Interactive CDs get hot, igniting holiday-season warfare among industry giants.

West Los Angeles-based Philips Interactive Media of America is going to war this holiday season.

After launching its first compact disc interactive systems about a year ago, Philips will now have its first competitor in the fast-growing interactive CD market, as a partnership of Zenith Electronics Corp. and Tandy Corp. launch their own versions of the system this month.

To counter the Zenith/Tandy incursion, Philips is hitting the market this month with a series of upgrades to its year-old systems.

The unfolding holiday-season war will be waged primarily through home electronics/appliance stores, and the resulting spoils will be hundreds of millions of dollars in sales of interactive players and discs, say officials at Philips and Glenview, Ill.-based Zenith.

"This is the new industrial revolution in the entertainment industry. It will have as much impact and could create as many jobs in the entertainment industry as motion picture technology did at the beginning of the 20th century," said Dr. Bernard J. Luskin, founding president of Philips Interactive, pictured above with interactive system.

But some analysts say the interactive compact disc (CD-I) industry needs to be standardized before it can really take off. There are currently as many as 40 languages in which discs are programmed.

"There is going to be a war for the home entertainment/education market and not all of the players are going to survive," said Jay Samit. He is the president of Century City-based Jasmine Multimedia Publishing Inc., a company that designs and sells software.

The CD-I systems sell for $700 to $1,000, according to marketing materials from the two companies.

Such systems combine computer technology used in video games and digital recording to provide what manufacturers call an interactive "experience." Users choose how they see and hear data stored on the discs by moving an arrow on the screen to the desired selection with a hand-held remote control. A click of the control makes the selection pop up on the screen.

One program lets the user look into an audio-visual set of encyclopedias. Using the clicker, the individual can select the African Elephant listing and see a heard of elephants romping through the grasslands. At the same time, data pertaining to the subject is read to the viewer or displayed as text on the screen.

On another program, children can move the arrow to one of the 26 letters of the alphabet. When they click on the letter "A" an apple or another word that starts with the letter pops up.

The big issue now seems to be programming. The Zenith/Tandy partnership had 84 titles at the end of September compared to Philips' 75. Zenith spokesman John Taylor said Zenith comes to market a little later than Philips but like its competitor, will heavily promote the CD-I during the holiday season.

Along with games, Zenith/Tandy's CD-I system, like Philips', includes a Compton's Multimedia Encyclopedia. The user works through the menu and clicks on the subjects he wants. At that time a combination of moving images, voice and text explain the listing.

Tim Bajakin, president of Santa Clara-based Creative Strategies Research International Inc., a software development company, sees potential for all players in the CD-I market. But he pointed out that the system developed by Zenith and Fort Worth, Texas-based Tandy is clearly positioned as more of a learning device than is the Philips system.

Some 90 million U.S. households have televisions. Of those, 65 percent already have videocassette recorders or players, Bajakin said. "But I think smart buyers are going to wait until the digital format is standardized by the Federal Communications Commission in 1995 before they invest a lot of money in a CD-I system," Bajakin said.

The No. 1 issue a buyer must consider is how much software is available for the CD-I system he or she chooses, Bajakin said.

Local Philips Interactive spokesmen pay little attention to the nay-sayers and claim the CD-I market has no limits. Philips soon will roll out a $10 million marketing campaign to sell to what its marketing officials call an unlimited market.

Philips is working with Hanna-Barbera Productions Inc. and Turner Broadcasting System Inc., to put more titles on the Philips CD-I format, Luskin said.

Philips Interactive Media, a division of Dutch holding company ($29.45 billion in 1991 sales) Philips N.V., spent more than $100 million developing the CD-I, said Philips Interactive officials. Other industry experts say Philips has spent more than four times that much developing the system.

Philips developed its CD-I technology with Japan's Sony Corp. and Matsushita Electric Industrial Co., Ltd.

"Lots of other companies in this business will try to copy the technology. We don't have any patent on it," said Philips Interactive Media's marketing vice president, Emiel N. Petrone.

Philips, hoping to beat the competition to the market place, is finalizing distribution agreements with home electronics and appliance stores such as Circuit City and the Good Guys, Petrone said.

"Sometime in October, we'll step up delivery to home electronics stores like Circuit City and the Good Guys," Petrone said.