Losses Lead RCA to Cancel Videodisk Player Production
By Andrew Pollack
The New York Times
April 5, 1984
The RCA Corporation said yesterday that it would stop manufacturing and marketing its videodisk player. The withdrawal came three years after RCA, introducing the product, said it would revolutionize home entertainment.
The videodisk player failed to generate consumer enthusiasm and fell victim to competition from the video cassette recorder, which is enjoying strong sales.
The videodisk player is a machine that plays video records of movies and other programs much as a record player plays records. The video programs are viewed on a television set. The video cassette recorder, which RCA also sells, proved more popular because in addition to being able to play recorded movies, it can be used to tape television programs off the air for later viewing, something the videodisk player cannot do.
''We took the decision with obvious disappointment in the face of continuing losses and narrowing prospects that the business would ever turn profitable,'' Thornton F. Bradshaw, chairman and chief executive of RCA, said yesterday.
RCA has lost about $575 million on the videodisk system, a product it once considered so important it was dubbed the company's ''Manhattan Project.'' The losses include a write-off of $94.5 million after taxes that the company will take in its first quarter earnings for 1984. Write-offs are taken to reflect the reduction in a company's assets represented by terminating an operation. The withdrawal, which was expected by the industry, is an embarrassing blow to a company that once had command of the television and video business. The write-off was its biggest since 1971, when the company withdrew from the computer business and took an after-tax charge against earnings of $250 million.
RCA said it had not decided how long it would take to phase out the videodisks. The players are made at a plant in Bloomington, Ind. The 750 jobs at that plant will be eliminated, but some of the employees will be moved to other RCA plants.
RCA said it would make the disks containing movies and other recorded material for at least three more years. RCA will also continue to provide parts and service.
The company said it had manufactured about 650,000 Selectavision players since 1981 and that 500,000 had been sold to consumers, with about 250,000 being sold last year. The company said it had expected to sell as many as 1 million players by now.
Mr. Bradshaw said the company's major mistake ''was in not seeing what the market would do.''
When RCA introduced the disk player in March 1981, sales of video cassette recorders had not started their current boom. The RCA disk system was less expensive than video cassette recorders, and the RCA disks were far less expensive than recorded video cassettes.
Drop in Prices a Factor
But video cassette recorders have dropped rapidly in price, to as little as $300, and sales have jumped. At the same time, consumers began renting tapes of movies for a few dollars a night, so that the high price for purchasing tapes was no longer of concern.
The result was that in 1983, about 4 million video cassette recorders were sold in the United States, roughly double the number in 1982.
RCA was forced to reduce the price of the videodisk player, so that basic players today have a list price of $199 and sell for as low as $150.
As prospects dimmed, other companies that were making RCA-type players or selling RCA's machines under their own names pulled out of the market.
''We bore the entire burden,'' Mr. Bradshaw said, ''of introducing a product that people didn't understand, didn't know what it was for and still don't,'' he said.
The only remaining manufacturer of that type of player is Hitachi Ltd. of Japan, which is selling them in Britain. Another type of videodisk system, which uses lasers to read the disks, is being sold by Pioneer, a Japanese company, and by the North American Philips Corporation. That player has sold even more poorly to consumers than the RCA system.
RCA pretax losses on the product totaled $114 million in 1981, $107 million in 1982, $110 million in 1983 and $17 million in the first quarter of 1984.
Despite the write-off for the disk players, which amounts to $175 million before taxes, RCA said its earnings for the first quarter were sharply improved over last year and its video cassette recorders and color televisions remain extremely strong.
The company said earnings for the first quarter rose to $50.3 million, or 40 cents a share, compared with $29 million, or 14 cents a share, in the first quarter of 1983. The after-tax write-off from the videodisk players amounted to $94.5 million, or $1.15 a share, and was partly offset by a gain of $75.7 million, or 92 cents a share, because of an accounting change. Sales for the quarter rose to a record $2.36 billion, from $2.03 billion the year earlier.
Copyright 1984 The New York Times Company