Cassette Competitor : Technology: Philips, backed by a major Japanese company, unveils a rival to the digital audiotape marketed by firms such as Sony. The new product will appear in stores in 1992.

Setting the stage for a major battle over the next generation of tape recording equipment, Philips Consumer Electronics Co. publicly demonstrated its digital compact cassette at the Consumer Electronics show here this week and disclosed that a major Japanese hardware company will support the new system.

Although digital compact cassette will not be ready for the market until 1992, it nonetheless poses a major challenge to the digital audiotape system marketed by Sony and several other Japanese electronics firms. Although DCC and DAT use digital sound reproduction similar to that used on compact disc players, DCC machines--unlike DAT systems--can also play traditional audiocassette tapes.

Philips, based in the Netherlands, would not disclose which Japanese company is supporting its system. But it is widely believed to be Matsushita, the world’s largest consumer electronics firm. Michael Aguilar, general manager of consumer electronics for Technics, a major Matsushita subsidiary, confirmed that the parent company had been working with Philips on DCC development, although he would not say whether the company had made a final decision to back DCC.

A Philips-Matsushita alliance would give DCC a powerful boost and create a complex competitive situation similar to the VHS-Beta battle in the video cassette recorder market. In VCRs, Sony had backed the higher-quality Beta standard, but Matsushita and its allies ultimately won out with VHS.

Sony sells five different DAT tape recorders in the United States, and Michael A. Vitelli, president of the firm’s personal audio products division, said sales have been ahead of projections. But the product is still very expensive--about $850 for the Walkman version--and suffers from a dearth of prerecorded music.

Perhaps even more damaging, DAT has been fiercely opposed by musicians and music publishers. They fear that customer recording of compact discs onto digital audiotape will cut into store sales and royalties.

Although Sony and other hardware vendors reached a compromise with record companies on the copying issue--the machines will copy compact discs but cannot make copies of the copies--Sony was nonetheless hit with a class-action lawsuit filed on behalf of musicians when it introduced DAT products last year.

The uncertain legal situation has deterred other vendors from launching DAT in the United States, even though they have marketed the products in Japan for two years. Pioneer, for example, was displaying DAT machines at the show but has not yet decided to launch it in the United States. Sharp Electronics also had a portable DAT and said it would be available this quarter.

Technics, interestingly, is also marketing a DAT machine, but Aguilar said DAT and DCC would not really compete with one another. “They can coexist, with DAT for the high end of the market. DCC has some price advantages, and we have always recognized the importance of compatibility,” he said.

But Vitelli of Sony, noting that DCC did not exist as a product, said he expected DAT to be a mainstream product that would gain the same broad acceptance as compact discs. Already, he said, DAT was ahead of the compact disc penetration rate.

Still, DCC appears to have several advantages even beyond the ability to play existing tapes. For one, it uses relatively low-cost tapes rather than the special, high-priced tapes needed for DAT. Philips would not say how much the tapes would cost but said they would be no more expensive than compact discs.

DCC recordings can also be made at high speed, while DAT tapes must be made in real time. Moreover, Philips noted, four major record companies have come out in support of DCC, and thus the format has a better chance of avoiding the type of copyright conflicts that have damaged DAT.

DAT, however, is a more versatile system that will likely provide better quality for high-end users, analysts said.

The key technical breakthrough in creating DCC is in digital coding technology. Compact discs, DCC and DAT all reproduce sound by sampling the sound signals and converting them to the ones and zeros of computer code. That allows for more precise reproduction and puts the signal in a form where it can be easily manipulated and “cleaned up.”

But the amount of digital information needed for a music signal is too high for traditional recording systems. DAT solved this problem with a new type of recording head that spins, creating a much faster effective tape speed.

Although DCC also made some advances in the tape heads, the basic mechanism is the same as for traditional tapes. Instead, Philips’ breakthrough was in finding a far more efficient coding method that reduces by a factor of four the amount of information that has to be stored.

This was accomplished by modeling sound according to how it is heard by the ear rather than by the way it is produced, according to Gerry Wirtz of Philips. The company maintains that the DCC sound is indistinguishable from compact discs, although that claim is likely to be challenged by proponents of DAT.

Philips will license the DCC technology as widely as possible, and Tandy Corp. has already agreed to manufacture and market DAT equipment.

The Philips announcement was greeted with enthusiasm by many CES participants, and a look at industry sales figures released by the Electronics Industry Assn. Thursday makes it easy to see why.

Overall consumer electronics sales were up just 3.7% in 1990 to $33 billion, and the forecast for 1991 is for just 3.3% growth. And the audio products category appears to be on a particularly lackluster track, with 1990 sales of $9.5 billion expected to grow to just $9.6 billion next year.

Still, EIA President Frank Meyer expressed confidence that sales growth would hold up even in the face of a recession. He also noted that the trade picture is improving, with stronger growth in U.S. factory sales than in the industry as a whole.

One category that did well in 1990, and appears poised to continue to grow over the next several years, is home-office equipment. Sales of electronic typewriters, home computers, telephones and fax machines that fall into the home information equipment category jumped from $7 billion in 1989 to $7.7 billion in 1990 and are expected to reach $8.1 billion next year.

One company that has sailed through the downturn mostly unscathed is Nintendo, the video game juggernaut. The company said Thursday that sales of Nintendo hardware and games increased 27% in 1990 to $3.4 billion--lower than the company’s $4-billion projection but still healthy by most measures.

Marketing Vice President Peter Mains attributed any softness to poor production planning earlier in the year, combined with the weakening economy in the second half. Christmas sales, however, were very strong, Mains said. He projected that the company would reach the $4-billion level in 1991.

Nintendo also said, as expected, that it would introduce its new, higher-powered game system in the second half of the year. A bit more surprising was the disclosure of plans for “Super Mario Brothers, The Movie,” starring Danny DeVito.