Alumni Association Update

Warren Lieberfarb: Father of the DVD

While many gadgets have inventors, the DVD had a father. Warren Lieberfarb, W'65, is credited with the vision, persuasiveness, and persistence that took the DVD from an idea—"a high-quality digital movie on a CD"—to the fastest consumer electronic product adoption ever.

In the early 1990s, Lieberfarb, then the president of Warner Home Video, surveyed the digital future of entertainment. While analog videocassette sales and rentals were profitable, Wall Street analysts predicted decline. Lieberfarb believed that by producing a superior digital packaged product, the home video industry could jump out ahead of digital content delivery via cable, satellite, and DSL. Using the resources of his company, he forged a network of alliances among film studios, consumer electronics manufacturers, and technology companies. The result? The alignment of hardware and software to create an inexpensive, high-quality mass consumer product.

Consumers were waiting. Within five years of the first players becoming available, 30 million were sold in the U.S. and 22 million outside the U.S. It took VCRs 13 years to achieve the household penetration that DVDs did in only five.

Wharton Alumni Magazine sat down with the principal of Warren Lieberfarb Associates to hear how he envisioned the product that transformed home entertainment—and what creative and technological changes he sees in store for film and television in a digital world.

Before the DVD, other technically superior formats—Beta, Laser Disc—had been tried and failed. How did you see that the opportunity was finally there for a better option?

In looking at the potential, I saw a different business model as well as a different format. I took a page out of Andy Grove's book—only the paranoid survive. That reflects a technique of critical thinking and a form of analytic discipline to look at the risks as well as the rewards.

My experience in the launch and development of pay cable television in the 1970s and early work at Paramount led me to a fascination on how to improve the business models for motion picture companies bringing entertainment into the home. My basic point of view was that the economic returns to the risk-taker—the studio—on television had always suffered because there was a gatekeeper.

Originally, there were three networks that controlled distribution. Then the dominant networks for film on TV became the pay cable networks. When the VCR came into existence, the dominance of a single customer controlling distribution into the home was disintermediated by mom-and-pop video stores.

That empowered the viewer, but there was an essential flaw in the notion that people had to rent videos, therefore making two trips to the store for access to a night's programming.

I felt that what drives consumer adoption in many new businesses or services is convenience. Renting was synonymous to me to inconvenience. That idea led me to explore an alternative to the videotape at a price point that made purchase possible, instead of renting.

It wasn't just that I recognized the advantages to a digital home video model, but the disadvantages of the current one. I saw the threats to it and simultaneously the solutions, and that led me to the journey on co-developing the DVD.

Co-developing the format was a key to the success of the DVD where other formats had failed. How did you get other companies on board?

The most challenging experience I've been through was not convincing the Japanese, Korean, and European electronic companies to develop a successor to the VCR. It was not working with key players in the technology industry, such as IBM, Intel, Microsoft, and Apple. It was working with Hollywood.

In my opinion, Hollywood, as the content creator that is the highest-profile and riskiest in the entertainment/media chain, has been most averse to risk. This aversion is manifested in any changes to the distribution paradigm. The industry has always been pulled into distributing their products in any new media rather than being the pusher because studios fear that any change will have a negative effect in the short run. Most of their mindset is based on short-run profitability because of the risks inherent in financing movies.

I was able to succeed because I had Time Warner behind me. I used our ownership of cable systems and the Time Warner filmed entertainment libraries to leverage studio participation. The reason that Paramount got into DVDs was because [its parent company] Viacom owned Blockbuster. Therefore, if Blockbuster sought change in their economics with Warner properties, a quid pro quo was available. Likewise if Fox and [its parent company] News Corp. sought improvements in how its cable properties were carried on Time Warner Cable, I was able to represent that those changes in dial position would not be forthcoming unless there was a reciprocal alignment with our strategies.

Hollywood necessitates tenacity, perseverance, and willingness to accept a lot of blows and be seen as an outcast. There's not only resistance to change due to risk-aversion, but ingrained technophobia. Although the industry is driven by technology in production, post-production, and distribution, particularly in the digital era, there is a limited appreciation on how to evaluate technology alternatives. At core, the senior management are creative executives, not technologists.

Once you had the studios on board, the consumer adoption of DVDs was rapid. Why?

As soon as the studios were making their products available in DVD simultaneously with VHS and offering people a price point that facilitated either purchase or rental, consumers were given an option that was not widely available on VHS. This was coupled with the open licensing of the DVD technology, which allowed price competition for hardware, with Chinese manufacturers being new entrants.

The combination of low-cost players and numerous features that differentiated the product—video quality, sound quality, interactivity, compatibility with PC, navigation tools, added content that made sense to consumers. The chicken and egg came together—the hardware and software were aligned.

Now that DVDs are the standard, digital on-demand and downloadable formats seem to be next.

It's inevitable that physical media of the DVD will ultimately be challenged by the electronic delivery into various home and portable displays.

Studios will try to design ingenious ways to have their cake and eat it too. The margins of a physical item are higher, and DVDs are still differentiated from on-demand content because of the extras. There are advanced content applications via second video screens that have been developed as part and parcel of the interactive specifications that for now are only available in physical media, but a lot of the added content is as easily available in electronic media—bits are bits.

The industry will initially offer the new movies on a pay-per-view model, but the library of movies—the back catalog—would probably be optimized by a subscription rather than an a la carte model, monthly or annual terms.

A number of different copy-protection technologies are being used for DVDs, with varying success. What do you see as the biggest challenge to studios?

Regardless of copy-protections, studios are very vulnerable and significantly at risk through piracy. And the expense and cost of the movie-going experience is challenged by the quality of the home display, home audio systems, and the resolution and audio characteristics of the DVD.

The communal experience of sharing the magic of the big screen, particularly for certain movies that have a spectacular character to them, will continue, but in my opinion that experience will be challenged by piracy and pricing—the high cost of movie going.

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