CD-ROM takes a front seat role.

It can be argued that the developers of CD-ROM software and its cousins CD-I and MPEG are trying to fly before they have learned to walk. The technology is promising, but the glitches abound. Proponents of interactive TV see CD-ROM as a blueprint to the content of their own schedule, once the rough patches have been ironed out. On the other hand, there are countless viewers who still can't figure out how to program their VCR, much less come to terms with a whole new technology. CD-ROM has arrived, albeit in fits and starts, and software designers as well as producers and distributors are teaming up to grab the early lead in the market share.

The great advantage of CD-ROM (Read Only Memory, by definition) is its ability to store lots of information. A CD-ROM holds more than 450 times the data of a conventional floppy disk, and this enables it to display video, sound and text. A few years ago CD-ROM mainly existed for dry data storage. Then this past holiday season, entertainment-based CD-ROM sales skyrocketed. Microsoft's CD-ROM multimedia sales currently were estimated at $200 million, and industry analysts expect them to increase to $450 million by 1996. is there truly a demand for CD-ROM and its cousin, CD-Interactive (CD-I)? With a projected 15 million CD-ROM players in use by the end of this year and predictions of eight of 10 computers being CD-ROM capable in the next five years, Blockbuster, the home video chain, decided it was time to explore the marketplace. The video retailer giant test-marketed the demand for CD-ROM titles in 58 of its San Francisco-area stores last fall. "We're quite satisfied with the tests," said Michael van der Kieft, director of Business Development, Blockbuster. "The strategic objectives of the company were met in spades. Business is building. It's not a robust business yet, but we're finding that the rental of computer software is above our expectations."

Working Out The Bugs

Van der Kieft acknowledged there are kinks to be ironed out in the system. "There are so many configurations, often a user doesn't understand what they have at home or the software developer hasn't identified what the computer requirements are for the title. We had quite a few consumers renting a title, taking it home and then not being able to get it to run. The industry is starting to flush that out and make it easier for the user. They have to," added van der Kieft.

Currently, the entertainment application for CD-ROM has to be games or educational format because the technology does not yet allow for a full-length feature to easily transfer to a single CD-ROM disk. "We're closely tracking the improvements they're making in compression," noted van der Kieft. "I think eventually we'll transition from VHS tapes to CD-ROM movies, but that's going to take a while. When you consider the number of VCRs that are out there and the investment people have made in them, you can see that CD-ROM movies will be a while coming," he said. In the San Francisco test market, 77 per cent of their rentals were games, reported van der Kieft.

One stumbling block in familiarizing consumers with the CD-ROM culture has been that the technology is still in its infancy. The earliest CD-ROM drives produced a slow "herky-jerky" image on the screen, which Penthouse, a pioneer in adult-rated CD-ROM programming, discovered after spending $200,000 on a software program focusing on models undressing on a computer screen. Double and quadruple speed CD-ROM drives that will vastly improve picture quality are on the market now but the cost is still prohibitive to the casual user. MPEG, a new standard that can deliver CD-ROM at 30 frames per second fullscreen is being touted heavily by Philips, which has developed the machine to play it, but it is not widely used in the U.S., according to Mark Franks, president of Digital Media Group, L.A., a CD-ROM software developer and programmer. "The player for MPEG is approximately $500 without the MPEG card and the module addon runs another $250. There are 75 million IBM-compatibles in the U.S. I don't know if people are going to run out and upgrade at great expense," said Franks. "Based on the fact that CD-ROM hardware is already permeating the marketplace and most everyone is on Windows, I think CD-ROM is the predominant place to be right now," he added. Frank's company, DMG, is mainly developing CD-ROM titles in the adult entertainment category. "We can make a better product than we're selling, but we have to roll out something that people can use. I could make a fullscreen 30 FPS product, but who has the hardware to run it? We're selling the highest quality product based upon the hardware position of the market," he said.

The New Producers

Microsoft, an acknowledged industry leader in CD-ROM development, has recently opened "catalyst offices" in New York and Hollywood to take CD-ROM content to the next level. "We want to get the multimedia market going," said Michael Windsor, who billed himself as an engineer and "technical evangelist" for the N.Y. Microsoft office. "We play many roles. One of them is matchmaker with publishing and development companies that have the software and production expertise to put out a CD-ROM based title."

Windsor suggested that the licensing of big-name titles and characters will only fly so long as the perceived market value holds up. "If someone does a title based on a known character and it does well, that's great. But if it doesn't do well and it flops in a spectacular manner, then that asset is pretty much spoiled. For example, if someone does a version of Barney and they make a lot of PR hay - and then everyone installs it and it doesn't work on 85 per cent of the machines and it has bugs and it's boring - who's going to buy version two? Rare is the sequel that outdoes its lame predecessor," commented Windsor. He added that if someone wants to do a Star Trek CD-ROM title, "then they'd better walk up to Paramount with a whole lot of cash and expertise if they expect to get in the door."

Of course there are producers with the clout and the experience to put an existing title to good work, which in these early stages of the boom, might be the answer to CD-ROM financial success. Saban Entertainment is paving the way with its mega-hit cartoon Mighty Morphin Power Rangers The CD-ROM title was developed by Xiphias, an L.A. software publisher. Xiphias, which has a licensing deal with Saban, has teamed up with Paramount Home Video, to distrubute the $39.95 title. With an initial order of 60,000 units, the Power Rangers CD-ROM title is projected to be one of the largest first launches of an entertainment title. Peter Black, Xiphias president, sees the future lying with the major distributors which is why he inked a home video deal instead of a software deal. Black pointed out that Paramount knows how to "move product," and he asserted that this is the first step. "This title has the capability to literally thrust CD-ROM technology into mainstream America," said Eric Doctorow, president domestic home video, Paramount.

Major producers are leaping into the CD-ROM game including Paramount Interactive, an imprint of Viacom New Media, which is debuting Star Trek: Deep Space Nine: The Hunt. "Our development group had access to photos and materials from the television program, allowing us to bring the look and feel of the actual show to people's computer screens," said Michele DiLorenzo, executive vp, Viacom New Media. Other Viacom New Media CD-ROM releases include MTV's Club Dead, and Nickelodeon's Directors Lab.

Licensing The New Technology

While some software developers are creating brand new content for the CD-ROM technology, the obvious first choice is to to take pre-existing material and run with it.

Viacom for example, can draw on its huge library of Viacom and Paramount motion pictures and television, as well as developing interactive programming from its existing network fare for MTV, Nickelodeon, VH-1, Showtime, The Movie Channel, FLIX and SET Pay Per View.

The various talent guilds are already negotiating the rights for the creative forces behind pre-existing material being transferred to CD-ROM, as well as material that will eventually find its way to the new technologies. The Writers Guild of America, West, for example, is dealing with the issue of translating its members' Basic Agreement to cover CD-ROM and Interactive TV. "We have an existing framework for linear Pay-TV and videocasette and laser disks and that will be the backdrop of our review. But with the test projects by Time Warner and Viacom and the phone companies, the arrangements could be different than home video or pay per view," said Joel Block, Director of Industry Alliances, WGA West. "Both producers and writers are concerned with over or underpricing their deal in the marketplace and making it too costly for distributors and developers to get their projects out. You want a fair return on the use of the material but not so much that it precludes the use in the first place. It's a dialogue in progress between the WGA and the companies and the licensees," he added.

Content Catching Up With Technology

One of the problems CD-ROM title seekers are finding is a severe shortage of titles available to them. Full-length theatrical films have not yet arrived, and not everyone considers baseball or movie encyclopedias strictly entertainment. Games are clearly one area where product development and software capability are going to make the first inroads.

Companies like Electronic Arts, Inc., Palo Alto, and Activision, L.A., are developing CD-ROM titles to keep up with the demand for the latest in games. Star Wars producer George Lucas is working with movie directors to transfer cinematic vision into new games in the CD-ROM format.

CD-ROM technology will eventually come up to speed and there are doomsayers who predict that it will segue to the interactive TV programming of the future, thus bringing about its own demise. Not so, said Microsoft's Michael Windsor. "Television did not replace radio and the VCR hasn't closed down the movie theatre. We'll initially see interactive TV that works in combination with the CD-ROM or a hybrid of the two. But the CD-ROM is going to be with us for a very long time."

Blockbuster's Michael van der Kieft concurred. "Once they improve the quality of the movie picture on the CD-ROM, you'll see its popularity grow because it gives viewers capabilities they don't get on their VCR. Our tests showed that people were very pleased with the interactive capabilities. Once the picture catches up to the quality of the laser disk, people are going to respond."

Digital Protection

In an effort to protect creators of books, recordings, movies and other forms of information in the digital age, the U.S. Commerce Department has released recommendations for rewriting copyright law. The recommendations also include outlawing the use of technologies that can open electronic locks placed by copyright owners to secure their works.

As it stands now, copyright owners are discouraged to use the "information highway" if these laws aren't put into play, said Bruce A. Lehman, Assistant Secretary of Commerce and chairman of the panel that wrote the report.

The U.S. Congress will not begin consideration of proposals until the Commerce Department conducts public hearings on the recommendations this fall.