February 12, 2008

LU:  Let's talk a about the Blu-Ray transport. We just started shipping those, and we've had some questions. There was some confusion about how the transport, when it outputs, does it really do the decoding for the high-def soundtrack formats and then output that?

JT:  Yes.

LU:  How does that work?

JT:  First, let's clarify the term transport. For those of us who have been around in this business quite a long time, particularly back when CD first came out in the '80s and into the '90s, companies like Denon built transports. And some still do. Transport to the CD world just meant it had no analog output. So you needed something else. Well, technically, the 2500 BT is in that realm, except all you need to make it work is a CD, because it takes HDMI. It's audio and video. So I can take a 2500 and plug it directly into any flat panel with HDMI, and I'm going to get sound if the panel has speakers, and I'm going to get a picture. Okay. So that's a little bit different. That's why we sort of changed the term to digital player/transport on our Website — on the U.S. Website. Globally, it's still called a transport. We just wanted to clarify it a little bit because many people may not know what transport means.

Now, to your original question, it has two audio capabilities. One is whatever's on the disk, whether it's Dolby True HD, DTS HD Master Audio, or high resolution — any variation of those, it will output natively. Pure. The actual feature is called Bitstream Bypass. And that then sends it to any receiver that has Dolby True or DTS MA decoding, and you see the lights light up. It's Dolby True HD. Boom! The receiver or processor's now doing all the work.

LU:  But the receiver has to have the capability.

JT:  It has to have the capability. If the receiver is a legacy product, and I'll pick on ours, like an AVR-4806 or a 3806 or a 2807 or whatever it may be, they have HDMI inputs, and they have PCM audio capability. In the transport’s audio settings you can flip that to linear PCM, and then it would output multichannel PCM of the original True HD and DTS.

LU:  What channels are already separated?

JT:  They're already there. It's us taking and going, ‘Okay, we have to convert it to PCM,’ which has been done with Blu-Ray and HD DVD players since they've been out, because currently there's only six players I know of that have bit stream bypass. Not even the Number One BD player on the planet, the PS3, has that capability yet. They will add it. But you're talking about two Toshiba HD players, a Panasonic, a Pioneer Elite, a Sony ES, and our two players. That's it. But they still work with other older products with HDM on them.

LU:  All you need for that transport to make it work...

JT:  Is HDMI.

LU:  Is an HDMI input, either on your TV if you want your TV sound, or on your receiver — whatever it's capable of decoding or transcoding to PCM, it will pump out.

JT:  Well, the transport will do the transcoding — good word — from True HD or DTS to PCM. Like I said, all of our previous-generation receivers with HDMI handled up to 7.1 PCM. It will take that. You'll see PCM. You'll see the channel indicators light up, and it will say multichannel in. You've got surround sound.

LU:  But if the receiver doesn't have the decoding from a high-def format and if you have surround sound, but it's not technically Dolby True HD.

JT:  Right, which has been done for the last two years because there weren't any receivers out there. The transport at its new low price, I think, is doing very, very well. Part of the bigger questions come in, and you sent me one yesterday. There are now many, many forum blogs regarding how the transcoding happens. And my engineers have, actually, had conversations with DTS and New Line Cinema. There are now three mainstream movie titles that have 7.1 surround sound: Hairspray, Pan's Labyrinth, and Shoot 'em Up. And they're all three New Line Cinema titles. The New Line logo comes up in 7.1, but then, when the movie starts, it says 5.1. But all seven channels work. So you're actually hearing everything, but, visually, you're seeing indicators. Obviously, the enthusiasts are a little bothered by that. But the information from Japan and from people in the know on some of these blogs is that you are getting 7.1.

We're not the only manufacturer that this is happening to, by the way. There are other receiver manufacturers. Basically, what we found out is how they're converting the 7.1 theater soundtrack to the Blu-Ray disk is causing the issues. For instance, the authoring engineer may be taking the SDDS soundtrack, which is 7.1, but it' transferring the nomenclature differently to the disc. We can actually read all the channels, it just won't show you the indication. So we have to clarify that for consumers. And the engineers are looking for an update to do that as well. So the enthusiasts say: ‘Well, I'm only seeing DTS. I'm not seeing DTS HD.’ You're hearing it; you're just not seeing it.

LU:  Is this only an issue with legacy products?

JT:  No, it's really only an issue with the discs and new receivers. The player itself is outputting whatever it's outputting. We don't care. Now, the legacy problem: It's not a problem, but what people should know about legacy receivers with PCM inputs on HDMI is that the 2500, if it's a 7.1 track, will only output the 5.1 core on PCM when it converts. It will not convert 7.1 to 7.1 PCM but 7.1 to 5.1. This is normal with almost every other player I know of. And, if consumers want to have fun like I do, start downloading owner's manuals from these other players and spec sheets, because, if you look at some of them, and they're like Dolby True HD — two channel only. What does that mean? And there's a list. That's how confusing it is. But that's only when you convert to PCM.

LU:  So with the 2500 Transport, AVR-3808 or 4308, what the front panel is telling you is not necessarily what's really happening?

JT:  Right.

LU:  Jeff, does that include the 2808, since that decodes…?

JT:  All of our receivers are the same. When they decode, you're hearing it; you're just not seeing the indicators. So, if you have seven channels, you're hearing seven channels. The input indicator is saying five; the output indicator is saying 7.1. But the biggest issue is it's not saying DTS Master Audio. It says it on the logo, and then it switches and goes to DTS normal. But, in essence, it's still the HD signal. That's the bottom line.

LU:  Okay. We've got the DVD-3800BDCI player. Let's talk about why your customer would want to buy that instead.

JT:  Because it's the best. Come on. It's the best.

LU:  What are you doing to make it the best?

JT:  When someone looks physically at both units, they're built in the same chassis and they look the same, except when you flip them around and look at the back panel. The 2500 is a Blu-Ray transport, obviously, and it does an excellent job – they’re one of the best on the market. On the SD side is where we start to see the difference. You may have customers that have 2930s and 3930s. The 2500 is a great fit for them because they already have one of the best standard definition players available. They just want to add a on Blu-Ray. They have a new receiver, or they have a legacy receiver that has HDMI. Perfect. Okay? Also, there's the customer that has an AVR-2808 and a Blu-Ray transport. They have an HD solution. Done. One cable; I'm finished. It's going to do SD extremely well; it's just not using some of that great technology that we use from some of our DVD products.

Sometimes I use the analogy that the 2500 is like a DVD-1940CI and then Blu-Ray. There's no analog section we have to worry about. So, if I opened up the two side by side, the whole right side of the 2500 is empty because the analog is gone — the whole board. That's the 6-pound difference between the two. When you look at a 3800, the 3800 is the end-all, beat-all for someone that didn't update their SD player in the last couple of years. They have a collection. They want the best performance from anything they throw into it, except HD DVD. They're going to get that in the 3800.

LU:  A one-player solution.

JT:  One-player solution, plus it's going to be the best CD player we have. I think one of the things about both units is the fact that we play everything on a shiny disk, except for HD DVD. You've got DivX. You've got MP3 MA CDs. You've got Kodak or Fuji Color CDs. All that stuff you can throw at them, and they'll play it just fine. But the 3800 takes it to that new level, where you've got differential DACs into eight channels. So, if you have a receiver that doesn't have HDMI but has 7.1 analog inputs, you're going to get the best-sounding Dolby True HD and DTS Master Audio through those analog inputs from our player, because what we did was we put an AVR-4308 DSP section into the 3800 BD player. It will be the first optical player or DVD player from Denon that has the DDSE logo on it, which was previously reserved for receivers. So for people that don't have HDMI, they're golden. We're even going to give them 1080i component scaling. If they don't have HDMI video, they're going to get 10 ADI component, and, at the same time, maybe they have two sets. HDMI and component 1080i are active at the same time with scaling. Now, once they go to 1080p, that HDMI-only component shuts down. We've always done the active composite S video outputs for multizone applications. It's got dedicated two-channel audio for multisource application — multizone applications. So the 3800 is that one-box solution.

LU:  Now, does it do DVD-Audio or SACD?

JT:  No. You drop the universal audio for now. Our game plan in the future is, regardless of what the political state of the format wars are, we don't participate in that. Obviously, everyone's looking at us at CES. The actual delivery of the product happens after Warner announces that they're only going to do Blu-ray. New Line Cinema follows suit. We've got European studios doing the same thing. There's only two true HD DVD studios. We don't care about that. It's just coincided with the fact that we were releasing Blu-Ray at this particular time.

LU:  Aren't you glad you didn't go with an HD DVD?

JT:  Well, probably. Absolutely, I guess, at this point. But what I want to get across, and what I've told all of our dealers and anyone asking that question, is, if it's on a disc, we want to be able to play it, period. And there are HD DVDs out there and will be for quite some time. So, in our grand scheme of things, we're looking down that path. If you want to call it universal, sure. You know, it's not going to be something that plays in the realm of under $1,000 or under $500. That's not our style. But, when we say universal, we're talking video and audio. So probably later this year you'll see something. You'll hear some announcements. And, you know, we'll take into consideration DVD-Audio, SACD, because they're still viable, as well as HD and Blu-Ray. But you can't forget about regular standard definition DVD. And that's where the 3800 comes in. One thing about it is it's got Realta in it. The 3800 will be the first Blu-Ray product to feature Realta. There are some Reon products out there, but this will be Realta all the way through. And, again, it will be able to do 1080p noise reduction in the digital world, unlike the receivers, which have to do it from A to D or even HDMI, because that's another question we get. ‘If I have an AVP or a 5308, why do I need the 3800 for video?’ Well, you're talking a digital source right at the disk. Realta is really there for the analog inputs going to HDMI. Now, the DNR is there for 1080p, sure. But it's always best to have the best processing in the source unit, starting where the disc is, all the way through.

Again, customers look at it as, ‘Which one do I get, because, if I'm getting an AVR-5308, I can just get 2500 and be done.’ Sure. I'm not going to argue with that. But, if you want the best of everything — SD and Blu-Ray — that's the 3800. So that's your $1,000 difference right there.

The players have gone out. I have one at home finally. It's the quietest player. It doesn't make any noise compared to many of the players we've heard out there. It's relatively fast. It loads as quick as any set-top player out there. It's about 24 seconds, which is good. It's really good at this day and age. But it's also profile 1.1. And, again, there's only a handful of those.

The profile 1.1 discs are now available. It's very minor profile 1.1 material on that disc, but it's got PIP. You can have secondary audio, secondary video going on at the same time. It's very simple, but it's there. And we can play it, decode it, and send it out. It has a JPG file viewer, that SD card you could pop in the front, and things like that. Both of them have that. Looking at some of the competition on the lower price, they don't have all of that.

LU:  And there's no other high-end player out there that comes close to a 3800...

JT:  No. I mean, obviously, there are some lower priced units, and Pioneer has a very nice player. And the ES player is very nice. But ES is not 1.1, I don't believe. Neither is the Pioneer.

LU:  And neither of them use Realta. Is that correct?

JT:  Neither one. Sony has its own, obviously. Pioneer has its own technology, which is still good. But we've always thought our’s was better, so, of course, we're going to say that. The 3800, in analogy terms, is a 3930CI SD player minus universal audio, plus Blu-ray. Done. So, if customers, as I said, have an SD player that's older and they want to combine everything, the DVD-3800BDCI is the ticket to get the best of Blu-Ray, the best of SD, the best of CD, and move forward.

LU:  Customers with the 3930 could legitimately buy a 2500, as long as they don't mind having two boxes.

JT:  Yeah. Absolutely. That's perfect, in my opinion, particularly if they have universal audio. If they are DVD audio and SACD guys, absolutely they're still going to want to keep those.

LU:  The one thing we haven't really talked about is networking. And, this year, you guys came out with a whole line — the S52, the receivers, the docks. Let's just spend a few minutes on networking and what that can give the customer.

JT:  Networking. We started it two years ago on the AVR-4306, and then we upgraded the AVR-4806 and 5805 to do it. And it was new. It had been tried, sort of, by some competitors, but really not successfully. There were some proprietary systems. There were some add-on devices from the CE manufacturer. Let me clarify that: not the computer guys; media bridges and things like that have been around awhile. But, you know, I'm like you guys. I go to stores, and I see them in the back of the store on a shelf with a price tag on them. They're not hooked up and not running. $150 or whatever; it never really took off. But, obviously, our friends at Apple and Microsoft and all the MP3 guys — people are putting all this material on their computers. And, with our first footsteps into networking, the new products that we have — like you said, the iPod docks, the tabletop systems, the receivers, the S-302 2.1 system, and more coming — all have this cool capability of being connected to a network. Some are wireless; some only have wired. People have stuff stored elsewhere and want to be able to enjoy it.

When we first released the AVR-3808, I listened to the customer call center at our facility. And I was amazed to find how many people were actually doing that connection. It was in the range of 70 percent, in some cases, of the calls that we were getting. They wanted a little advice on how to connect it, or the wireless wasn't doing so on and so forth. It shocked me. I would think maybe 30 or 40 percent. But 70 percent is a pretty high number. So people are taking advantage of this because it's available, and, too, they can be wherever they want to be and listen to that audio. When you have multiple devices from us — you have a receiver in your theater, your media room, you have a tabletop system in your bedroom or kitchen, you have a dock connected to a stereo receiver in your office or whatever it is — you can all listen to different things at one time. So, off of one computer or one network storage device, you can access your files or someone else's files and stream it throughout the house.

When you talk about a $220 dock that connects to a network wirelessly that has its own interface, that streams photos, does audio… Oh, yeah, by the way, you can plug an iPod in and watch whatever you want out of that. The iPod dock, the networking one, was the world's first that could work with the new iPods Classic, Touch, Nano, and iPhone to do audio and, in some cases, video. It's just how you configure. But we were the first to have the authenticating chip that Apple required. So people were getting it for that reason, but it's a standalone device. These are all standalone devices. We didn't create a Denon network. These devices don't talk to each other yet. Okay, obviously, that's part of the thinking as we move forward.

We released all this stuff, and it's amazing that now our competitors have networking connected receivers. We got a little step ahead of them, so we do more formats. We connect to more things. We can connect to iTunes now; we couldn't do that before. Obviously, Windows Media is not a problem for us. DRM [Digital Rights Management] seems to be losing its foothold in the world. I think we've all heard about Amazon lately with all the studios, so now you don't have to worry about that. And all the stuff you download from iTunes — I hate to say this against iTunes, but everything you download from Amazon is iTunes compatible. Right now, we cannot stream iTunes DRM, which is bought from the iTunes store, but there are ways around that, honestly. And they have purchasing from Amazon as one idea. There are other software solutions that are available. But, since our friends at Apple, Mr. Jobs, really was the one that started this letter against the recording industry about DRM, they're the last ones, really, to remove DRM. That will happen soon, and we won't have to use those three letters ever again. So consumers can stream whatever they want to. You know, the GUI interface was created from these products to enhance that capability so they could see album art and all that kind of thing.

We just looked at, basically, the receiver being the center of the universe, but then adding ancillary devices for solutions. I think the S52 and S32 are doing extremely well. I don't call it a clock radio, although it does have that function. But it is a digital source for a digital client that can bring in so many different digital sources — HD radio, XM if you want to subscribe; it's got Rhapsody built in, if you want to subscribe. And, by the way, for those that look at other streaming services, like Pandora or Napster, we're looking at those as well. So, having Ethernet capability, having server, and being able to communicate with these products in the field, allows us a lot of latitude in engineering. You don't have to upgrade to a new receiver next year.

LU:  When they do Rhapsody, do they go directly to Rhapsody, or do you have to have a computer?

JT:  Directly to Rhapsody.

LU:  So you don't have to have your computer on?

JT:  The only thing you need with your computer is, obviously, to set up your account. Once you do that…

LU:  Then you're done? That's great.

JT:  So Internet radio, obviously, we have in all these devices, which is free. It goes right to the internet. Rhapsody is the same deal. The only time a PC is needed is if you want to stream files from your iTunes or your Windows Media Player. But there are ways around that as well. We're actually working with Buffalo Technologies here very shortly on network-attached storage devices — not the USB hard drives, which you can still plug into a few of these devices. We have USB ports on them. But that means you have to take it off and go to your computer and keep updating. There are network-attached storage devices, primarily from Buffalo right now — there will probably be others — that are DLNA certified. DLNA is a group of CE manufacturers, not computer manufacturers so much, that have gotten together and tried to create a consumer electronics plug and play. I hate to use the term plug and play. Some people call it plug and pray. But this one actually works.

If customers go to DLNA.org, they can see many, many devices. TVs are coming that have it. There are Blu-Ray players that have it. There are receivers, obviously. But a network-attached storage device is a hard drive that resides on the network, not on a USB port. I just checked prices. They have 1 terabyte for under $600. There are lots of solutions that can get rid of the PC because a lot of people just don't want to leave it on. We understand that. We want to make sure and integrate any application we can as we move forward, and we'll continue to do that.

LU:  As always, thank you very much for taking the time to talk with us, Jeff.

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DVD-2500BTCI Blu-ray Transport

DVD-3800DBCI Blu-ray Disc Player

AVR-4308CI

AVR-3808CI

ASD-3W Wi-Fi iPod Dock

ASD-3N Network iPod Dock

S-302 Network DVD Home System with built-in Wi-Fi and Ethernet Capability