Notebook buyers latch on to DVD for movies to go

For most people the answer is "no." DVD drive sales have failed to take off as quickly as expected, with few consumers excited about watching movies on PCs, according to analysts.

But DVD has become the drive of choice on notebooks, with more and more bored business travelers preferring to watch last year's Oscar winners on long flights over losing at solitaire.

"People are not watching movies on their PCs--it's a relative few," Dataquest analyst Mary Craig said. "But on the other hand, demand is quite a bit higher on notebooks."

The discrepancy between DVD adoption in PCs vs. notebooks illustrates a startling and unexpected trend in consumer buying and offers an important lesson for hardware companies, analysts say.

DVD has failed to take off in PCs because few consumers see a need for the expensive drives. At the same time, CD-RW drives, which can be used to back up data or create music CDs, are being installed in PCs at a record pace.

With the format now a couple of years old, 2000 was supposed to be the year DVD conquered all. That's been largely true in the consumer electronics market, where sales of players and movies are exceeding expectations. But with PCs, where most software still comes on CDs and the only other use for DVD drives is watching movies, the format has failed to woo consumers.

"DVD just doesn't offer any functionality on the desktop, with about 5,000 DVD movie titles and only about two or three games that take advantage of this technology," Craig said. "There's just nothing significant in software distribution or (operating systems) being distributed that way."

While Microsoft offers DVD versions of its TechNet and Microsoft Developer Network subscriptions--services that regularly supply IT professionals with the latest patches, updates and software demos for Microsoft products--they reach "maybe 15,000 people, so there just isn't a lot of demand on the desktop," Craig added.

But DVD demand is booming in the notebook market, with more consumers and businesses asking for models that include the drives.

"DVD is clearly beginning to capture the majority of sales in the notebook marketplace," said Bob Nitzberg, Hewlett-Packard's retail notebook marketing manager. "DVD is an entertainment decision right now. When people are traveling, they've got a very simple device (on which) they can take that entertainment with them."

In May, 35 percent of notebooks sold at retail had DVD drives, vs. 20 percent on PCs, according to market research firm PC Data. "In fact, notebooks have led PCs in DVD for about a year," said PC Data analyst Stephen Baker.

CD-RW takes off
While sales of PCs with DVD drives had been forecast to soar this year, CD-RW unexpectedly stole the spotlight--in part because of the growing popularity of downloadable MP3 audio files, which can be recorded onto music CDs.

While DVD drives outsold CD-RW last year--16.2 million vs. 12.5 million units--CD-RW will take the lead this year, with 28.7 million projected CD-RW units shipped compared with 22.6 million DVD drives, according to Dataquest.

But by 2002, DVD will begin to overtake CD-RW, Dataquest predicts. By 2004, the firm predicts 105 million DVD drives will be shipped vs. 28 million CD-RW drives.

CD-RW's popularity caught many PC manufacturers by surprise. But with a perceived need for CD-RW, particularly for consumers looking to record music CDs and with little available DVD software, PC makers should not be surprised at what happened, PC Data's Baker said.

Sales of PCs packing CD-RW drives went from negligible market share a year ago to 40 percent of PCs sold at retail in May, according to PC Data.

HP saw CD-RW's merits before many competitors and started adding the drives to more models. "There is no question, CD-RW helped HP beat Compaq at retail," Baker said. The company offers CD-RW on virtually all of its PCs and is looking to DVD as a way of duplicating its PC success in the consumer notebook market.

"On the notebook side, DVD has been helping us grow our market share pretty significantly, and we see DVD as very important," HP's Nitzberg said.

Of 13 HP Pavilion consumer notebook models, eight feature DVD drives, and Nitzberg said the number would increase.

Apple Computer, which has a track record for embracing emerging technologies before the overall industry, offers DVD drives in notebooks only with its PowerBook line.

Compaq Computer also has quietly increased the number of retail models sporting DVD drives. Of Compaq's five notebook lines, three come with DVD in every model. The Houston-based PC maker reserves CD drives for its lower-cost models, in the $1,400 range and below.

In general, the top-selling notebooks are in this range, with $1,579 being the average price in May, according to PC Data. Models in this price range generally come only with CD-ROM drives. But moving up just a few hundred dollars, DVD is the main feature selling notebooks, Nitzberg said. "Basically, everything above (about $1,700) that's moving any volume has DVD," he said.

Price is clearly one of DVD's allures on portables, Dataquest's Craig said. With consumers expecting to pay more for notebooks than they would for PCs, they also expect to get more. The more they spend, the more likely they are to demand DVD.

Changing storage demands
PC manufacturers are increasingly offering CD-RW on notebooks as well, as the format is emerging as the eventual successor to the floppy drive.

"Where Zip drives and tape drives were the standard a few years ago for backup, CD-RW drives are now more the standard," said Sean McDonald, Dell's senior manager for Dimension and Inspiron peripherals.

With 650MB write-once CDs costing as little as 50 cents apiece vs. about $10 for 100MB Zip disks, and in a format readable by almost any modern PC, CD-RW is quickly emerging as the standard for backing up data. This shift was not lost on Zip maker Iomega, which last summer introduced its own CD-RW drive.

Compaq, Dell and Gateway all offer CD-RW on notebooks, with San Diego-based Gateway shipping about 20 percent of Solo portables with the drives. But unlike Compaq and HP, the direct PC manufacturer finds a more even distribution of DVD, with about one-third of consumer PCs and notebooks sold including the drives.

Where PCs and portables both pick up DVD sales is with CD-RW. "Where we've seen DVD best on desktops and notebooks is selling both a DVD drive and a CD-RW drive," McDonald said.

In fact, both Compaq and HP said they sell very few PCs with DVD unless there is CD-RW too.

"I think you will see a lot change on both desktops and notebooks when there are more combo DVD/CD-RW drives available, McDonald said.

While Toshiba introduced a combo drive last summer and other manufacturers have done likewise, performance trade-offs have stalled adoption.

No viable combo drive is yet available for portables, McDonald added.