Tom Taulli is the author of "Investing in IPOs" (Bloomberg Personal Bookshelf). The book can be purchased at Amazon.com by clicking here. You can reach him at tom@taulli.com

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When I purchased my laptop a few months ago, I made sure it came with a DVD drive.

A DVD is the same size of a CD-ROM, but can store 17 times more information. DVDs are big enough to store movies. For example, while on a plane flight, I can usually watch a two-hour movie from my laptop (that is, before the battery goes dead). It actually gets addicting, especially as I buy more and more DVD titles, such as Austin Powers, The Wedding Singer, Scream, and so on.

What's also cool about DVDs is the resolution: about 2.5 times better than VHS. You can navigate to a certain scene, you can hear the movie in different languages, and you can listen to the director's views of the movie. The problem is, when going to a video store, it is hard to find a good selection of DVDs. The Web is a solution. The biggest seller of DVDs -- yes, even bigger than Amazon.com -- is DVD Express, at www.dvdexpress.com.

DVD Express founder Mike Dubelko definitely knows the entertainment industry. He was the president of Cannell Studios, which, over a 14-year period, produced 35 prime-time TV shows, such as The A Team, 21 Jump Street, and Wiseguy. Cannell was sold to New World Entertainment, which, in turn, was sold to News Corp. When DVD hit the scene, Dubelko saw a great opportunity. He had always been a tech junkie -- he still has his CompuServe account from the early 1980s.

When Dubelko started DVD Express, it was a bare-bones operation -- he bought the company's furniture for $1,000 at a liquidation sale. Since Dubelko could not convince suppliers to sell him product, he would fulfill customer orders by purchasing DVDs from local retailers. DVD Express began selling over the Net in April 1997. But as DVD grew, so did DVD Express. By the end of 1997, the company had sales of $1 million. In 1998, the company had sales of $16 million. So far, DVD Express has sold more than 1 million DVDs and should exceed 2 million DVDs by the second quarter of 1999. Keep in mind less than 1 percent of U.S. households have DVD players. DVDs seem to be a perfect fit for the Internet.

Purchasers of DVDs have similar demographics to Net users: high education, high incomes, early adopters of technology. And Web retail offers unlimited shelf space, so DVD Express can offer every DVD title, while a typical brick-and-mortar store offers about 300 titles.

Finally, a website can be a tremendous learning tool. After all, DVD technology is new and somewhat complex. You need to make decisions about things like Dolby Digital or AC3 sound. To that end, the company recently launched a website called DVD.com. At DVD.com, you get the latest DVD news; tutorials on how to use DVD technology; celebrities who talk about DVDs; DVDictionary; and DocDVD, where you can ask questions about DVDs.

Prices at DVD Express are not the lowest, but they are below traditional retail prices. "Some competitors are selling below cost," says Dubelko. "But it is often the case that the products are out of stock."

This is not a problem with DVD Express. The company has its own warehouse, from which incoming orders are shipped by the end of each day. When I visited, it was a whirlwind of activity, with Federal Express boxes stacked higher than me. The warehouse is tied into a sophisticated e-commerce system developed by Pandesic, so you can see in real time what products are in stock.

DVD Express recently launched an intensive marketing campaign. The company signed OEM agreements with Gateway Computers and Toshiba, and carried out cross-promotional campaigns with major movie studios. Perhaps most important, DVD Express signed major portal deals with Infoseek, MSN, AltaVista, and AOL.

In the AOL deal, DVD Express agreed to make guaranteed payments of $15 million over a three-year period. AOL also gets warrants to purchase shares in DVD Express. In exchange, DVD Express gets prominent exposure on such AOL channels as Entertainment, Shopping, Lifestyles, Travel, Influence, and Research and Learn. The company also gets also exposure on AOL.com, Digital City, and CompuServe.

The market for entertainment e-commerce is heating up. Last year, Hollywood Entertainment purchased Reel.com for $100 million. There are also rumors that a media giant -- such as MTV or Time Warner -- will purchase CDNow. DVD Express obtained $12 million in equity financing from Geocapital Partners this week. Geocapital has funded such companies as Netcom, Realtor.com, and AutoWeb.com, which just filed to go public.

Given the financing and aggressive growth of DVD, this company looks like an excellent candidate to go public sometime this year.

For comments/questions, contact Tom Taulli at ttaulli@bpia.com.

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