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Divided over Disks

Rival audio formats, designed to replace the CD, will start battling for listeners this fall.

©New York Times

© St. Petersburg Times, published August 16, 1999

As promised, the world's record companies will introduce a recorded music format in the fall that is intended to replace the compact disc. But with it will come something the industry never mentioned: a marketing battle that could easily confuse and irritate consumers.

Two years ago, leading record companies and consumer electronics manufacturers said they had agreed on the broad standards for a next-generation audio disk called DVD audio. It would offer higher-fidelity recordings with surround sound, which uses as many as six speakers. And the format was intended, over time, to replace the compact disc, which has been the standard since the mid-1980s.

The companies promised that the first DVD audio players and disks would go on sale in 1999. And sure enough, they are scheduled to appear in stores in October or November. As it turns out, though, consumers will not have to choose only between CDs and a single new format. There will be two new ones: DVD audio and something called Super Audio CD. And that is causing some record retailers, among others, to despair.

The DVD "is the most exciting thing to happen to audio in a long time," said Stan Goman, chief operating officer of Tower Records, the West Sacramento, Calif., company with 227 locations worldwide. He and others in the record and consumer electronics industries see the transition as one of the most important and potentially profitable events in a generation.

"But this is crazy," he said. "If it becomes a format war, it will ruin the whole thing."

The Super Audio CD is being offered by Royal Philips Electronics and Sony, the two companies that created the compact disc and split royalties from every player sold. They say their format provides higher-quality sound than DVD audio -- and does so in what they call an extension of the CD format, which means they will continue to control royalties that have totaled hundreds of millions of dollars over 16 years.

The proponents of DVD audio hope that it eventually will replace the CD and prompt consumers to update their collections, just as they did when CDs supplanted records. If that happens, Sony and Philips will be just two companies among 10 that control the patents and royalties for the new disks and players.

To make matters more confusing, the basic Super CD is actually a DVD (which stands for digital versatile disk), though Sony and Philips do not highlight that fact. CDs and DVDs are both shiny, silver disks, nearly indistinguishable in appearance. But a DVD can hold seven times as much data.

In public statements, supporters of both formats say they do not think that a format war is about to begin, even though Super Audio CDs will not play in DVD audio machines and DVD audio disks will not play in Super Audio CD players.

Proponents of DVD audio -- Matsushita, Pioneer, Toshiba, Time Warner's Warner Music unit and the Seagram Co.'s Universal Music Group, among others -- say the competition is so lopsidedly in their favor that they are not concerned.

After all, the five largest record companies -- even Sony Music, acknowledging the power of the format -- say they intend to sell DVD audio disks. But only Sony has announced plans to produce Super Audio CDs as well, though several smaller, specialty labels also expect to make them. The major music retailers say they plan to stock DVD audio disks and not the Sony-Philips alternative.

Cost is another difference: Sony's first Super Audio CD player will carry a list price of $5,000, five times as much as the least expensive of the first DVD audio players. And the initial Sony product will offer only stereo, not multichannel surround sound. Philips intends to offer Super Audio CD products next year.

Sony disavows talk of a nasty clash. It says its product is aimed not at the mass market but rather at a specialized audience of hard-core audiophiles -- at least at first. "I don't really think this is a format war," said Michael Fidler, a senior vice president at Sony.

Paul Reynolds, a senior Philips executive, does not deny the friction but is similarly sanguine. "We hate the fact there is a format war," he said. "But quite frankly we see the two systems positioned differently."

Still, speaking privately, others in the industry see a showdown ahead.

The seeming advantages of the DVD audio format may be only temporary, and "the combined power of Sony and Philips is a juggernaut," another Philips executive said. "If they decide they're serious, you can't stop them. I'm sitting here praying this doesn't turn into another VHS-Beta sort of thing."

It needn't. The world of consumer electronics has changed in important ways since the infamous format war of the early 1980s that pitted Sony's Betamax videotape format against VHS, created by JVC Corp. Back then, no machine could play both Beta and VHS tapes. Today, it is a simple matter to make universal players that can handle DVD audio disks and Super Audio CDs, as well as CDs and DVD video disks.

So far, though, no manufacturer has announced a plan to make such a player, in part because of bitterness over earlier altercations in developing a new format.

* * *

When the standards accord was announced in June 1997, the consumer electronics and recording industries were awash in optimism. After all, it appeared that they were united behind a common goal: the creation of a music disk that would re-ignite the enthusiasm of consumers in a way not seen since the introduction of the CD in 1983.

Here was a solution, at last, to the problem of flagging recorded-music sales. They had been rising steadily, peaking in 1996 at a value of $12.5-billion, based on suggested list prices, then dipping 2.4 percent the next year, according to the Recording Industry Association of America. (By year-end 1998, the value had jumped to $13.7-billion, though unit sales had not fully rebounded.)

To choose the best production format, the association and related organizations announced that competitive listening tests would be held by the end of 1997. Industry experts known as "golden ears" would listen to different companies' offerings and serve as judges.

Ten days after the announcement, Sony and Philips said they were working on their own next-generation music disk. Other industry leaders, knowing of their work, had urged the two companies to make no public statement, fearing that doing so would undermine the nascent standards-setting process, but to no avail.

The Sony-Philips statement made no mention of DVD, suggesting that their goal was to carry the CD format forward, and the two companies were ambiguous about whether they would submit their proposal to the listening tests. But few people in the industry thought they would.

As industry executives said at the time, the other leading electronics companies were not about to give Sony and Philips financial and technical control over the next-generation music format as well as the CD. And Sony executives, in particular, were considered unlikely to let their product be judged by those they would consider jealous competitors.

So through fall 1997, both camps staged demonstrations for reporters and industry leaders. In September, David Kawakami, director of new business development for Sony, said that Sony and Philips had conducted their own golden-ear tests and that the project was entering its final design stage.

Frustrated by that and by internal disagreements on testing methods, the DVD camp canceled the listening tests. The 10 companies that make up the DVD Forum, which controls the format, began developing specific technical standards on their own, in consultation with other affected industries -- disk manufacturers, for example. Sony and Philips were among the 10 forum members, but, understandably, they were not given a major role in this work.

* * *

In February, the DVD Forum issued specifications for DVD audio, freeing manufacturers to begin designing players.

The companies decided not to set a single technical standard but instead to allow record companies to choose from a suite of standards that offered a range of recording qualities and content options. With today's technology, companies can easily produce players that can recognize the standard chosen for each disk and play it accordingly.

In the following weeks, Panasonic and Pioneer, among others, announced their intention to begin selling DVD audio players in the fall.

Then, in March, Sony and Philips said they had published specifications for Super Audio CD players, and the battle was officially under way.

Each format has attributes and liabilities. DVD audio players are intended to be combined with DVD video players. The combination units will play CDs, as DVD video players do now. But older DVD video players will not play the new audio disks, and neither will CD players.

New DVD players will reproduce multichannel music for people with multichannel audio systems. Until now, these have appeared mainly in home-theater systems, which are in almost 20 percent of U.S. homes, according to the Consumer Electronics Manufacturers Association.

The players will convert the six channels to two for the majority of households, which have only stereo systems.

In either case, the music should sound richer and warmer, more realistic. That is being accomplished primarily by increasing the digital sampling rate -- the number of electronic moments of music that are recorded each second. The sampling rate for CDs is 44,100 times a second. With DVD audio, it can be as high as 192,000.

The first DVD audio players are expected to cost $1,000 to $2,500, and the first disks to cost $20 to $25. Some will offer video clips and other features as well as music.

Sony and Philips had said that Super Audio CD players would be able to support multichannel formats. But in May, when the companies displayed the first product, it offered stereo only.

The reason, it seemed, was that the $5,000 Sony player had been designed for use in Japan, where it went on sale in late May. The market for multichannel audio in Japan is not big enough to make it worthwhile; most homes there are too small to accommodate multiple speakers.

But as Mike Woods, president of Telarc International, one of the smaller labels supporting Super Audio CD, said at the time, Sony and Philips needed to get their product into the U.S. market quickly, at least in a tie with the industry format.

The Super Audio CD uses a different digital recording format, which increases the resolution of music by "more closely following the original wave form of the music," Sony's Fidler said.

Reviewers have praised the much-improved sound quality of both disks. "But it's our opinion that people can definitely hear the difference in sound" between the two, Fidler said.

Super Audio CDs also are expected to cost as much as $25 at first, and the companies have said they will offer one thing that DVD audio does not: Not only can CDs be played in Super Audio CD players, but Super Audio CDs can be played in regular CD players, though without the improved sound that the new format offers.

That compatibility can be accomplished by producing two-layer disks. One layer holds the new, higher-quality version of the music and the other a CD-quality version. But these so-called hybrid disks are more difficult and expensive to make, which is why those in the DVD audio camp say they have chosen not to offer them for now.

When both new formats jump out of the gate this fall, DVD audio will have a decided advantage. DVD video players, first sold in 1997, are in more than 2-million U.S. homes, and sales are growing exponentially, making their introduction among the most successful in consumer electronics history.

Promoters hope that people who are interested in buying a DVD player can be persuaded to pay a little more for the ability to play DVD audio disks, too.

Music retailers are excited about DVD audio and plan to stock the new disks.

"We support it wholeheartedly," said Goman of Tower Records. "It gives us another format we can sell -- and it's not downloadable." That, of course, is a reference to the business that record stores have lost to the Internet, where many people download the music they want. But Goman said his company had no plans to stock Super Audio CDs.

Neither does the biggest music retailer, Musicland Stores, owner of Sam Goody and other chains, with a total of 1,350 stores. "We're very positive about DVD audio, because we have seen DVD take off so quickly," said Gil Wachsman, Musicland's vice chairman. "And at the moment we are preparing for that, making the assumption that it will be the choice of consumers."

Still, he said, "if consumers show a preference for the Sony offering, we will make room for it."

Reynolds, the Philips executive, acknowledged that the proponents of Super Audio CDs "haven't done much yet with the U.S. retail chains, quite frankly."

The Sony-Philips format is not receiving complete support even from the two companies. Both seem to be hedging their bets.

While Sony says it has no plans to sell DVD players that can play DVD audio disks, its Sony Music unit will produce DVD audio disks as well as Super Audio CDs.

Philips sold its record company, Polygram, to the Universal Music Group last year, making Universal the nation's largest record company, with 25 percent of the United States market. Lawrence Kenswil, president of the electronic commerce and advanced technology division of Universal Music, said the company had no plans to support the Sony-Philips format.

Philips has no immediate plans to sell Super Audio CD players under its own name, but will market them through its Marantz subsidiary in 2000. And it has announced its willingness to build DVD audio capabilities into its DVD players.

John McCready, executive vice president of Marantz, said Super Audio CD must receive favorable reviews in the high-end audio magazines to succeed.

That will lead audiophiles to start asking for it, he said, putting pressure on equipment manufacturers.

"There's no reason a DVD audio player cannot be made to deal with this format, too," he said. "That, I think, is the long-term strategy."

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