Slipped Disc

By Stephen Koepp

RCA drops a $580 million dud

When RCA brought out its SelectaVision VideoDisc Player in 1981, it had visions of a huge new market. Dubbed the Manhattan Project during 15 years of development, SelectaVision works much like a phonograph. A diamond needle picks up video and audio signals from the tiny grooves of a silvery plastic disc whirling at 450 r.p.m. To operate the machine, which is connected to a TV set, the user simply inserts a disc and flips a lever.

Last week, though, RCA (1983 sales: $8.9 billion) announced that it will discontinue production of SelectaVision machines, thus putting a stop to losses on the device, which have already reached $580 million. The company promised to continue making discs for at least three years. While RCA once expected to sell 500,000 machines in the product's first year on the market, it sold only 550,000 since 1981.

From its introduction, SelectaVision was fatally upstaged by an electronic relative, the videocassette recorder, which had come out six years earlier. Most consumers prefer VCRs because the machines can record broadcasts as well as play prerecorded tapes. SelectaVision machines, by contrast, allow the user to play only prerecorded discs. Says Arthur Morowitz, president of New York's Video Shack chain: "It was a dinosaur from the beginning. There was never a really strong need for it."

RCA tried to promote its disc player as a low-cost alternative to tape machines, which was feasible three years ago, when VCRs typically sold for $1,000 and RCA's disc player went for $500. But prices for cassette recorders have fallen as low as $300. RCA dropped the price on the least expensive player to $199, but it was never able to take sales away from VCRs.

SelectaVision also lost another key selling point: the low cost of its discs. The movies and other programs available on RCA-type video discs are as low as $20, about half the price of video cassettes. But RCA never counted on the sudden abundance of rental cassettes. Some 14,000 shops nationwide now rent movies for as little as $1 a day.

RCA's decision to abandon SelectaVision comes just as disc-player sales seemed to switch into fast-forward. After producing some 250,000 SelectaVision sets last year, the company was selling them during the past month at the rate of 400,000 a year. Company executives, though, figured that they would need to produce three or four times that many to make a sufficient profit. Only about 12,000 SelectaVisions remain in stock at RCA's Bloomington, Ind., plant, but wholesalers and dealers have about 150,000 left.

Even though SelectaVision is dead, videodisc technology will probably continue to grow. Such firms as Pioneer and Magnavox, which sell disc machines that use a more advanced system based on lasers, are expected to continue making machines. These devices, which assign a number to each image, allow the user to call up an individual frame almost instantly. Priced at about $700, the laser players are often used in education and industry. Several firms are developing ways to use video discs as data-storage devices for computers.

Wall Street analysts generally applauded RCA's decision to abandon its onetime pet project. Said Smith Barney's Russell Leavitt: "The disc players were using up too much of the company's resources." RCA can take consolation in the fact that it hedged its bet on SelectaVision. The company is the biggest U.S. marketer of its disc player's chief nemesis, the VCR. RCA is expected to sell 1.5 million cassette machines this year, up about 100% from 1983. --By Stephen Koepp. Reported by Lawrence Mondi/New York

With reporting by Lawrence Mondi/New York