DISC FINDING A GROOVE? : HOLIDAY SALES REFLECT DVD'S INCREASING ACCEPTANCE AS FORMAT, INDUSTRY SAYS.

Byline: Dave McNary Daily News Staff Writer

The doubting over DVD has vanished, obliterated by a holiday season that saw the new format become the latest must-have consumer electronics gizmo.

After less than two years on the market, DVDs have achieved mainstream status, analysts say. More than a million American homes now have DVDs and $250 million in discs have been sold; those figures should hit 19.4 million and $3 billion by 2003, media analyst Thomas Adams predicted this week.

``We see an extremely promising outlook for 1999,'' he added. ``Its sales are already way in advance of the initial numbers for CDs and VCRs.''

Digital versatile discs debuted in March 1997 with few titles and bare-bones players selling for $700 and $800. The discs are the same size as compact discs and offer digital clarity, six-channel sound, instant rewind, and massive amounts of information including trailers, screenplays, interviews and databases.

DVD players now retail for under $300; during the week before Christmas, consumers bought half a million discs, according to VideoScan, with most discs priced at $25. The DVD holiday bounty led to a spate of positive announcements this week, including:

Best Buy reported sales of $1.2 million in DVD software the day after Christmas, while hardware sales at its 314 stores topped 80,000 units during November and December.

``Strong holiday sales of DVDs indicate that it is the preferred format for future movie viewing,'' said Wade Fenn, Best Buy executive vice president. ``DVD was by far the runaway consumer electronics gift this year. By mid-December we sold out of many models and were unable to fully meet demand.''

Fenn said Best Buy could have sold another 20,000 units during December.

DVD Express, which bills itself as the Internet's largest video retailer, announced it has sold 1 million discs and expects to pass the 2 million mark by the second quarter with current shipments of over 20,000 orders per week.

Michael Dubelko, DVD Express president and founder, said, ``We are now positioned for extraordinary growth as DVD completely replaces VHS as the preferred format for premium home entertainment.''

DVD Express also launched an informational Web site, dvd.com, with a content deal with The Hollywood Reporter to provide daily industry news; and DuBelko said his firm had received 10,000 orders for the ``Armageddon'' DVD in less than a week.

Warner Bros., the most aggressive studio in backing the format, announced its 1998 DVD sales topped $170 million, more than triple its sales of $50 million in 1997. DVD accounted for more than 10 percent of total domestic home video sales in the year and that figure hit 18 percent in the fourth quarter.

``DVD's performance has exceeded expectations, and our numbers prove it,'' said Warren Lieberfarb, president of Warner Home Video. ``DVD was a breakout hit during the holiday season, and we expect consumer and retailer enthusiasm to experience continued growth in 1999.''

Hollywood Video announced DVD had become the most successful new format introduction in the chain's history and will boost inventories at some stores from 200 to 2,000 titles.

``Never has a new product launch at Hollywood been met with this kind of demand,'' said Jeffrey Yapp, Hollywood Video president. ``DVD is the fastest growing new category we have ever introduced.''

Circuit City, which has backed the rival pay-per-view Divx format, announced that retailers had sold 62,000 DVD players with the Divx feature in December, about one third of the market. ``A lot of people thought Divx would disappear after this holiday season, but it's starting to catch on,'' Adams said. ``Our 10-year model contains Divx; I've never had any doubt about the consumer appeal of it.''

Circuit City, for its part, is marketing Divx as an enhancement to DVD. ``We believe that as our hardware and software selections continue to grow and consumer awareness of DVD increases, Divx can contribute to further expansion of the overall DVD market,'' said Richard L. Sharp, chairman and chief executive officer of Circuit City.

The boom is being felt across the region: Los Angeles-based DVD Express, for example has gone from two full-time employees in April 1997 to 100 currently; and Chatsworth-based Image Entertainment, the nation's largest laser disc distributor, announced this week that its DVD software outsold laser discs by 2-to-1 during the holiday quarter.

Shares of Image Entertainment, which expects online sales of DVDs to become a ``major growth area,'' have more than doubled since late November and closed Thursday at $9.375, down 18.75 cents.

``It really has become a DVD world,'' said Jeffrey Framer, Image Entertainment's chief financial officer.

Thomson and the partnership backing Divx have developed a DVD player for high-definition TVs that will be available next year; Philips plans to roll out a DVD recorder next year.

DVD Express's DuBelko predicts a much more broad-based audience for DVD. ``At the beginning, our customers were 99 percent male,'' he said. ``Now we're about 70 percent male and we're starting to see family titles sell really well.''

DeBelko believes that DVD-ROM, now included in many new personal computers, will be the next boom area for the format, followed by music.

``It's a very dense format, with the equivalent (capacity) of 25 compact discs, and it's a market that's a $40 to $50 billion a year business in North America,'' he said.