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Blu-ray Pessimist or Optimist?

Sep 15th, 2008
The answer: the glass is half full

In response to my last column, I heard from several readers, but two stood out. One reader expressed serious doubts that Blu-ray Disc can succeed until prices drop very substantially. Culled and paraphrased from his messages…

“First Yamaha announces their Blu-ray player for $1200.00, then Pioneer at $2000.00 and now Sony at $2200.00.  Do you really think the general public will be jumping all over these players?  We are in a recession people can't afford to spend that kind of money on entertainment, especially when they already own a standard DVD player.  We need some electronics manufacturer to release a $99.00 Blu-ray player and then you will see them jumping off the shelves. [The] Dow is down 304.08 and dropping.  This country is going to be in a very difficult economy for at least the next 12 months.  Other than the rich, the general public is looking to reduce costs just to get by.  The electronics industry better get [its] hands around Blu-ray and get the prices down to where the products are affordable.

“According to a thread on AVS Forum, Neilson reports Blu-ray represents approximately 10% of DVD sales with SD DVD making up the remaining 90%.  When you scan the replies they keep saying the same thing.  Prices for Blu-ray players and discs are way too high.  Not to high but way too high.  It is all about price and until the electronic industry comes out with the $99.00 player and movies for $14.95 or less, Blu-ray is going to limp along.  Get the Chinese involved; they will make a $99.00 player just as they make $24.95 SD DVD players.

“The general public cannot afford BD players, especially in this current economic downturn.  Therein lies the problem with Blu-ray.  The format is just way too expensive for the middle class American.  I believe there are many middle class Americans that want to purchase Blu-ray products but are forced out of the market because of very high prices.”

I understand his concern but citing unusually expensive BD players isn't a fair assessment of the player market; it’s a form of inductive reasoning. Just because there are a few high-end BD players introduced for enthusiasts, that doesn't mean that more reasonable BD players aren't available. Sony and Panasonic are my favorites; between them there are the choices of Profile 1.0, Profile 1.1, and Profile 2.0 players that have street prices that range from $229 to $318, depending on the features the consumer wants. These prices are in line with the mainstream DVD players that were available about 28 months after that format was introduced. (And that makes some current Blu-ray Disc players real bargains compared to DVD players of nine years ago.)

I did a bit of quick research to see just how many BD players are available or have been announced and how much they currently cost. I hope this data is accurate; I gathered it in a rush.

Manufacturer
Model
Number
Profile
Level
SRP
Street
Price
Magnavox
NB500MG9
1.1
298
278
Sherwood
BDP-5003
1.1
299
280
Philips
BDP7200
1.1
349
324
Insignia
NS-BRDVD
1.1
350
230
Sylvania
NB500SL9
1.1
350
280
LG
BD300
2.0
399
N/A
Samsung
BD-P1400
1.0
400
290
Sharp
BD-HP20
1.0
400
320
Sony
BDP-S300
1.0
400
229
Panasonic
DMP-BD30
1.1
400
230
Samsung
BD-P1500
2.0
400
293
Sony
BDP-S350
2.0
400
318
Sony
PS3
2.0
400
275
Sharp
BD-HP21
1.1
449
N/A
Sherwood
BDP-6003
1.1
499
401
LG
BH200
1.1
500
430
Sony
BDP-S500
2.0
500
460
Sharp
BD-HP50
1.1
549
N/A
Pioneer
BDP-51FD
1.1
599
498
Samsung
BD-UP5000
1.1
600
370
OPPO
BDP S83
2.0
600 (est.)
N/A
Panasonic
DMP-BD50
2.0
600
461
Pioneer
BDP-05FD
1.1
799
659
Pioneer
BDP-95FD
1.0
999
788
Pioneer
BDP-94HD
1.0
999
661
Denon
DVD-2500BT
1.1
999
785 (est.)
Yamaha
S2900
1.1
999
825
Sony
BDP-S2000ES
1.0
1300
900
Denon
DVD-3800BD
1.1
1999
1575
Sony
BDP-S5000ES
2.0
1999
1500 (est.)
Marantz
BD8002
1.1
2000
1500
Pioneer
BDP-09FD
2.0
2199
N/A
Pioneer
BDP-LX80
1.0
TBD
N/A
Cambridge Audio
640BD
1.1
TBD
N/A
Denon
DVD-1800BD
1.1
TBD
N/A
Daewoo
DBP-1000
2.0
TBD
N/A
Panasonic
DMP-BD35
2.0
TBD
N/A
Panasonic
DMP-BD55
2.0
TBD
N/A


As you can see, there is rapidly developing a huge variety of product from which to choose. This is healthy for the BD format on two levels. First, it demonstrates that many manufacturers are willing to invest the R&D dollars to create a BD product and bring it to market, indicating a broad belief in the industry that BD is here to stay and ultimately will dominate. Second, competition fosters price erosion (as do the economics of scale and progress in semiconductor integration), which stimulates sales, which bolsters the format and makes it profitable.

My pick for the highest value players are the Sony BDP-S300 with a street price that hovers around $229. This profile 1.0 player is ideal for film lovers who don’t much care for fancy supplements. The newer Profile 2.0 Sony BDP-S350 has a street price of around $318 and can provide access to both picture-in-picture extras and Web-based supplements. As I mentioned, those are bargains considering that BDs have six times the visual information and offer lossless audio of outstanding fidelity. Want to add full internal decoding of all the advanced audio CODECs? Then choose the Sony BDP-S550 at $460 or the Panasonic DMP-BD50 for a nearly identical $461.
 
To put things in perspective, my first DVD player was a Sony DVP-S700. In April of 1997, that interlaced unit listed for $1200. I recently bought a DVD player as a gift for a close relative; that progressive scan Toshiba cost $45. BD player prices are dropping and the general public will soon find them attractive enough to buy. All the market factors make lower prices inevitable. But a $99 BD player is completely unrealistic in 2008, just as a $99 DVD player was unrealistic in late ’98 or early ‘99, and inflation since that time makes the suggestion of a $99 BD player even more unrealistic today. It's simply not fair to compare prices between an eleven+ year old technology and one that is slightly more than two years old. Software prices will come down as well. But even today, savvy Web shoppers take advantage of sales (particularly at Amazon) and don't pay that much of a premium for high definition.
 
Most significantly, there is a growing demand for BD regardless of any perceived downturn in the economy, and for perfectly understandable reasons. A consumer survey indicated that in a faltering economy, people are less likely to go on a costly vacation and, instead, buy home entertainment products as a less expensive alternative to give themselves a well-earned treat.
 
Another reader was more skeptical, “Better sales then DVD did when it started out? Where do you get this nonsense? I know you want BD to be successful and all of that but let’s face it. It's going to be an uphill battle if the price of the players and the discs don't come down and come down soon. People in the general public don't really care about marginal upgrades to their movie watching. When it's at a large upgrade in price you really have a problem. I hope it works out but I won't be holding my breath. You shouldn't either.”

I must take exception to the suggestion that BD versus DVD is a marginal upgrade. BD looks far better than DVD, just as DVD looks far better than VHS. Each newer format provides dramatic improvements over its predecessor, and it doesn't take a 60-inch or better display to enjoy the difference. As I wrote in a previous column, one reader reported that his wife, someone who is not technically oriented, was vocally impressed with the improved picture quality of Blu-ray Disc on a relatively small HD-ready display in the forty-inch+ diagonal size range.

In a recent interview, Blu-ray Disc Association Chairman Andy Parsons stated that 15 million Blu-ray Disc titles have been sold in the U.S. In 2007, there were 5.6 million sales; in 2008 so far, there have been 8.8 million sales. He then pointed out that since 60% of all disc sales occur in the 4th quarter, the BDA expects a great year (a quick calculation suggests sales reaching 22 million units by year’s end). And he confirmed my assertion that BD player sales are ahead of DVD sales for the same period after product introduction; this includes PS3 sales, but considering that a consumer survey revealed that over 80% of PS3 owners view BDs on the game consoles, I think it’s fair to include them.

Some of you might be thinking, “Of course that’s what the BDA Chairman is going to say. He has a vested interest.” Fortunately, there are independent verifications; among them is market research firm the Redhill Group. It reports that Blu-ray Disc sales are up 300 from 2007. Blu-ray Discs are selling at about 1.14 million units per month for a total of about 8 million. The aggregate sales for 2006 and 2007 were about 6 million discs.

Parsons offered additional insight, “Another factor that must be considered is where we are in the adoption curve for Blu-ray. New publishing formats typically require several years before they can begin to establish themselves in the mass market. For comparison purposes, I looked back at some old DVD industry newsletters from the end of 1998 -- roughly the same early point in DVD's life that we're at now with Blu-ray -- and found a couple of analyst quotes that seem short-sighted in retrospect. One predicted a ‘long and healthy life ahead for VHS.’ Another was quoted as saying that DVD hardware sales were ‘slow to take off, partly due to consumer confusion.’ If Internet polls had existed ten years ago, I'm certain that similarly low consumer interest levels would have been detected for DVD, even though it obviously became a highly successful format.”

Replication houses seem to be true believers. I previously reported on investments made to increase BD production. Now comes word that another replicator is making a Blu investment. Hellman Production is a full-service CD and DVD replication company; it’s now adding Blu-ray Disc replication to its services.

U.K.-based market research firm Futuresource projects Blu-ray Disc sales to double by the end of 2008. Confirming other such studies, it projects that Blu-ray Disc will overcome and dominate DVDs; by 2012, BDs will enjoy a 61% market share. It  projected that retailers are likely to reduce Blu-ray player prices to as low as $250 by the holiday season, but as I discovered when I researched players and street prices for this piece, we’re already there.

Futuresource projects that BD will capture 12% of the sales of best-selling U.S. movie and TV titles by the end of the year. U.S. revenue from Blu-ray Disc sales and rentals for the first two quarters are reported to be more than $200 million, a 300% jump from a similar period in 2007. Considering that spending growth in home entertainment titles is flat, essentially remaining at the $10.1 billion annual level, this is significant. BD sales are clearly eroding DVD sales. Futuresource believes that BD sales will end the year 500% ahead of 2007.

Yet another new market study by IMS Research reports that it expects that in households converting from analog to digital, OEM-installed Blu-ray Disc drives on PCs are expected to see 117% growth annually through 2013. This segment of the market is expected to generate revenues of $46 billion dollars for Blu-ray Disc over the next five years. This is expected to further stimulate Blu-ray software sales and HDTV display sales.

Retailers are becoming more aggressive in their marketing of the Blu-ray Disc format. Now that the backorders and scarce supply of Blu-ray Disc players are beginning to be corrected, Blu-ray Disc’s presence in retailers’ newspaper ads has climbed 200% to 300% over July levels according to the firm DisplaySearch. Retailers expect that the introduction of many new models will help maintain required supply levels. Electronic retailer Ultimate reports that in August it sold more Blu-ray Disc players than standard definition DVD players; it was not the only retailer reporting that trend. And Best Buy is planning to upgrade its Magnolia demonstration rooms with an improved ability to demonstrate Blu-ray Disc’s unique capabilities.

Not surprisingly, the NPD Group found that consumers are favoring the lowest-priced players. For the first seven months of 2008, Blu-ray Disc players priced $300 to $500 dominated with 85% of unit sales. And as my concerned reader rightly surmised (but may have drawn the wrong conclusion), players with SRPs of over $900 represented only a 1% sales share.

David Workman, executive director of consumer electronics buyer Pro Group cited improved Blu-ray Disc player choices and enhanced supply when he predicted that retailers would sell between 200% and 300% more BD players during the 2008 holiday season than in 2007’s. He added, “This is probably Blu-ray’s year… Coming off of previous shortages and having prices that are more mainstream will make Blu-ray a compelling thing to put under the tree.”

Parting Thoughts

Having lived through the adoption of DVD in the late ‘90s, I recall objections from VHS fans claiming that tape is good enough, and objections from Laserdisc owners who were reluctant to replace their expensive collections. I’m experiencing the same kind of pushback from a minority of film fans who haven’t yet discovered the more emotional connection to onscreen content made possible by the transparency and detail-rich presentation that only Blu-ray Disc can provide. Pessimism is misplaced. The glass is half full and it’s getting fuller with each succeeding month.


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