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The Format War Is Now An Information War

May 27th, 2008
Blu-ray Disc needs more respect

I’m finally back, having recently returned from a European trip that included a stop in Cannes during the film festival. I really needed to kick back from my grueling schedule and had planned on a strictly non-business trip, but as I strolled the streets and got sucked into the excitement, I wish I had done something in advance to establish my credentials so I might participate in an event. With the exception of a couple of caravans of odd little shiny black cars that might have held a star or two behind tinted glass, I saw absolutely no one of interest. I was there on the day Indiana Jones and the Kingdom of the Crystal Skull was to have premiered; that ticket was the hottest in town. I still haven’t seen the film, but it killed at the box office during its opening weekend, scoring over $297 million worldwide.

Cannes was full of posters and banners touting films to come, Indy dominating. The only other genre film I discovered that took me by surprise was Transporter 3, which the IMDB indicates will be released in 2009.

When I returned to the States, there were over five hundred email messages waiting for me, many of which were from an information service that allows me to keep up with Blu-ray Disc news. I was not surprised to find that little had changed over the course of the last month. Some writers, analysts, and pundits are still getting it wrong.

Wrongheadedness

I am reminded of a classic allegory of logic. A scientist is experimenting with a frog. He claps his hands and the startled frog leaps. The scientist then cuts off one of the frog’s front legs and claps his hand again. The fog jumps away. He cuts off the other front leg and repeats the experiment. The frog again leaps away from the sound. The scientist cuts off one of the frog’s hind legs and again claps his hands. The startled frog doesn’t jump as far nor as straight, but jump it does. The scientist then cuts off the frog’s remaining hind leg and once again claps his hands. The frog doesn’t move. The scientist enters a note in his logbook, “The removal of all four of a frog’s legs renders it deaf.”

The NPD Group published a report that Blu-ray Disc players dropped 40% between January and February, recovering only 2% in March. Suggesting an explanation, NPD analyst Ross Rubin was quoted as saying, "When Blu-ray was fighting HD DVD, that was a battle of passion. Now Blu-ray is fighting a battle of apathy in which most consumers are either unaware of Blu-ray or have yet to be convinced that it's a better format." From an obsolete survey conducted late last year, "an overwhelming number of [consumers] said they weren't investing in a new next-generation player because their old DVD player worked well [enough]. Next-generation players were too expensive. It's clear from retail sales that those consumer sentiments are still holding true."

But his statistics do not take into consideration PS3 sales, nor does it consider the limited supply and high demand situation. Home Media Magazine reported that sales of Blu-Ray Discs soared 351 percent from January to March of 2008. Consumer spending on home entertainment actually increased by $5.5 billion compared to last year, the first growth in two years. That is arguably a more accurate indicator.

A more recent Harris Poll of 2529 Americans revealed that 14% of HDTV owners are likely to purchase a Blu-ray disc (10 percent of HDTV owners currently have Blu-ray Disc players). That’s a healthy growth of 140%. Another market analyst firm, Bernstein Research, predicted that one quarter of all American households will own a Blu-Ray player within three years, but noted that the growth of the installed base will be slower than for DVD.

The real problem is supply, not demand. Manufacturers are not putting that many Profile 1 and Profile 1.1 players into the pipeline. Instead, we’re seeing the slow introduction of fully featured Profile 2 BD players to market. Retailers Ultimate Electronics, Crutchfield, and Bjorn’s have reported that the demand for BD players has been higher than for DVD players. And retailers believe that there should be a reasonable supply by August; that’s when new full-feature players by Sony, Samsung, Panasonic, Philips, and Pioneer will come to market. Manufacturers commented that they weren’t prepared to satisfy increased demand because the format war ended much sooner than they had expected.

There are other secondary factors in play as well. Con… Consumer confidence is waning, provoking a reluctance to spend in any sector of the electronics market. Pro… The transition to HDTV in February 2009 should further stimulate interest in Blu-ray Disc. Retailers will jump on the opportunity to push BD players as consumers buy replacements for their soon to be obsolete analog televisions.

So while it’s very easy to conclude that reduced player sales are due to consumer apathy, the real reason is that supply is not available to satisfy demand. The frog is not deaf.

High Definition Downloads

Microsoft continues its psychological warfare against physical media. Home Media Magazine published a quote from Microsoft Games Studios head Shane Kim, “[Blu-ray Disc] provides some visual boost for people who want a physical HD format", but Microsoft does not see "that format taking off, in general." This was in the context of its most recent denial that Microsoft is working on an external Blu-ray Disc drive for the Xbox 360. Apparently, Microsoft really didn’t have its heart in its vocal and steadfast support of HD DVD when it existed.

Apple, in the meantime, refuses to allow me to review its TV appliance used to download low bit-rate 720p movies. When a film’s producer doesn’t allow reviewers to see their production before an unsuspecting public puchases its movie theater tickets, it usually means that the film is a stinker. Draw your own conclusions.

While it’s clear that the day may come when fiber optic cable to the door will be so widespread and servers will be so powerful that high definition on demand from the Internet will become practical. But bypassing the Blu-ray Disc experience is like a decision a decade ago to avoid the DVD experience simply because DVD will be supplanted by Blu-ray Disc. Defer gratification long enough and you’ll die with regrets.

Price Versus Demand

That Harris poll also revealed that consumers are concerned about high Blu-ray Disc player prices. The magic number for widespread acceptance seems to be $200, according to ABI Research. As I wrote in previous columns, as more and more of a BD player’s electronics are consolidated into few and fewer VLSI chips, the lower the player price will become. Panasonic parent corporation Matsushita Electric Industrial has announced that it developed the first single chip integrated circuit solution for Blu-ray Disc players, a part that combines the functionality of multiple signal-processing functions, optical disc control, audio decoding, and video decoding. The chip reduces to one the functionality previously done by four. It will be interesting to see how that affects the price of players next year, or perhaps even this year, since the part will be available in June.

More conventional players are enjoying price reductions as well. Wal-Mart announced a Magnavox Blu-ray Disc player that will list for $298; it should be available now. Note that this is a Profile 1.1 player with picture-in-picture capability, but not with BD Live Internet content. The same player should be offered in July by Best Buy under the retailer's Insignia house brand at $347.99; there is no explanation of the price difference. The players will be manufactured by Japanese-based Funai.

I’d be reluctant to recommend such a player without a rigorous review, and I can’t help wonder if an effective infrastructure for firmware updates will be in place. For now, I’d be more comfortable with Sony or Panasonic. As John Arbuckle said, “You get what you pay for.”

Industry Optimism

The EMA Home Media Expo 2008 (formerly VSDA) will be held in late June in Las Vegas. The opening session will feature prominent members the home entertainment industry discussing how Blu-ray Disc will transform the home entertainment market and provide growth opportunities.

During "Moving Forward and Building Growth," Mike Dunn, President of 20th Century Fox Home Entertainment, James W. Keyes, Chairman and CEO of Blockbuster, James L. McQuivey, VP, Principal Analyst with Forrester Research, and Eisuke Tsuyuzaki, VP, Corporate Development and General Manager, Blu-ray Disc Group, Panasonic Corporation of North America, will discuss Blu-ray Disc technology and what needs to be done to ensure acceptance by consumers.

I hope to report developments from the show.

Parting Thoughts

Do not be deceived or mislead by those who would have you believe that DVD is good enough or that BD will be replaced quickly by HD downloads. Later this year, Profile 2 players will be widely available. Jump into the Blu; the water is fine.

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