NEW YORK - The entry of the Pioneer and Magnavox videodisc systems into the all-important New York, Chicago and Los Angeles markets this month signals the start of a new phase in the competing hardware manufacturers' developing struggle for market dominance. Although these two systems, which are both based on compatible laser technology, will be the only videodisc players available during the upcoming Christmas "selling season," the projected 1981 debuts of videodisc systems from RCA and Matsushita Electric Corp. utilizing separate, incompatible technologies will confront potential buyers with a bewildering variety of choices. Initial marketing strategies for the various players, however, plan to tout the virtues of the respective systems, while avoiding head-on comparisons with competitors. Almost all advertising for videodisc players will be aimed at drawing potential buyers into audio hardware stores, which will also serve as the main distribution outlets for the first wave of videodisc software.
One apparent way to create a consumer market for a brand new, high-technology invention that the average consumer knows little or nothing about is to concentrate distribution of the videodiscs at the locations where the players will be sold. A ready availability of software is necessary not only for demonstration purposes, but as a vital selling -point for prospective buyers. According to Joel Strasser, a Pioneer spokesman, a new videodisc system owner will want to purchase a minimum of five discs before he leaves the store, and other estimates of a first-time buyer's needs range as high as 15-20 discs. The discs have a top value of $24.95.
Because of the initial emphasis on hardware outlet distribution for videodiscs, and uncertainty over which of the three competing hardware -software combinations will finally emerge as the favorite of consumers, most major record retailers and sub -distributors are taking a wait -and - see attitude towards carrying videodiscs. Harold Okinow, president of Lieberman Enterprises, a key rack jobber based in Minneapolis, compared the new videodisc business to the fledging days of the eight-track tape when most tapes were sold through the automobile and audio dealers who carried the eight-track players. "Record distributors do not feel that they're being bypassed on videodiscs," Okinow said. "They'll be able to sell the stuff, but without widespread ownership of the hardware they won't have any market at first. If a retailer we service is handling video disc hardware, we'll handle the software that will be required for it."
Ed Berson, vice president of purchasing for the North Carolina -based Record Bar chain, which has over 100 outlets, said his company was being "very cautious" about entering the videodisc business. Berson cited the strict 30 -day billing policy on videodiscs imposed by MCA Distribution, Corp.. currently the sole distributor of software for the laser -based systems, as a major problem for his chain. Berson also said the MCA's no -returns policy for videodiscs, coupled with a lack of co-op advertising money for the new product, was behind Record Bar's decision to turn down an offer from MCA to enter the Atlanta market on a test basis. "We need a large enough margin so that the risk makes sense," Berson said.
Similarly, Dwight Montjar, accessory and video buyer for the Ohio -based Stark/Camelot chain, which has 170 outlets, said the absence of co-op ad funding and a returns percentage for videodiscs were "a source of concern." Montjar also said the MCA stipulation that each software dealer supply every participating outlet with a videodisc player for demonstration purposes made a dealership agreement economically prohibitive for Stark/Camelot at the present time. Montjar did say, however, that his company will "keep an eye on videodiscs" and re-evaluate its position as the business expands.
At MCA Distributing, Sam Passamono, Sr., executive vice president, was sympathetic to the retailers' viewpoint, but said the unique, sophisticated nature of videodiscs called for matching distribution policies. "We can't open up this business like the record business," Passamono remarked.
Videodiscs may resemble phonograph records in some respects, but they will be marketed as a revolutionary development in home entertainment from the outset. Those record retailers who will be involved in the distribution of the laser -read videodiscs during the Christmas season have already existing audio hardware departments or have entered into agreements with audio dealers in order to handle the new product.
According to Jack Eugster, Minneapolis - based executive vice president and general manager of Pickwick International's retail division, the outlets of Pickwick's Northeastern Sam Goody chain, which have traditionally carried audio hardware will be selling Pioneer videodisc players and compatible software this month. "There will eventually be a software market independent of the hardware outlets," Eugster predicted.
Dave Crockett, president of Father's & Sun's, an important sub -distributor based in Indianapolis, said his company will be the first non -hardware dealer to enter the videodisc business. According to Crockett, Father's & Sun's have made arrangements with Hi-Fi Buys, an audio chain, to open record stores in six Hi-Fi Buys Outlets in Louisville, Nashville and Indianapolis. The arrangement calls for Hi-Fi Buys to sell the hardware, while Father's & Sun's supplies the software. Crockett, who added that MCA Distribution is allowing him to carry videodiscs in two of his company's Karma retail record outlets in Indianapolis, defended MCA's "cautious handling" of videodisc distribution.
"MCA doesn't want videodiscs to be treated like records, and I don't blame them for that," Crockett remarked. "This is a brand new product line based on brand new technology. and MCA wants to build a clean, well -run operation. I don't think there are a lot of record business people prepared to handle videodiscs. We wanted them because we want to be in the vanguard of the video business." Crockett noted, however, that his one -stops would not be handling videodiscs in the foreseeable future.
The novel marriage of the audio format with the television screen made possible by videodiscs has exciting potential for the hardware dealers who are in the forefront of new business. The Boston -based Tech Hi-Fi chain, which has outlets in 10 states, has had measurable success with a New England regional ad campaign it financed in support of Pioneer's "Laserdisc" system.
"We noticed an immediate increase in store traffic," said Rick Deutsche, vice president of advertising for Tech Hi-fi, discussing the $30,000 print, radio and direct mail campaign. "One of the problems of stereo specialty stores has always been that there is something intimidating about them. it's difficult to get the masses to walk past the threshold. One of the nice things about this new invention is that it's getting a lot of people into the stores who might not ordinarily come in." Duetsche said that the Tech campaign will be expanded to cover the New York market as the chain's outlets here begin to carry the Pioneer players this month.
Pioneer has launched a national print advertising campaign in support of its videodisc system, stressing "the magnitude of the innovation, with the hardware as the primary factor," according to Howard Mandel, account executive for Altschiller, Reitzfeld, Jackson & Solin, the agency handling the Pioneer campaign. Mandel said Pioneer has yet to decide on a policy for co-op ad funding.
Magnavox "will be breaking a national ad campaign in early October" for its rival "MagnaVision" videodisc system, according to Sonny Kirkendall, Magnavox's Knoxville, Tenn. -based coordinator for videodisc merchandising. Like Pioneer's "Laserdisc" the Magnavox system uses a laser beam to "read" electronically coded audio and visual information stored in microscopic "pits" on the grooveless disc's mirror-like surface. Since the 1978 introduction of MagnaVision in the Atlanta market, the theme of the Magnavox campaign created by the William Esty agency has been, "The world on a silver platter." Kirkendall said that a new "umbrella campaign" being created by Detroit's Campbell Ewald agency "will be people oriented."
In spite of the speedy entry of the Pioneer and MagnaVision optical -laser systems into this year's Christmas market, RCA's "SelectaVision" videodisc system, which is set to debut in the first quarter of 1981, will mount a formidable challenge for the consumer market. In contrast to the Magnavox and Pioneer systems, which are list priced at $775 and $749 respectively, RCA plans to market its videodisc player for under $500 - a figure that promises to appeal to budget -conscious non -industrial customers. The RCA system employs "capacitance contact" technology, with a microscopic stylus tracking audio and visual information stored in a highly compacted series of grooves on a black disc that resembles a phonograph record.
Dave Heneberry, staff vice president of marketing for RCA videodiscs, indicated that RCA's videodisc ad campaign, which is still on the drawing board, will focus on the availability of programming being readied for the SelectaVision configuration. Observers of the emerging videodisc industry have noted that the abundance and type of programming available will be of greater concern to potential consumers in the home market than the relative merits of the competing technologies. "We will be stressing the availability of software, the confidence of RCA as a total resource," said Heneberry, who also noted that "cost, simplicity and serviceability" would be key points stressed by the RCA campaign.
One important feature of the optical - laser systems absent in the RCA configuration is stereo sound. RCA, however, has promised a stereo model - with a higher price tag - by 1982.
"I haven't dealt with monaural as a problem, -there is a general ignorance about the whole stereo -mono question," Heneberry said. "We believe that the broad availability of mono programming as opposed to stereo will make the mono instrument a very marketable product. People will be using this product as a TV watching adjunct. Mono enables us to come to market under $500."
Heneberry noted that the distribution of SelectaVision discs, like the rival software, will initially be concentrated at locations where the hardware is sold. Heneberry said RCA plans a simultaneous nationwide launch at over 5,000 dealers. The discs will retail from $15-20 each.
RCA has already lined up the mass merchandising giants Sears Roebuck and J.C. Penney to market players of RCA design under "private line" brand names. Cal Allen, Chicago -based record and tape buyer for Sears, said that his company would budget "at least $1 million" for videodisc advertising in the Summer of 1981. Noting that Sears' deal with RCA is non-exclusive, Allen said that Sears was "still negotiating with rival manufacturers," about the possibility of carrying optical - laser systems.
To further complicate the videodisc market, the Matsushita Electric Co. of Japan will market a third, incompatible "VHD" (video high density) videodisc system "late in 1981," according to Anthony Jasinowski, engineer for the videodisc planning department of the Panasonic Co. in New Jersey. The Matsushita hardware, which was designed by its subsidiary the Victor Co. of Japan (JVC), will use a stylus to track information stored in pits on a grooveless disc surface. The VHD disc will be more compact in size than its rivals and will offer in addition to the standard color TV picture, two -channel stereo and, with the addition of optional equipment, audio digital playback. This system will be marketed under the Panasonic, JVC, Quasar and General Electric brand names, with programming being developed by Thorn EMI of England. The manufacturers of this system plan to pool their resources to finance marketing and software development, and are committed to join in the upcoming struggle for market dominance. The proposed list price for the unit has not been announced.
All of the observers interviewed by Cash Box cited the challenge involved in starting up a new industry for a highly innovative product. There has been some criticism directed at Pioneer and Magnavox, to the effect that they have opened up markets for hardware before any adequate supply of software is in place. These charges were refuted by Bud O'Shea, vice president of marketing for MCA Discovision - the chief programming arm for optical software - who expressed confidence that the company's catalog of 65-75 feature films and an additional 50 titles of children's and instructional programming would be sufficient for the initial Christmas season launch. O'Shea said the issues of licensing and royalties were holding up the development of musical programming, with ABBA and Loretta Lynn being the only two musical acts now available on videodiscs.
Problems involved in the production of product in a frontier state of development were addressed by Bill Mount, vice president of programming for Discovision Assoc., a joint venture between MCA and IBM for the manufacture of optical -laser discs. Although Mount could not reveal the monthly production run for the company's Carson, Calif. plant, he said Discovision Assoc. has produced "over one million" videodiscs to date. Mount said 20% of those discs were for the industrial market, and 80% for home -market consumers.
"This is a high-technology product. There have been some technical, production and system problems that have arisen, and we are solving them as they come up," Mount said. "We view the job that we're facing as going in three directions: produce on schedule; maintain quality; and expand the business at a high rate. These are the goals of most businesses, but for a new industry like ours, they are especially challenging."