The market is getting so competitive and profit margins are thinning so quickly that companies are starting to combine DVD playback with other features.

To prevent DVD players from becoming victims of their own popularity, manufacturers are starting to combine basic movie playback with more advanced features.

Nearly 13 million DVD players were sold in the United States in 2001--an increase of 49.5 percent compared with the previous year. Sales are expected to grow another 25 percent in 2002, according to new figures from the Consumer Electronics Association.

Sales of decoder chips, which are used in devices that play DVD discs such as PCs and standalone machines, reached 29.6 million in 2001--a 60 percent increase compared with the previous year--according to Jon Peddie Research.

But that good news also has a downside. Dozens of manufacturers have jumped on the bandwagon, resulting in sliding prices and reduced profits.

The cost of DVD players fell more than $200 within two years of their introduction in 1997 for nearly $500, according to Peddie Research. And the price slide hasn't stopped. Although the Consumer Electronics Association says the average price of a DVD player was $193 last year, consumers can now find players for less than $100.

Besides battling price erosion, manufacturers also are trying to maintain rapid sales growth. Consumers who have not bought a player must be convinced that they need one, and those with one machine need to see the benefits of a second and a third.

The answer: Like a movie theater that must run a double-feature to milk additional revenue from a fading blockbuster, manufacturers are building new entertainment technologies around the basic DVD player.

"Some companies are not making money on DVD decoders, so they will be offering platforms that include DVD players along with features such as digital video recorders, home networking and the ability to display digital images," said Kathleen Maher, vice president of Peddie Research.

In recent weeks, several such products have been announced from companies such as Moxi Digital. In addition, Microsoft also reportedly is preparing a combination device that would extend the capabilities of the DVD-capable Xbox gaming console.

Moxi Digital's Media Center uses the company's software to support a variety of items such as digital video recording, digital music and DVD playing. Online features such as instant messaging, e-mail, Web browsing and chatting also are supported.

The device is meant to serve as the focal point for digital content in the home and can communicate with other consumer electronics devices, such as televisions, throughout the home.

Microsoft's Freestyle design is similar to Moxi Digital's plans, but instead of a set-top box at the center of the e-home, there is a PC running Windows XP. Freestyle includes applications for DVD and digital music playback and for processing and recording live television signals, allowing the PC to become an entertainment command center.

DVD players also have strong links to game consoles. One of the selling points for Microsoft's Xbox game console is that, with an optional add-on, it can be used as a DVD player. Sony's PlayStation 2 can also act as a DVD player, without requiring an add-on. In Japan, Panasonic is selling a DVD player that can double as a Nintendo GameCube system.

Beyond the box
Meanwhile, other companies are using the popularity of DVD players to promote businesses.

Eastman Kodak has been working with DVD chipmakers to incorporate technology into decoder chips that allows DVD players to read Kodak's Picture CDs and display them on television screens.

Consumers developing film from traditional cameras can get a Kodak Picture CD with the photos for a few dollars more than the regular price of developing and printing a roll. In addition, digital-camera owners can upload their photos to the Web sites of retailers with Kodak Photo Centers, which include CVS, Kmart and Rite Aid. Digital camera owners can then order a Picture CD with 200 images for $15.

Epson also announced last week that it is working with software maker Planetweb to allow customers to print photos from a DVD player.

Planetweb will embed drivers for Epson printers in its Digital Photo Manager software for DVD players, the companies announced. The software allows people to view and edit digital photos stored on recordable CDs and other compatible media.

"More and more, consumers are beginning to think of DVD players as more than a video player. It's really a media player," said Ed Brachocki, vice president of video products at consumer electronics maker Sonicblue.

Sonicblue, which makes a combination VCR-DVD player and is planning another device that will include a DVD player, also is battling the trend toward falling prices in another way: volume. The company has a line of $100 players.