A duel over new "DualDiscs"

Sue Zeidler

LOS ANGELES: Plans to sell new hybrid CD/DVDs have hit legal and licensing snags that threaten to scuttle a mass rollout that the hard-hit music industry had been counting on to aid its recovery, people familiar with the matter said this week.

Record makers are enjoying a rebound after a three-year sales slump blamed largely on online piracy. Efforts to control piracy and the growth of legal Web music services like Apple Computer Inc.'s iTunes have helped.

The labels also have spurred sales by packaging "bonus" DVDs with CDs. In February, several began test marketing the new hybrid discs -- CD on one side and DVD on the other.

They see these "DualDiscs" as a next generation product that marries the booming market for DVDs with declining CDs.

"It's not like the coming of the CD, but we did really well with them," said Greg Harrington, manager of Tower Records in Cambridge, Massachusetts, which took part in the test.

Some 13 titles by artists like David Bowie and Linkin Park were sold in Boston and Seattle. The idea is to put music on the CD side and concert, interview or recording session video on the DVD. They have sold for about $18.99 in retail stores.

But before the products can be ready for mass markets, several issues remain including a contract dispute between a technology developer and manufacturer and questions dealing with the licensing of "CD" and of music rights.

Major labels like Vivendi Universal's Universal Music Group, EMI Group Plc, Warner Music and newly merged Sony BMG Music Entertainment have high hopes for the DualDiscs but, have stayed relatively quiet about them. They all declined to comment on this story.

Retailers had expected the discs for the fourth quarter, but industry sources said they now believe the labels, which have grappled with playability and thickness issues before, are now targeting early 2005 in light of new snags.

NEW SNAGS

"They're hijacking our technology," said Phil Carlson, North American Division president of German-based DVD Plus International Inc, who said "there are ongoing conversations" between lawyers for his firm and the major music labels.

DVD Plus founder Dieter Dierks claims Warner Music's distributing and manufacturing arm, known as WEA, breached a 2000 contract in which Dierks bought the patent position for hybrid disc technology and perfected it.

That agreement called for the DVD Plus logo to be placed on the discs for a set period of time, but WEA's manufacturing operations were later bought by Cinram International Inc. Cinram is now making the hybrids and calling them DualDiscs for most of the labels, except for Sony.

A Cinram spokeswoman said there were no issues preventing it from making DualDiscs, but DVD Plus's Carlson disagrees.

"We did have a signed agreement and are disconcerted the industry should attempt to call it by any other name," Carlson said.

Philips Electronics, the licensor of the CD logo, has refused to allow the hybrid discs to be sold with the CD logo unless the labels guarantee to assume responsibility for "read errors" on the CD side, a spokeswoman for Philips said.

Discs involved in the industry's February trials included warnings of possible playback problems on some devices, but retailer Harrington said there were no issues. "We got a couple of emails, but nobody came back to us with them," he said.

Finally, record companies normally license content separately for different formats -- cassettes, CDs, albums or DVDs. The new hybrid discs require new licensing agreements that have yet to be worked out, industry sources said.