CD-ROM at Ten Years; the Technology and the Industry Mature
Herther, Nancy K., Online
When CD-ROM was first introduced in the winter of 1985, drives cost $2000 each and only about a dozen titles were available for sale. Believe it or not, most of these were developed and sold by Digital Equipment Corporation who, along with Microsoft, Sony and Philips, was an early promoter of the technology. It has been a long, and sometimes slow struggle over the last ten years, but today CD-ROM has finally arrived.
The critical year was 1993 -- for CD-ROM hardware, software and discs. Suddenly CD-ROM was hot, available in virtually any retail outlet, and featured in industry, consumer and business articles, and also prominent at the Consumer Electronics Shows, COMDEX and other major trade shows.
The year 1994 saw solid growth and further market development as CD-ROMS began to take over market share for distributing games and software, as well as dominating the emerging multimedia marketplace. In 1995 we will see further growth and penetration of CD-ROM technology, a further explosion of in-house CD-ROM production in corporations and lower prices for better quality products at all market levels.
Standards breed confidence in consumers, developers and the people who finance these ventures, all of whom are critical to market development. Standards also allow for the development of compelling applications, which are driving today's CD-ROM industry. The unusual levels of cooperation reflect the complicated matrix of technical obstacles that relate to CD-ROM and multimedia.
Two types of standards exist, both critical to today's market development. Technical standards now in place, such as JPEG, MPEG and SCSI-2, have tackled the big issues of platforms, information layout on discs, indexing, compression, interfacing, and video and audio integration. We will continue to see more work in this area in the coming year. Market-level standards address issues in consumer acceptance, ensuring that discs will play on your computer and drive. For multimedia and consumer markets in particular, "plug-and-play" is essential.
One major motivation for plug-and-play is reducing support costs for vendors. Microsoft, for example, reports that 50 percent of all operating system/hardware support calls they receive are installation- or configuration-related. Reducing these costs, the industry believes, will result in savings that can be passed along to customers. The MPC Council, an industry trade group that developed and issued the MPC and MPC2 standards for multimedia, has been a critical factor in the growth of the industry.
What can we expect in 1995? Multimedia issues will continue to dominate standards discussions. HDCD (high density CD), the brain-child Philips, Sony, Matsushita and JVC, will pack more digital information on each disc for extended play time and higher quality recordings. JVC specs indicate that their approach to recording permits 135 minutes of MPEG-2 images on a single disc. Since about 98 percent of all movies are less than 135 minutes long, these discs could easily replace VHS and other formats.
JVC has developed a prototype disc with a capacity for three gigabytes of storage--an astounding improvement over today's 650MB limit. The problem is that these discs will not play on existing CD and CD-ROM systems, thus creating another marketing challenge. However, it seems clear that these systems will find immediate applications in many professional and in-house publishing areas. Eventual market size and acceptance are still anyone's guess.
OTHER TECHNOLOGY ISSUES
Networking is critical to corporate markets, and today CD-ROM and multimedia networking has matured. Off-the-shelf solutions exist at competitive prices for virtually any application need.
PCs are now dramatically lower in price. A year ago a 486/66Mhz PC with CD-ROM drive cost $2500. Today Compaq promises to break the $1000 barrier for a similar configuration in their one-piece Presario computer. This is another tremendous breakthrough indicative of the rapid change taking place in the industry.
Rock Ridge and other standards have helped create new market opportunities by permitting easy transfer of a database from one system to another and giving both developers and users platform independence--the same disc can be played on different platforms. Amazingly, this is not seen as a major advance in retail markets. Called hybrid or combination discs, they do not fit into the platform-oriented SKU arrangements of most software retail stores, many of which assume that eventually CD-ROM title makers will follow the traditional patterns and segment their products by platforms, as is done with floppy software.
The CD-ROM industry fought long and hard for standards and methods to easily create single-disc systems that would save production time, cost of the discs themselves and the advertising/packaging/printing costs. Traditional retailers, on the other hand, have used these platform-segmented arrangements to help gauge user interest, provide demographic information about their customers, etc. Who will win out? Stay tuned!
The average price for CD-ROM disc titles continues to fall rapidly, with an average price today of under $50. Drives today can be purchased for $75 (basic models in discount outlets) to over $750 for high-end models (Figure 1). We will always see a range of prices, reflecting a variety of needs, features and users. But the overall trend is clear--prices have fallen to a very competitive level, with many alternatives in both hardware and software/disc areas or any application or need.
[FIGURE 1 ILLUSTRATION OMITTED]
For years CD-ROM languished in the emerging technology committees of major computer distributors. CD-ROM companies had to rely on mail order and catalogs to establish a market position. All of that changed, once and for all, in 1993. CD-ROM is now in the mainstream of the electronics, entertainment and computer industries.
The significance of this change cannot be minimized. As a recent study by DataNow confirms, point of purchase information--impulse buying, in-store displays and recommendations from sales reps--has far more influence on buyers--it is responsible for over 70% of total sales--than do commercial advertisements, brand loyalty or product reviews in magazines. Cracking the distribution channels--getting CD-ROM onto retail shelves--eliminated the last major barrier to a mass market for CD-ROM. Even CD audio shops, such as the Tower Records chain, have begun test marketing CD-ROMS in special kiosks in 20 of their stores nationwide.
Not that this wider availability has eliminated all the problems consumers may face. The process of
selling' multimedia, in particular, has become a major problem for retailers. Re:Launch, a market research company based in Berkeley, California, recently released data indicating that customers today have little good information at point of sale upon which to base their purchases. Office superstores and warehouse clubs, in fact, failed to provide any working demos or literature with any of the multimedia systems they displayed. And consumer electronics stores have the greatest interest in providing these types of consumer tools, though only 15 percent of the sampled electronics stores had even these.
CD-ROM DRIVE TRENDS
You can't sell CD-ROM discs unless you have a CD-ROM drive installed. This has created a "chicken and egg" problem for the industry over the years, as sales never seemed to match estimates and every sector of the industry was prone to pointing fingers at the other sectors as reasons for the slow growth. Last spring, Sony officials quoted the installed base for CD-ROM drives worldwide at 45 million. This figure is inflated by at least double. However, getting real figures is difficult in this industry, which is very sensitive to public opinion and investor concerns (Figure 2). A more reasonable estimate is 20 million though growing quickly.
Figure 2 Projected Growth in Worldwide CD-ROM Drives and CD-Recordable Hardware
[FIGURE 2 ILLUSTRATION OMITTED] Year CD-ROM Cd-Recordable
1993 6 million 42,000 1994 20 million 225,000 1995 37 million 2 million 1996 60 million 9.8 million 1997 82 million 16 million 1998 100 million 27 million
Exact numbers are less important than noting the trends. Over the past three years--and for at least the next three--the installed base of CD-ROM drives has doubled each year. Regardless of the exact numbers being presented, what's most important is the trending. For CD-ROM, the outlook is extremely positive.
Increasingly, CD-ROM drives are being sold as standard equipment in new PCs in the U.S., Canada, Europe and Japan. One major market research firm, Trendata, recently surveyed buying trends in the first quarter of 1994 and found that 30 percent of all consumer PCs sold in the U.S. were bundled with CD-ROM drives. This number is likely to grow to as much as 80 percent by 1996. Selling CD-ROM drives as a regular part of computers is critical since research has shown that ten times as many people buy peripherals with their computers rather than afterward.
Dataquest recently predicted that, beginning in 1995, the number of multimedia upgrade kits (which include CD-ROM drives) being sold will begin to decline as more people buy newer, upgraded multimedia PCs. By 1998, one-third as many of these kits will be sold as in 1994, according to Dataquest research.
This is all significant, especially to consumer markets, because most consumer computer systems come bundled with an average of four to six CD-ROM titles, further fueling the market.
DRIVES AND THE ISSUE OF SPEED
Few single speed CD-ROM drives (which transfer data from CD-ROM discs at 15Ok/sec) are still available today--except perhaps at swap-meets or garage sales. Although these drives can still be used for playing audio CDs, they have little value for CD-ROM. With the advent of the MPC2 standard for multimedia computer systems, double speed drives, with sustained transfer rates of at least 30Ok/sec, replaced single speed drives both in upgrade kits as well as in imbedded drives in computer systems. Double speed drives still make up the largest segment of the market for sales of CD-ROM drives, with a market share of over 90 percent.
Triple speed and quad speed drives are still priced too high for the consumer marketplace. MPEG and Indeo CD-ROM titles require the performance of quad speed drives, but the market for these titles is still very small and won't begin to represent a major market share for at least another year or two. Until a mass market for these arrives, double speed will dominate the increasingly consumer-dominated marketplace. Unless you are interested in sophisticated multimedia applications, today's CD-ROMS aren't recorded for playback beyond double speed, so having the faster drive won't necessarily buy better performance.
For most users--professionals as well as consumers--getting into multimedia means buying a new computer system bundled with a CD-ROM drive, sound card, etc. Older systems pose too many potential problems and the price differential doesn't favor upgrades at this time.
Dataquest recently surveyed new multimedia buyers and learned that most new multimedia computers for home use become children's systems for educational and entertainment CD-ROMS. Mom and Dad are left with the old models, primarily used for word processing and telecommunications.
WHO ARE THESE HOME USERS?
The home market for CD-ROM today favors multimedia and game products with education/edutainment coming in at a close second. Personal productivity and other potential applications, requiring an initial learning curve, have yet to impact the market.
According to population data, the U.S. today has about seven million elementary school-aged children. Retail studies of CD-ROM sales indicate that as much as half of all CD-ROM title sales are made by the 20 percent of these home computer users who have CD-ROM drives.
Although increased sales are a major shot in the arm for the industry as a whole and help to bring overall prices for hardware and discs down, the consumer stress on entertainment clouds issues related to platforms. For entertainment, the market is crowded with contenders and "wanna-be's" including Sega, 3DO, Sony, CD-i and MPC. The high competition between these formats and the very unstable nature of this sector have made commercial investors wary, and market development has slowed.
3DO, for example, has made numerous trips to financial markets for funding and has yet to meet any of their own established goals for commercialization. They promised a year ago to have shipped 150,000 units by January 1994, but failed. Nintendo's continuing reliance on cartridges rather than CD-ROMS to deliver their games has also created market confusion in retail channels.
GROWTH OF CD-ROM TITLES
Growth in the number of commercially available CD-ROM titles continues to be spectacular. Today there are conservatively over 14,000 CD-ROM titles available for sale. This could easily double or triple in 1995 (Figure 3). However, it is very difficult to track this development or gauge the total size of the market because there is no definitive source for data on titles. None of the standard CD-ROM directories do a fair job of reflecting the true number of international, multimedia, game or governmental CD-ROMS available for sale. In 1995, we will continue to see the largest growth in the areas of consumer multimedia and international (non-North American) discs.
[FIGURE 3 ILLUSTRATION OMITTED]
TOMORROW'S HOT TITLES
The first successful commercial CD-ROM applications were text-based databases, government files and reference works. Today, the marketplace has changed dramatically with new, "electronic artists" creating original works specifically for the CD-ROM medium. Let's look at the five top areas for CD-ROM development and sales for 1995.
1. Education & Training:
Whether for remedial training, continuing professional education or self-improvement, this is an area of unmatched potential. Corporations, schools and people wanting self-improvement collectively spend billions each year on education and training, whether mandated or for personal growth. Moving these to a standardized, popular, computer-based multimedia environment will not only enhance the educational experience (as companies have found with the Lotus 1-2-3 product) but do so at a greatly reduced cost. Here are just a few examples of what's happening:
* A small nonprofit educational agency in Harlem is using CD-ROM to deliver adult literacy programs.
* The A.M.A.'s American Medical Television is working with SilverPlatter Information on a variety of continuing professional education discs covering a variety of subject areas.
* Children's Television Workshop--the group behind Sesame Street--has developed a variety of children's educational discs over the past five years.
2. Software Distribution:
Software distribution is another major area for CD-ROM growth. Microsoft Office, for example, is a compilation of Excel, Word, Power-Point, Mail and Access--all basic business software products--and comes either on 17 floppies with 11 pounds of documentation, or on a single CD-ROM. Lotus 1-2-3 Multimedia contains not only the software and fully-searchable software manuals, but also multimedia, context-sensitive help and tutorials. In the software industry, most of the largest companies have predicted that CD-ROM will dominate as the method for distributing software in the next five years.
Integrating video and audio along with text will enhance any application and will continue to drive sales in every product category. By itself, however, multimedia--clip art, photo collections and other applications--remains a strong seller in both professional and consumer markets.
Games will continue to drive the consumer market for CD-ROM. One recent study found that 72 percent of all home CD-ROM users owned at least one game CD. From relatively simple card games and public-domain programs to
complicated adventures and interactive mysteries, you can find it all on CD-ROM, and it sells heavily at warehouse, specialty and other retail outlets.
Voyager, Philips and others have already brought traditional movies to CD, such as the Beatles' Hard Day's Night, but others have also invested in developing all-new interactive dramas specifically produced for this new medium. The advent of HDCD only enhances the commercial possibilities.
5. Interactive Books:
Texas Caviar and Voyager are just two good examples of companies bringing new life to existing books--or developing whole new works of art--taking CD-ROM to a new level of acceptance and artistic appreciation.
None of this is intended to discount the role and enormous value of other product categories, from business software to government files and databases. These continue to provide the backbone of the commercial market for corporate and many professional and educational markets.
The bottom line, of course, remains: What can CD-ROM do for me? Today, even for corporate, in-house use, CD-ROM is a product with proven value. Here are just a few examples of how CD-ROM technology is being put to good use:
* Kodak and Macromedia released their annual reports to stockholders this summer in both paper and CD-ROM versions. If you haven't seen these, you must. They have both used available technology not only to highlight their companies' investments in these technologies, but also to "sell" investors most persuasively on their companies.
* Waite Publishing and other book publishers now distribute their book catalogs on CD-ROM, also with
enhancements' not possible in two-dimensional print formats.
* Apple, Hewlett-Packard, Microsoft and others now regularly distribute manuals and developer materials on CD-ROM. If you are an Apple developer you must have a CD-ROM drive since these materials are not available in print.
* Multimedia World and Computer Reseller News both regularly distribute free CD-ROMS containing promos, ads and editorial material to their subscribers.
* Creative Labs uses an interactive CD-ROM product demo disc, designed to teach customers about their hardware products by showing examples of products in use, easy installation, etc.
* Whole magazines are now being published and sold only on CD-ROM, including: Medio Magazine from Medio Multimedia, Interactiue Entertainment and Voyager's effort to create a children's disc-magazine, called Splat.
Today CD-ROM is perhaps the cheapest storage option available, costing less than two cents per megabyte. This is making in-house publishing a reality and giving companies an immediate return on their investments while delivering a higher quality of information, on demand and at point of need.
In the short ten years since it was first introduced, CD-ROM has caused significant changes in the ways most information professionals do their work. In many organizations, it has for example, replaced most online searching costs. CD-ROM is just starting to take off in the consumer markets. Who knows what the future holds?
Certainly, the growing consumer market for CD-ROM hardware and software will have a major impact on all professional applications, bringing prices down and encouraging greater competition and more variety of features and functionality. The growth of the consumer market, then, is very good news indeed for any professional user.
As a storage medium, CD-ROM has proven its high value and flexibility in meeting a variety of needs for all types of organizations and a rainbow of applications. What about the next ten years? Will CD-ROM, or any form of CD, still be a viable technology? No one can say. Technology is changing rapidly and, given the low cost for most technology products today, if another option that is better, faster and cheaper were to arise, certainly CDs would be pushed aside, just as the vinyl LP and other technologies have been in the past.
RELATED ARTICLE: Getting Products To Market: New Distribution Methods
In the database area, CD-ROM distribution has been dominated by the presence of a single, major disc distributor, SilverPlatter Information, Inc. Begun by Bela Hatvany, an early library automation pioneer, the company has carved out its own niche and successfully beaten off competition from more "traditional" database services, such as Dialog and UMI. SilverPlatter owns the marketplace today, and deservedly so. It has worked harder to get database producers to sign on, promoted an aggressive marketing and customer support program, and continued an R&D program that has consistently led the field for developing products, showing innovation and ease of use.
In the larger consumer marketplace, getting your products noticed by the established computer or entertainment distribution channels has been very challenging. Today throughout the industry, developers and retailers are opting for the same basic distribution model that has successfully worked in the Cd-Audio industry: the affiliate label.
In the Cd-Audio arena the major publishing/affiliate giants are Sony Music Distributing, BMG Distribution, Polygram Distribution, Warner Music, MCA/Uni Distributing and CAPITOL-EMI/CEMA Distributing. Together they control over half of all recorded music in the U.S. Similar arrangements are becoming evident in the games/entertainment arena, as Sega, Acclaim Entertainment and others are jockeying for position.
The motivations are clear. Retailers don't have the time or interest to deal with the more than 50 top CD publishers active today. Also, small publishers don't have the experience or the connections to break into the network, while larger publishers are able to use their ties to creative upstarts to bolster their own positions of dominance, and leverage the investments they have made into developing their distribution networks.
Who will win in the consumer arena? It seems uncertain today, however any of the major Cd-Audio companies, especially Sony, Polygram/Philips and Warner, are all top contenders, as well as some of the major players from other areas such as Sega, Nintendo, Electronic Arts and Acclaim.
Today these arrangements are creating little criticism and are seen as win-win situations for publishers anxious to crack into the "big time," as well as for the industry itself. Certainly the profits being generated for the affiliates will continue to drive this development over the next few years.
RELATED ARTICLE: CD-Recordable Bringing It On Home
Imagine sitting in your office, at your computer, and the only diskettes available on the market are those with pre-recorded software on them? How would your use of computers change if you could not easily download and create your own information files? Just as the market for blank cassette tapes, VCRs and floppies outsells pre-recorded, the same thing will happen with CD-Recordable.
Without question, CD-R, both hardware and blank discs, will become the next CD wave. Last year I led a major study of CD-R acceptance in American corporations. We have had to adjust our forecasts on exact numbers in the past year, but the trends have remained the same--CD-R is a clear choice in corporate and professional markets for in-house publishing of large data files or for creating information/multimedia products.
Our sample included the top 1,000 companies in this country. 100 percent had CD-ROM drives and commercial disc products. All were bullish on CD-ROM technology and its value to their companies. Nearly 85 percent expressed no real qualms or serious concerns about CD technology m general. All MIS officials interviewed demonstrated a detailed, sophisticated understanding of CD-R technology and applications. Especially significant factors for these IT managers were low prices, the ability to network these systems (especially at workgroup levels), interest in in-house publishing, and the value CD-R offered for small-scale back-up use.
Fueling the fire for CD-R is the recent announcement from Philips of a CD-R hardware unit for under $1000 in 1995. Price reductions like this can be expected to follow from other vendors. Will this be enough, however, to ignite a rapid adoption of the technology.
After reviewing events of the past year--the rise of HDCD, the failure of 3DO to live up to its PR, some major changes in corporate policies related to information purchasing, etc.--we have had to downgrade the bullish estimates for CD-R (See Figure 2 of accompanying article) that we made a year ago . Although the trends are clearly positive, CD-R will grow at a slower overall pace than originally anticipated until HDCD is more stable, software distribution plans by major software producers are clearer, and the consumer markets for movies and games are settled. Prediction is hardly an exact science, and in the consumer arena, especially, an estimate is at best a shot in the dark.
 Fox, Barry. "CDs: The Next Generation." New Scientist (September 10, 1994): pp. 33-35.
 Hartigan, John. "Label Affiliation--Blessing or Bugaboo?" CD-ROM Professional 7, No. 1 (January 1994): pp. 62-67.
 Herther, Nancy K. "The Rise of CD-Recordable: A Report from the Corporate Front." CD-ROM Professional 7, No. 3 (July/August 1994): pp. 142-146.
 Losee, Stephanie. "Watch Out for the CD-ROM Hype." Fortune (September 19, 1994): pp. 127-140.
 Lyall, Sarah. "Are These Books, or What? CD-ROM and the Literary industry." New York Times Book Review (August 1994): pp. 3-4.
Nancy K. Herther is President of High Tech Ventures, Inc., a consulting and research firm. She is also Manager of the Integrated Information Center at the University of Minnesota, which is involved with developing innovative Internet-based research services using gopher and other interfaces. She has written and spoken frequently about CD-ROM over the years and is the founding editor of CD-ROM Professional magazine.
Communications to the author should be addressed to Nancy K. Herther, High Tech Ventures, Inc., 407 Kingston Avenue, St. Paul, MN 55117-2424; 6121771-9939 or 6121624-2020, Internet--nherther[at] iic.lib.umn.edu.…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: CD-ROM at Ten Years; the Technology and the Industry Mature. Contributors: Herther, Nancy K. - Author. Magazine title: Online. Volume: 19. Issue: 2 Publication date: March-April 1995. Page number: 86+. © 2009 Information Today, Inc. COPYRIGHT 1995 Gale Group.