Inside looking out: observations from the Dark Side of the Industry.

The great thing about this business is that: (a) It's the other guy who is causing all of the problems for consumers, and (b) It's the other guy who is making all of the money.

"They" are all correct. PC makers see the big bucks in consumer electronics and have begun to morph their products into entertainment/home communications systems. PC makers branch out into mediocre cameras/camcorders and LCD/plasma displays.

The PC marketers were quick learners and before the holiday season we all saw what Rob Enderle, principal analyst at the Enderle Group, called a backward condition for the industry where accessories were selling the computers. HP changed their systems to handle digital photography. Gateway came out with a family of digital cameras, camcorders and TVs. Sony has always ridden the wave of digital photography and video, as has Apple. Dell quickly jumped on board with a number of packaged solutions that included computers/ printers/ digital cameras/large LCD monitors and more.

While PC manufacturers only tested the waters with media center systems last year, they were serious about becoming mainstream consumer electronics competitors this year. PCs that didn't look like PCs were sold to replace stereos, VCRs, TV control units and more. InterVideo (long the leading producer of DVD player software) sold its home theater solution software into HP, Fujitsu, Hitachi, Sharp, Legend and other manufacturers' home entertainment systems.

As you might expect, Microsoft is also aggressively working to spread its tentacles into every part of your home. Fortunately there is an option, which many manufacturers are also embracing: open solutions Linux. This space could become very interesting over the next 12 to 18 months.

Burners to Burn

Today's DVD burners have become multi-writing hydras that all look fairly similar except for the names on the front. Burning speeds have hit 8X (10 minutes for a 4.7GB burn) and shortly they will be 16X (under 5 minutes to write a complete disc), with no increase in price.

Prices have dropped so rapidly for the DVD burners you buy today that Japanese manufacturers have all but ceased their own manufacturing and outsource it to Taiwanese and mainland China manufacturers. Korea's LG continues to be the world's highest volume manufacturer, but Taiwan's BenQ clearly has a goal to replace them as the leader. Next you have AccessTek (MSI), LiteOn, Quanta, AOpen and mainland China's TLS, Funai and SVA Group. Profits are so hard to come by that Pioneer and NEC have already moved much of their production to the mainland and Matsushita (Panasonic) will be there shortly.

Don't expect to see many of these names on the shelves of your local store. Instead, look for I/Omagic, Iomega, Apex, Memorex, Plextor, Digistor, Sony, HP, and a ton of super-cheap store brands. Oh and don't forget, they will be more readily seen as a standard part of your computer--Mac, Dell, HP, Gateway, Alienware, Sony, eMachines and, yes, store brands.

As if that wasn't good enough, in a few months we'll have burners that will write dual-layer (DVD-9) discs. CD (700MB) and DVD (4.7GB) media prices (especially R) are about as low as they can go and it is extremely difficult to tell good discs from bad discs until they have been written to ... then it's a little late.

Double Layer Coming

Double or two-layer media may be about double the cost of the single-layer discs that may sound a little expensive, but we are looking at 8.5GB vs. 4.7GB--double the capacity. In addition, it's going to be in short supply because double layer media is just very difficult to make and the early producers have only begun producing and shipping in any volume. It will take three to four months before volumes are increased to the point where it will be widely available. Still, it will only be available this year from a couple of media manufacturers.

The dual layer burners "should" be able to write today's discs--it's just a matter of controlling the intensity of the write laser. The discs will be readable on existing players (the units already read dual-layer movies). So expect the burners to be introduced with very aggressive pricing.

[ILLUSTRATION OMITTED]

Why? Well despite what your sales rep will tell you, making a two-layer writing burner instead of a single-layer writing device isn't that tough. All they had to do was change some of the firmware to control the laser diode's write/read strength. Previously, you had two strengths (write and read). With dual layer, the laser had to be controlled for writing to layer 0 and layer 1 and reading the data. That's it for the hardware.

The media? That's a whole different challenge because it required different dyes for the two recording layers, spacers and special metal reflectors. Then all of these components have to be put together in just the right manner and the correct automated production technique. Not an easy task, hence the initial limited availability of the media.

In addition, keep in mind you will probably be writing single-layer media most of the time (because you won't be writing a full 8.5GB of data or up to 16 hours of video that often), the slightly higher price and slightly lower availability of dual layer.

But that's okay because when you need the added capacity ... you really need it!

Next at Plate

Just when you almost had the +/-, R/RW and the meaning of the X performance numbers figured out, "they" have announced the next generation products. Yes, there's another struggle coming. This time it's Blu-Ray vs. HD DVD. Both technologies will store five times more information than today's burners--about three hours of high-def video. Sony showed its Blu-Ray burner at CES and will be shipping them to dealers in a couple of months. Expect the initial prices to be about $1,500. The media (which will be in a cartridge) will be priced about $35 per disc. Before you ask, no, it won't play in your home DVD player.

Hollywood hasn't backed either yet and they certainly won't endorse two different standards. This is "nice" to know, but you won't be running out to buy one of the burners for at least a year unless you're one of those people who simply have to be the first in your neighborhood with the newest, most techie toys.

As Jon Peddie, president of Jon Peddie Research, points out: The prices are going to be high. They won't be backward compatible. They will be initially targeted for professionals and business applications.

We doubt if we'll see "consumer" products until at least mid-2005. Then you can only play the discs on the system you wrote them on or on an equally compatible new stand-alone reader/player, which "may" read your older DVDs. Keep in mind, the discs will be in cartridges which was the thing any number of "experts" said was foolish when the first writable DVD products were introduced about four years ago.

It's the Money, Honey

Why the dispute? It's all about the money! Even though there are low margins on PC and CE products, the licensing fees are a big (huge) source of income. For example, Philips--which is strong on technology but weak on marketing (at least every-where but Europe)--has set a goal to double its two to 2.5% profit margins with royalties. It's good money if you can get it, and they've got the CD and DVD patents to make it happen. Sony, Matsushita, Hitachi and Pioneer also realize great returns to their bottom lines for their engineering advances in the two technologies.

Philips is so aggressive in protecting its royalties that it has stopped products made in China and Taiwan at the borders and watched them be destroyed. Obviously that didn't sit well with China, so they developed their own DVD technology (EVD-enhanced video disc) which is on sale in their country and will probably find limited success overseas ... or Philips will blink and adjust their royalty charges.

So what does it mean for you? There are lots of 4x DVDR burners available and they are very cheap. 4X writing or 15 minutes a disc is nothing to sneeze at and the media is economic and readily available. The new 8X burners are already aggressively priced; media is coming into its own. Double-layer is just over the next hill and will probably write to your existing single-layer 4X and 8X media. Blue-laser and HD writers? Let's worry about that next year!