Here are the top five reasons network operators should be worried about delivery of interactive content via DVDs and other consumer electronics devices:

1. DVDs are setting the quality standard for the interactive experience.

DVDs came to market in 1997 as a replacement for VHS technology, delivering superior picture and sound quality. Now that consumers are hooked on DVDs, other video experiences — including digital cable — aren't looking so good.

"DVDs were aimed as a step up from tape, so it's almost accidental in how they are superior to digital cable," says Danielle Levitas, director of consumer device research at IDC. "But from the rollouts I have seen, there is no comparison."

Because of this superior quality, DVDs are now a linchpin technology that content producers are using to mold basic expectations for interactive content. For example, basic DVD menus that guide viewers to content stored on the disc are, in most cases, the first interactive media experience consumers ever have. "Without much fuss, the DVD is showing consumers what digital really means," says Kathleen Maher, VP at John Peddie Research.

2. Content producers love DVDs.

Film studios have been quick to seize on the advantages of DVDs. All major studios, and most minors, have disc departments, and these groups continue to grow in spite of an overall retrenchment in the media business. Sony's Columbia TriStar unit, for example, pumped an undisclosed sum — reportedly close to several million dollars — into the DVD for Final Fantasy at roughly the same time the company closed its entire network TV division. "I see continued development for the DVDs in packaging, catalog and new features," says Michael Stratford, VP of DVD content at Columbia TriStar.

3. DVDs are delivering a compelling interactive experience now.

Not only did Twentieth Century Fox follow Sony's lead with its flashy DVD for Moulin Rouge, but it also let director Baz Luhrmann develop an entire thematic line strictly for the disc audience. The result: The DVD version of Moulin Rouge blurs the line between simple rerelease and creating content solely for an interactive audience. This kind of new content development had long been considered one of the prime motivators for advanced networks. Now, at least regarding prerecorded content, DVDs are stealing this thunder.

4. DVDs are getting smarter … fast.

Most of the advanced features now loaded onto DVDs require a PC to use, so their attraction is limited as consumers must get up from their viewing area to use them. But this is changing. Consumer electronics makers are planning to incorporate PC-like processing, live disc storage and networking capacity in their players starting later this year.

Although it's still debatable how and when the new DVD players will alter the pattern of use on the average DVD, startups are showing the way now. For instance, a company called Vialta is set to launch an on-demand DVD content service in May. The service will let consumers view encrypted films stored on discs that they receive by regular surface mail, thereby delivering a movie-on-demand experience without a network.

"What will appear to be a VOD service will in fact be mostly a local event," says Didier Petri, Vialta's president.

The Vialta scheme does have one network component: A DVD player used with the service has to communicate with Vialta's Web site to get access to encrypted content.

The bad news for service providers: That communication can happen over a plain dial-up line.

5. The DVD industry does not need networks.

Executives from companies like Sony and Pioneer Electronics have made it clear that they are not "dot-com flameouts" that will leave this market quickly.

"Pioneer is certainly committed to this space, and we do not see any flagging at all from our competitors," asserts Craig McManis, VP of marketing at Pioneer Home Electronics.

The quick success of DVDs is likely to force manufacturers to implement product improvements even faster. The advent of low-end $100 DVD players is great for market share, but it wreaks havoc on equipment suppliers' profit margins. For DVD makers, the way out of the commodity trap is to develop even more powerful products. "With cheap drives taking profits, new offerings are the only way for the CEs to make money," says Todd Collart, president of InterActual Technologies, another startup developing new services for DVDs.

In other words, if you think DVDs already pose a threat to advanced interactive services, you ain't seen nothing yet.