Put yourself in James Twerdahl's shoes. Since last May you've been running Marantz Co., a consumer-electronics concern that once boasted $225 million in annual sales but last year lost $8.5 million on revenues of just $60 million. Now, you've got plans for a new product that consumers will love and foreign competitors have yet to introduce in America. There's just one hitch -- Congress is considering legislation that would render this great new technology useless for 99% of your market. What do you do?
At issue are DAT machines, digital audiotape players and recorders. Similar to compact disc players in their clarity of sound, they're controversial because there isn't yet any prerecorded music for them -- which means that initially most people would buy DATs only to make crystal-clear bootleg copies of copyrighted music. The Recording Industry Association of America is lobbying hard against the technology, crying that home taping already steals $1.5 billion a year, and demanding that all U.S.-market DATs be equipped with a scanner that would prevent the copying of coded music.
All this puts Marantz between the proverbial rock and a hard place. If the company were to wait for the outcome of the congressional debate, it could find itself playing catch-up with Sony and Akai, which have DATs in European distribution and are watching the situation unfold before announcing their American intentions. The Marantz plan instead is to have the $2,000 DAT machines on U.S. shelves in the first quarter of 1988, before the legal issues are resolved. Twerdahl claims he's not overly concerned about the threat of government intervention: he asserts that people have the right to transfer records and CDs to digital cassette for use, say, in their cars. Besides, he argues, a law "requiring the scanner would kill the most advance technology in the audio industry of the last several decades. I can't believe it'll happen."
But the plan is still risky for Marantz. The company has struggled since 1979, when its contract as sole U.S. distributor for Sony expired. Last year Marantz was acquired for $15 million by Dynascan Corp., another consumer-electronics company. Now, it hopes to establish itself with DAT consumers before the floodgates of competition open; Twerdahl estimates that foreign machines will quickly follow after Marantz begins shipping -- and after Marantz has suffered the brunt of negative publicity from the recording industry. The company is gambling that the positive effects will outweigh the negative: some say DATs have the potential to be bigger than CDs and conventional cassettes. And as one industry analyst put it, "You respect Marantz or you think they're crazy. Either way, they're getting attention."