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By Bill Desowitz Contributing Reporter As the nation’s largest licensee and distributor of laserdiscs, Chatsworth-based Image Entertainment seems headed for the technology industry’s endangered species list. After all, most experts believe laserdiscs eventually will be replaced by Digital Versatile Discs, or DVDs smaller discs that can store not just films but music albums, computer programs and other data. DVDs are expected to replace not just laserdiscs, but compact discs and CD-ROMs as well. But Image officials aren’t worried. Despite the fact that analysts expect DVD one day to become a dominant home movie technology, Image will keep supporting the lackluster laserdisc industry while at the same time covering its backside by venturing into DVD as well. This hasn’t been easy time for Image, which currently distributes more than 5,000 laserdisc titles (movies, music videos and various specialty programming) to 2,500 retail outlets. While DVD has yet to take off, its mere presence has put a devastating chill on laser hardware and software sales for almost a year. The chill is certainly reflected in Image’s financial results for its fiscal year ended March 31. Net income plummeted 89 percent to $845,000 (6 cents a share), from last year’s $7.6 million (49 cents a share). With its own manufacturing capability and an extensive distribution operation, Image continues to release about 50 titles a month, capturing 40 percent of the U.S. laserdisc market. The company has exclusive deals in place with Buena Vista Home Video (a division of Walt Disney Co.), 20th Century Fox Home Entertainment and Playboy Home Video, among others. A couple of the more notable films Image will soon be distributing on laserdisc are Disney’s animated “Sleeping Beauty” and “The Hunchback of Notre Dame.” Image President and Chief Executive Martin Greenwald maintains that the DVD hype is exaggerated. “Dealers are way in front of consumer demand,” he said. “They are building up a pipeline of software, but trying to get a pipeline in too quickly. And DVD is confusing retailers. They overbuy DVD titles and underbuy laser. They are not taking a realistic posture.” To better compete with DVD, Greenwald expects laserdisc prices to fall 25 percent in the next year. As of mid-June, the Consumer Electronics Manufacturing Association reported that 100,000 DVD players were shipped to retailers. But Greenwald claims that only about 50,000 to 60,000 have actually been sold to consumers. Right now, only a handful of the big home video distributors are supporting DVD with software. Disney, Fox and Paramount Pictures are holding out for a variety of financial and copy protection reasons. However, Warner Bros., the largest DVD software manufacturer with a 50-title catalog, remains optimistic about the prospects of the format. After initially testing DVD in seven U.S. cities, Warner will expand nationwide in the fall and will support its expansion with a heavy promotional boost during the holiday season. Sony Pictures Entertainment has announced that it too will expand its DVD catalog this fall. “The test exceeded our expectations,” said John Powers, Warner Bros.’ director of marketing/DVD. “We shipped approximately 1 million units, with 48 percent going to consumers. Based upon the extraordinary success, our product will be available in every city in the U.S. and Canada, and it will be available to all of our retailers.” Without full industry support, Greenwald believes DVD will never take off unless the rest of the studios get involved. Which would be good news for Image Entertainment. But while Mike Yocco, an analyst with Carmel-based Paul Kagan Associates, agrees that more studios must get into the act for DVD to be successful, he is cautiously optimistic about the technology and thinks the outlook for companies like Image may be grim. “The laserdisc is now dead,” Yocco said. “People are looking to the new (digital) technology. Is it going to be niche or mainstream? Because DVD is priced closer to VHS sell-through and the format has a lower per unit cost than laser, it has a better chance at succeeding.” That’s why Image has no intention of ignoring DVD. It has already started aggressively licensing titles. The company, for example, has just announced a 12-title deal with Orion Productions Inc. that includes such hits as “Silence of the Lambs,” “Robocop” and “Dances with Wolves.” Image’s overall plan is to release 60 DVD titles by the end of the year. “This is a content-driven industry and 95 percent of the consumers out there don’t care how much better DVD is than video,” Greenwald said. “My skepticism comes from the reality of lasers versus video. If there is a future for DVD, it’s with the combination player, which lets you play laser and DVD that’s the Holy Grail.”

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