For more information, see the Audio Chapter of Digital America.

In 2005, CEA reported that TV/DVD combo player sales sold 2.1 million units to dealers, representing a 37.9 percent increase.

Digital Imaging Comes to DVD Video
A popular feature in many DVD video players to be sold in 2006 is the ability to play back digital still photos in the JPEG image format from CD-R/RW discs or, in some cases, from removable flash memory cards using built-in flash media readers. Some players even enable users to connect a printer via a USB port to make hard copies of still images.

DVD Recorders Generate Mass Market Acceptance
As the sales pace of DVD players slows, shipments of DVD recorders are expected to accelerate in 2006. Spurred by rapid price drops that saw DVD recorders selling for below $100 in 2005, DVD recorder sales are expected to significantly increase in 2006. U.S. DVD recorder unit shipments reached more than 863,000 units in 2005, according to CEA numbers. That is expected to climb 29.4 percent to 1.1 million in 2006.

DVD recorder prices dropped to as low as $70 with mail-in rebates in some Black Friday promotions in 2005.

For five years, DVD recorders have been building momentum as a replacement for the VCR. These decks offer users the ability to record programming at resolution levels falling somewhere between analog S-VHS VCRs and 480p EDTV. Additionally, the discs can be used to archive precious home movies on a format that will last longer than magnetic recording tape

Key trends that hit the DVD recorder market in 2005 and that are expected to continue in 2005 and beyond center on integration. Demand rose steadily in 2005 and into 2006 for DVD recorders that include built-in hard disc drives (HDDs). According to a survey conducted by market research firm In-Stat, 25 percent of respondents who were interested in buying a DVD recorder said they are most interested in one that combines DVR functionality.

Similarly, VCR/DVD recorder combination products have proven popular in the United States. Consumers easily understand the concept of combining VCR and DVD recorder functions in one box. Such devices make it easy to copy VHS tapes, though they are not supposed to enable the copying of copy-protected movies on VHS cassettes, consumers can find a variety of options to skirt such limitations.

Also, DVD recorders will continue to replace DVD player-only functions in combination products like HTiB systems.

New features planned for DVD recorders in 2006 include support for dual-layer recordable discs, DVD-Audio and SACD playback and HDMI connections. Becoming more prevalent will be models that incorporate Electronic Program Guides (EPGs) that make it easy to find programs and schedule the deck to record them.

In addition, more and more models coming to market in 2006 will use super multi-format drives that read and write DVD-RAM, DVD-R, DVD-RW, DVD+R and DVD+RW discs.

DVD Recordable Disc Formats
When DVD recorders were first launched, manufacturers lined up behind one of three format camps for rewritable DVD media–DVD-RAM, DVD+RW or DVD-RW–with most also recording to one of two forms of less-expensive write-once media, either DVD+R or DVD-R. A brief description of the qualities of each follows.

DVD-RW: Developed by Pioneer, this rewritable format also was authorized by the DVD Forum and boasts playback compatibility with a majority of DVD Video players, depending on the selected bit- rate settings.

DVD-RAM: This rewritable format was developed by a group of companies including Hitachi, Panasonic and Toshiba and is supported by Samsung. The format is authorized by the DVD Forum but is not compatible with the majority of current DVD Video players or most DVD-ROM computer drives. It is offered in the standard disc size, although a smaller version is used in a new class of DVD-RAM camcorders.

The format's primary applications are for video editing or use in dedicated DVD-RAM recording decks. A key advantage over the other disc formats is its flexibility when performing nonlinear video editing. Sequences are moved easily around on a disc. This is helpful for the use of chasing playback functions, which allows users to view the beginning of a recording while the programming still is recording. Typically, DVD-ROM decks also will record on DVD-R write-once discs.

DVD-R: This is one of the most universal recordable DVD formats. DVD-R was sanctioned by the DVD Forum, which authorizes the DVD Video standard. It is used by PC drives based on either the DVD-RAM or DVD-RW rewritable disc formats. Recordings made on the discs can be played back in most home DVD video players and PC DVD drives.

DVD+RW: Developed by Philips and Sony, this format was hyped as the most universally compatible rewritable disc format for playback on existing DVD video players. The standard-setting DVD Forum has not authorized the DVD+RW format, although Philips has aligned a number of recorder and drive manufacturers to support the system, including Hewlett Packard, Mitsubishi , Ricoh, Thomson (RCA) and Yamaha.

DVD+R: This is the write-once sub format for DVD+RW system. Its attributes are said to be ease of use–no disc formatting or finalization are required in certain applications– and compatibility with a majority of the DVD video players in the market.

Double Layer DVD: Recordable discs that offer double recording layers for extended recording and playback time on a single disc side are also available, although few DVD recording decks support them. To date, the media, which is ideal for making back-up copies of in-the-clear pre-recorded software and long home movies, is supported by DVD burners for PCs.

Double layer media nearly doubles the recording capacity of a single-layer, single-sided DVD. Typically, double layer media will store about 8.5 GB.

Recordable disc formats with double layers include the DVD+R DL, DVD-R DL and a recently announced DVD-RW DL. The latter was awaiting DVD Forum approval as this went to press.

DVD-Multi Deck Arrives
A continuing trend among manufacturers in 2006 was to market DVD recorders compatible in record and playback modes with multiple recordable DVD disc formats. Today, most DVD recorder makers offer decks that will play and record discs based on two or more rewritable and write-once disc formats. While most such decks record in the -RW, +RW and -R formats, a growing number of models in 2006 also will include the DVD-RAM format. This multi-format adoption increases the deck's ability to produce a disc that can be played by most DVD players. IEEE-1394 Capability

Most DVD recorders include IEEE-1394 digital connectors designed to accept only signals in the digital video (DV) format used by most digital camcorders. Lacking multi-industry acceptance of a digital copy protection solution for DTV signals, manufacturers have held off using more robust digital connectors for direct digital recording of DVDs and other sources.

High-Definition Optical Disc Formats Arrive
The first disc players designed to present pre-recorded movies in full high-definition resolution arrived in one of a number of formats early 2006. The two biggest contenders for this next-generation video disc system are based on blue-laser technologies, instead of the typical red laser systems used in DVD and CD players. However, a number of vendors are plotting to pre-empt the blue-laser system launched by dropping in low-cost high-definition disc recorders based on MPEG 4 compression systems and red laser optical pick-ups.

The special lasers in either red or blue color spectrums are specially developed to read more densely compacted pit alignments on a disc.

Mini-DVDs Pop Up
Warner Brothers Home Video, which has intellectual property interests in the DVD format, pushed forward an adaptation of the DVD format for tiny portable players. The format, known as “Mini-DVD,” uses 3-inch DVD-ROM discs offering high quality, full-color pictures for tiny handheld DVD players targeted at the youth market. The tiny discs also will play back in standard DVD players. Thus far, Mini-DVD movie content has centered on titles appealing to children 15 years old and younger.First HDTV DVDs Appear

Technically, the first high-definition optical discs arrived in 2004 in the form of a somewhat experimental red-laser DVD system pioneered by computer software giant Microsoft.  The company announced 16 HD movies on (red laser) DVDs that use the HD video capabilities of Windows Media 9, which is also known as "WMV HD." Several deck manufacturers previewed possible DVD players that support the format.

However, without component players to support the discs, the market demand for WMV HD discs was virtually non-existent. The WMV HD discs were supported only by a handful of Windows XP PCs or Windows XP Media Center-PCs equipped with a 2.4-GHz Pentium 4 or better processor.

Sony Introduces UMD Format for PSP
In 2005, Sony followed Warner’s Mini-DVD format by releasing movies on a new tiny disc format designed to fit its Playstation Portable (PSP) player. The discs were supported by many of the major studios due to its strong copyright protection. Initial title releases were targeted at the platform's core demo of men ages 18 to 34. China, Taiwan Develop Red Laser HD Formats:

A group of Government-backed Chinese electronics makers announced plans to develop their own optical disc format which could support both standard and high-definition content. The format, called EVD (enhanced versatile disc), was developed primarily as a means of skirting heavy royalty payments Chinese manufacturers must pay for the right to produce DVD technology.

Chinese factories currently produce most of the world’s DVD players, and the Chinese market is one of the largest markets in the world.

Also heralding from China are the high-definition digital video disc (HDV) and the high-definition versatile disc (HVD) formats, while Taiwan companies have developed a forward versatile disc (FVD) HD disc format. All use advanced compression technologies and promise relatively low-cost options for high-definition playback and recording.

In the U.S., the Asian formats all face a stiff challenge in getting studios to agree to support the new systems. This may mean that if such decks do arrive here, they will be relegated to recording in-the-clear broadcast content, home videos or playing back software imported from Asia and Europe.

Separate Component DVD Player Forecast
Unit Sales        Dollar Sales     Average             (Thousands)     (Millions)          (Unit Price)
2001          12,707         $2,097              $  71
2002          17,090         $2,427              $  61
2003          21,994         $2,698              $  63
2004          19,990         $2,183              $109
2005          15,255        $1,679              $110
2006(p)     13,756          $1,560              $113

Includes Laserdisc combinations, DVD/VCRs and portable
Source: CEA Market Research