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New version of hi-fi electronics creates din in the industry

The first shot in the digital revolution came three years ago with the introduction of the compact-disc player. But now, just as the small silvery discs have become the rage, there is another digital contender knocking at the door: the digital audio tape (DAT) cassette.

It's just what the world audio industry (except the Japanese) did not want -- a new format touting flawless sound reproduction.

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At less than three inches across, a DAT fits in the palm of your hand. But it has more potential to cause big changes in the industry than the CD did.

That's because DAT has the ability to make perfect copies of pre-recorded music again and again. CD machines can play only pre-recorded discs.

Like a CD, the digital audio tape player slices music into tiny digitized pieces. But it can record the pieces magnetically on tape, then put them back together flawlessly. There is no distortion, tape hiss, or background noise.

A DAT machine can play a perfectly clear song. Or it can make a copy of it that sounds just as good as the original for use in a DAT car stereo. No loss in sound quality.

A terrific product? Manufacturers like Hitachi, Sony, Matsushita, and Sharp certainly think so. These makers and others are itching to sell it -- but they've been delayed. The problem of pirating

Music publishers are afraid the new machines would spawn an endless series of illegal copies so crisp and clear that pirated music would quickly cut into profits, or possibly even wreck the business.

The Western music industry wants DATs to be rigged with a device that would prevent copying of pre-recorded materials. Joel M. Schoenfeld, general counsel of the Recording Industry Association of America, told Business Week magazine that copyguards were a necessity.

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``What else can you use [DAT] for except copying compact discs at home?'' Mr. Schoenfeld ask. ``You're not going to spend that much money to record old analog tapes.''

Some small, independent record labels, however, are ready to take advantage of the DAT phenomenon when it comes to the United States toward the middle or end of next year.

``As the industry rolls the DAT out, we want to be there at their side,'' says Larry Rosen, president of GRP Records. His company specializes in digital recordings of jazz artists, from Dizzy Gillespie to Chick Corea.

``It's hard for the big record companies to turn around and supply pre-recorded digital tapes,'' Mr. Rosen says. They are making good money and would ``rather just keep doing what they're doing.''

Of course, the copyguard idea hasn't thrilled the Japanese. They see it as an obstacle preventing their machine from doing what it was built to do: record music.

But music publishers aren't the only group throwing up roadblocks.

Dutch electronics manufacturer N. V. Philips has lobbied with the major Japanese companies to delay the marketing of DAT machines.

Industry analysts say Philips is worried that the entry of DATs might ``confuse'' many consumers and could cut heavily into CD players just when sales of those players are taking off.

In fact, those sales have shot from 35,000 units, costing $15 million, in 1983 to an estimated 1.8 million units ($360 million) this year.

Yet Philips has had trouble getting people to buy CD players in Europe, which lags far behind the US and Japan in sales. Industry experts say Philips (which helped develop the original CD) fears that if the DAT made its entrance, it might be impossible to recoup the investment in CD technology.

That puts the Japanese in a tough situation. Prices have fallen on CD players and profit margins have gotten thin. But although the Japanese need the DAT as a new profitmaker, they are wary of offending Philips.

Philips is closely tied to the European Commission. In the past, the commission has been willing to slap tariffs on certain Japanese audio products entering Europe.

Thus far, the Japanese have entered into a gentleman's agreement with Philips to refrain from offering a production-model DAT until sometime next year. The agreement is tenuous, however.

There is indeed exasperation over the politics, and some companies might go ahead and introduce their models this year, says Michael Riggs, editor of High Fidelity magazine.

Over the weekend, Japanese companies displayed prototype models of their DAT recorders at the Tokyo Audio Fair, clearly positioning themselves to enter the market early next year. Will it fly or flop?

Encouraged by the popularity of the compact disc, audio hardware manufacturers expect a replay of that success with DAT.

But despite its advantages, DAT's popularity with consumers is hardly assured. Marc Finer, an industry consultant, says the success of compact disc players ``has been the exception.''

More than a few new audio product developments have flopped miserably for lack of a smooth, well-oiled product launch. And makers of audio components and publishers of music software have rarely been on the same wavelength.

AM stereo, which broadcast groups thought would be a big hit, made its debut about four years ago. It failed because hardwaremakers weren't enthusiastic about producing receivers to catch that type of radio signal.

Remember quadraphonic, or four-channel sound? It was introduced in the early '70s but never took off, largely because there wasn't a wide selection of records and tapes in that format.

``It has to be an intelligent, timed introduction,'' Mr. Finer says. ``An effective introduction is not just dropping a piece of hardware on the market and asking, `Do you want to buy this?' ''

Music publishers do have some leverage, since it is unlikely that DATs will be a big success without pre-recorded music to put into them. Negotiations with the Japanese are continuing, while the record industry continues to lobby Congress for mandatory copyguard protection.

Though DAT seems as if it should be a natural success story, Finer and other experts contend that all the pieces of the marketing plan have to be in place.

Those include hardware ready to manufacture in volume; readily available pre-recorded digital tapes; trained salespeople; and a set advertising campaign ready to roll. If DAT is to be successful, Finer says, there must be ``calmness and rationale'' pervading a very carefully planned debut.

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