Self-Distructing DVD

[Black02Silverado]

The Self-Destructing DVD

Disney and Flexplay are teaming up to produce DVDs that become unreadable two days after being opened. The "self-destructing" technology is simple yet the implications are complicated. It's not just the movie studios and the rental specialists that might profit or have to shift gears to stay profitable if the new format is a success. Rick Munarriz explains why he believes that it's a technology that won't just fade away.

 

By Rick Aristotle Munarriz (TMF Edible)

May 19, 2003

 

48 Hours on DVD isn't just another potential title in your DVD viewing library. If Disney (NYSE: DIS) and Flexplay Technologies have their way, it may also be a new way of life.

 

Come August, Disney will begin testing the new EZ-D format based on Flexplay's "self-destructing" technology. It's ingenious, really. Once the EZ-D is removed from the packaging, its exposure to oxygen interacts with the coating on the disc to make it inoperable roughly two days later.

 

The DVD with a limited shelf-life isn't new. Circuit City (NYSE: CC) tried to roll out its timed DivX disc format and failed. However, DivX never had a prayer as it required equipped players tapped into a phone line to monitor its usage. The Flexplay system, which uses materials from General Electric's (NYSE: GE) GE Plastics division, can play on any system. Nature is the cop as the EZ-Ds that come out red and ready to play begin to fade to an unreadable black as the hours drag.

 

So, is this yet another case study for the elephant's graveyard or will it take off like Dumbo?

 

I'm inclined to bank on the latter.

 

Who wins?

DVDs are cheap. You are finding them in everything from cereal boxes to bonus freebies tacked on to pre-recorded music CDs to help ward off MP3 piracy by motivating the initial purchase. They are also light and compact, igniting the Netflix (Nasdaq: NFLX) model, which has found a captive audience of more than a million paying subscribers while chains like Blockbuster (NYSE: BBI) and Hollywood Entertainment (Nasdaq: HLYW) have profited from the shift away from the bulky VHS tapes and towards the sleek and content-rich DVD format.

 

Does this mean that the success of EZ-Ds will spell an end to the DVD rental specialists? Not really. Netflix is on an entirely different level of service, banking on its breadth of titles, free home-delivered convenience, and unlimited holding periods to win over its established base of users. Blockbuster and Hollywood will face a more direct threat, until one realizes that they are also the ideal clearinghouses to stock EZ-Ds in bulk if the format takes off. That would spare patrons the worst half of the travel time: the rushed trip back to the store to return the rentals.

 

For Disney, it will give its struggling Disney Stores a fresh product to drive even more incremental sales. More importantly, for the company's recent wave of substandard animated sequels and direct-to-video rush jobs, paying $4-$5 for a two-day taste may be more lucrative than titles that wouldn't sell much at all otherwise. And, yes, what's to stop Disney from setting up a policy where you can return a blackened EZ-D and get its original purchase price back as a discount on the purchase of the actual working DVD of the same title?

 

Did someone say McDonald's?

Yet the real mother lode here for Disney, Flexplay, and even GE lies in one of Disney's most prominent partners. We're talking about a struggling company with more than 31,000 distribution outlets under its belt. We're talking about a fast-food chain that is geared for drive-thru convenience in most of those locations and would relish the opportunity to tack on a quick low-ticket purchase to any passing transaction.

 

Yes, McDonald's (NYSE: MCD). One of my most far-fetched suggestions in last year's 10 Tips To Save McDonald's involved the DVD rental of the latest Disney home market releases. The EZ-D strips away many of the cumbersome obstacles of collecting information and collateral to make sure a rental is returned. The companies already have a cross-promotional pact in place. This would give McDonald's a hipper product than its own animated McDonald's videos to lure new customers. To the spendthrift, this will revolutionize the concept of a dinner and a movie as a cheap date.

 

Will environmentalists cringe at the notion of a stack of disposable discs piling high in a landfill? Perhaps, but while the EZ-Ds are not reusable they are recyclable. Besides, is that image any worse to an eco-minded thinker than a yuppie in his gassed-up SUV making a second trip to the video store to return the movie?

 

If so, will someone please make sure that Michael Bolton, Britney Spears, and the Backstreet Boys hold off on any new CD releases until we figure out the best way to get rid of their previous ones?

 

The first batch of EZ-D titles won't be Disney's animated classics. That's actually a good call since those releases tend to lend themselves to perpetual viewing by kids who have no problem watching The Lion King or Toy Story dozens of times. It will be Disney's live action flicks like The Recruit, Frida, Signs, and The Hot Chick that get served up as trial balloons over the summer.

 

Fade to black

As an investor whose gut instinct is telling him that the EZ-D will be huge, it's a shame to find out that Flexplay is not publicly traded. Other private companies such as Spectro Systems have come up with different coating technologies. The SpectroDisc process starts when the DVD is first played, and it eventually wears away to an unplayable state in a hue of blue.

 

Is the DVD industry about to see black and blue? I think so. It seems unfathomable now, but just wait until Domino's or Papa John's (Nasdaq: PZZA) starts delivering limited-play DVDs with your next pizza or that downtown vending machine starts spitting out EZ-Ds. Music CDs? Software? That's a bit more unlikely for various reasons, though disc-based video games might make some sense as trial demos or rental substitutes.

 

There's a bright, brave new world out there for the movie industry. Ironically, yet oh-so-lucratively, it's about to fade to black.

 

Rick Aristotle Munarriz actually doesn't have a beef with Michael Bolton, Britney Spears, Backstreet Boys, or environmentalists. He does own shares in Netflix and Disney. Rick's other stock holdings can be viewed online, as can the Fool's disclosure policy.

[Wingnut]

I read that a few days ago...Doesn't seem like a bad idea to me.

 

He!!, I own over 200 DVDs, and they don't exactly get a lot of air time.

 

Maybe other studios will catch on, and we will be able to get them (delivered) with our pizza. Now THAT would be cool.

 

And think of all the cool things you could do with the old ones.

 

-Throw them at passing motorists.

-Throw them at strays.

-Throw them at....I see a pattern beginning to emerge here...

-Arrange them with the pile of AOL CDs you get every week...and a flashlight and a record player...ET phone home!

-Send them to GM to make more Pro-Tec beds out of them.

-If stacked correctly, with some good carriage bolts...Roller skates! Shiny ones!

 

Yeah, I have too much time on my hands at work.

[Tucson_02Silverado]

What bunch of B.s. Just filling the landfills like AOL does. Most rental places offer discount rentals or two day rentals in the middle of the week as it is. Netflix, I don't use it but I can't see how renting could get any easier.

 

I want to find this brain trust that concocts these ideas and have them useless once their scam is opened.

It's gotta be the same place that dictates that new releases of Movies and Music must only occur upon a Tuesday. And the initial inventory will only be less than 100 units in any metropoliatan area.

 

Same brain trust tells bands they must have no more than two even semi decent songs to put on a 15 song album and repeat every two years at $15-20 per CD.

[Shadowfax]

If I buy a dvd movie, I better be able to watch it over and over again as many times as I like. I think if your gonna take my money for a dang DVD movie I should be able to watch as much as possible an never have to buy a copy of it again.

 

Thats just total BS on their account, its another way to make you the consumer pay more money to watch their movies and other media. I have some DVD's in my collection and I've watched them at least 3 to 4 times. The thought of me buying a DVD that won't work after 2 days ticks me off. And also tells me whatever companies adopt that policy, wont' be getting money any longer. Now if they all go to that format, I guess Im just screwed if I want to watch that movie on DVD.

[LarryE]

It's not for buying dvd's but renting them basically, you will still be able to buy the lastable dvd's if you want, this is just for those who want to watch a movie once and never again.

[Wingnut]

Other than the trash it will generate, I think it's a pretty neat deal myself.

 

It would probably save me a ton of cash...As I normally just go out and buy a DVD I want, because I am incapable of returning them to a rental store on time.

 

At $4-$5 a pop...Without having to worry about when it goes back...I would probably buy them with regularity.

[cowboy02]

The downside is what if you buy a movie sit down to watch it and then get inturupted...... And don't get back to it for a few days then you are screwed. Where if you bought the real dvd you would be able to watch it. Kind of like paperview, you have to be ready to watch it at that point in time. Also if the deteriorate (sp) in 2 days does the quality start to go down as you get closer to the 2 days? What about the heat from the DVD player? Will that cause a reaction with the chemicals and then fry my DVD player

 

I think this new format blows

[MarkD]

Waste of time for me. It won't get my dollar.

 

Why rent a disney DVD? The kids are gonna want to watch it 10 times a day for the next 6 months anyway!

[wonderl33t]

This is good technology but it will never fly. If it saves us consumers money (no potential late fees), that means the rental outlets will lose revenue. WHy do you think they rent us movies for five, six days, or even a week? Like we need a week to watch a two-hour film. Hell no. In a week, we will forget about it, and that six-dollar rental is suddenly a ten or twelve dollar rental. Tell me that isn't how it goes with rentals now. The rental outlets make so much money on us by giving ridiculously long rental periods as an excuse to charge six dollars per rental, and on top of that making another five when it's late. With the self-destructing discs, we save money, they lose money, bottom line. Therefore it is not going to happen.

 

The only place this would work for is promos. But quite frankly, I don't even like that idea. I think any move that takes more control over the consumer is an insult to the consumer. That's just some Microsoft-type s**t.

[timk49]

I can't believe how some hair brained ideas get so much venture capitol. Somebody is gonna lose a lot of money on this "new " technology just as many others before them.

People like browseing the shelves at the rental place hopeing to find a title that interests them . They are addicted to marching up and down the isles at Blockbuster every Friday night in hopes of finding that one movie they haven't seen yet. It's no different than the satisfaction that a fisherman or deer hunter get when they land that trophy. It's a hunter / gatherer thing.

I like netflix. Won't waste my money on the fade away DVDs Believe me the technology isn't for our convience it stems form the movie industries fear that someone is going to copy that disk and get it for free. If I buy it I should be able to do what ever I want to do with it as long as it's for personal use.

The End

[MarkD]

I can't believe how some hair brained ideas get so much venture capitol. Somebody is gonna lose a lot of money on this "new " technology just as many others before them.

People like browseing the shelves at the rental place hopeing to find a title that interests them . They are addicted to marching up and down the isles at Blockbuster every Friday night in hopes of finding that one movie they haven't seen yet. It's no different than the satisfaction that a fisherman or deer hunter get when they land that trophy. It's a hunter / gatherer thing.

I like netflix. Won't waste my money on the fade away DVDs Believe me the technology isn't for our convience it stems form the movie industries fear that someone is going to copy that disk and get it for free. If I buy it I should be able to do what ever I want to do with it as long as it's for personal use.

The End

Well Said!