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Blu-ray Disc Exceeds Expectations

Dec 28th, 2008

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How the format is faring in the marketplace
Sales And Acceptance

Despite the economic downturn, consumers are embracing the Blu-ray Disc in impressive numbers. Greenfield and Zogby International conducted consumer surveys in December and found that Blu-ray Disc players and BD movies rank high on consumers’ gift lists. Greenfield found that BD players were the number one desired gift among HD display owners. Zogby found a nearly identical finding, putting a BD player as number two, just behind an additional HD display.

Numbers are not yet compete for the holiday season; I don’t expect those for another week or so. But indications are that the fourth quarter was better than BD advocates expected. I previously reported that consumers purchased nearly 149,000 dedicated Blu-ray players, excluding PS3s, during the week of Thanksgiving, a 300% increase compared to the same period in 2007. During 2008, discs have been selling briskly as well, doubling BD’s market share of the top twenty between March and mid-December.
Blu-ray Disc Market Share in %: Top 20

In October alone, more than 2 million Blu-ray Discs were sold. Another market survey group, the RedHill Group, reported that for the week ending December 6th, over 1.7 million BDs were sold in the U.S., almost 300,000 more than were sold Black Friday week. And then came The Dark Knight. Released on December 9, that one title alone sold more than a million Blu-ray Discs in the U.S. and 1.7 million Blu-ray Discs worldwide. With sales that strong for desirable and highly coveted titles, can blockbusters be far behind?

When DVD was young, enthusiasts clamored for Star Wars and the first three Indiana Jones films. Lucas and Spielberg waited for the installed base to grow sufficiently to make the films’ releases worthwhile. The first Star Wars film to be released on DVD was Episode 1: The Phantom Menace on October 16, 2001. The decision to prep the title for DVD was made when the installed base in the U.S. was approximately fourteen million players. The other five Star Wars films and the original Indiana Jones trilogy all came to DVD during the next four years. If we include PS3 game consoles, we are very nearly at fourteen million installed BD playback devices and we will far exceed that number in 2009. I’ll be very curious to see how well The Lord of the Rings trilogy, another highly coveted title, sells when it’s released in 2009. Big titles can only spur interest Blu-ray Disc.

Not surprisingly, just as DVD sales a decade ago cannibalized VHS sales, Blu-ray Disc sales are beginning to be perceived as eroding DVD sales. Pali Capital’s Richard Greenfield observed that DVD revenues are expected to fall 6% in 2008, rather than ending the year with previously predicted flat sales. He observed that, “Interestingly, two years into the standard DVD cycle, the DVD installed base was only 1.2 million and players were not nearly as inexpensive as $129 [BD players were] on Black Friday.” This alludes to the reality that BD is being accepted and purchased at a faster rate than DVD was for the comparable period in each format’s life cycle. By the end of 2008, dedicated BD player sales for the year are expected to reach 2.5 million units and are expected to double or triple in 2009. Sales of Sony PS3s are expected to reach 8 million game consoles by the end of December.

Blur-ray Disc also is doing well overseas. The British Video Association and market research firm Futuresource report that European sales are strong. In England, consumers purchased 462,500 Blu-ray Discs in November, and The Dark Knight sold more than 510,000 copies. Futuresource managing director of corporate development Jim Bottoms said, “Once people see the benefits of Blu-ray for themselves, they soon realize the difference it can make. We fully expect Blu-ray to keep on bucking the current economic trend and continue its rapid growth over the next few months and beyond, stimulated by falling prices and even more bundling deals with large-screen TVs.”

Overall Blu-ray Disc player sales are expected to more than triple in 2009, reaching 2.5 million players Europe-wide, excluding PS3s. In France, Blu-ray Disc's market share is expected to double in 2009. In Europe, over 6.5 million Blu-ray Discs have been sold to date; 2008 represents a growth rate of 320%.

And while all this is transpiring, the naysayers still clog the Web with dire predictions of Blu-ray Disc’s demise. When they cite DVD’s continued popularity, they demonstrate that they have no concept of market development. The last mainstream motion picture to be manufactured on VHS tape was 2006's A History of Violence; that was nine years after DVD was introduced. And here we are, less than one year after the format war was settled, less than a year after the BD specifications were sufficiently complete to manufacture profile 2.0 players, and with BD market acceptance running way ahead of DVD’s a decade ago. And the naysayers greatly underestimate the time it will take for the Internet’s infrastructure to be sufficiently robust to support widespread downloads of high definition content. And they are greatly imperceptive of the quality differences between Blu-ray Disc and any download service.

A Bad Idea Returns

Regular readers will recall that I was consistently critical of the HD DVD / DVD hybrid. It needlessly added cost to a high definition disc. DVD player owners and HD DVD player owners were being asked to pay a premium for dual formats when one will do. It was an impediment to consumer acceptance, although I don’t think it was responsible for HD DVD’s failure in the marketplace.

Now comes word that a similar hybrid of BD and DVD has been developed. Unlike HD DVD, which placed each format’s data on a separate side, this combo disc places the DVD content in a deeper layer on the same side as the BD content. It’s claimed that a BD player will be able to focus on the high definition layer(s), which are shallower. A DVD player is claimed to be able to focus through the high definition layer to the standard definition layer(s) beneath it.

For reasons that I’ve never fully understood, BDs have always been a tad more expensive than HD DVDs. I suspect it might be studio pricing policies rather than true reflections of costs; by contrast, Warner charged the same for HD DVD as it does for BD. BDs are frequently more expensive than DVDs, although for similar content for new films, the price differential very often drops to merely a few dollars. But if the studios decide to embrace this hybrid, and if they repeat the HD DVD mistake of releasing only hybrid BDs for specific titles, the cost of BDs will be driven higher. And that, particularly in our weakened economy, will be an impediment to BD sales and acceptance. Early reports indicate that for the initial marketing of these discs in Japan, there will be a 52% cost premium. Bad idea. Very bad idea.

I hope the studios are smart enough to ignore this technological development and concentrate on a more significant and more appealing developmental area: 3-D on BD. A really effective, full color BD system (that cannot be replicated on DVD without slaughtering resolution by being forced to apply field switching) will enhance further the appeal of BD as a home theater medium. What we don’t need right now is a price increase.

Parting Thoughts

There are reports that overall consumer spending dropped in 2008 when compared to 2007. Luxury items were hardest hit, and electronics as a group were reported to have decreased by 26% from last year’s holiday spending. And yet, Blu-ray Disc demonstrated significant growth, better than expect sales, and continues to run ahead of DVD for the same period in the two formats’ lifecycles. I’m simply delighted that Blu-ray Disc is doing so well, particularly in light of our weak economy. I fully expect that as consumer confidence returns in 2009, the format will enjoy accelerated growth. And we, as film enthusiasts and home theater hobbyists, will be able to enjoy the best high definition delivery system for many years to come. Still on the fence? Jump on the post holiday discounts. You'll be delighted you did.

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