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The Format War

Feb 13th, 2008
The Balance Keeps Tipping

We weren’t the only media outlet to suggest to the HD DVD camp that it might be time to end the format war by accepting Blu-ray Disc as the victor. But the fight goes on, however tentatively. HD DVD proponents seem to be on the defensive, and the will to continue the battle seems to have diminished a bit.

The Not-So-Super Bowl

Toshiba’s large ad buy for the Super Bowl turned out to be a bit of a bust. Not only was the ad reported to have been in local markets rather than national, the ad was described as being in standard definition. Wouldn’t a high definition split-screen display of DVD versus HD DVD have been the most dramatic and effective way to motivate new HD-ready display owners to make the leap and buy a player?

Hardware

Draconian price cuts on HD DVD players and the Microsoft Xbox external HD DVD drive continue to create the impression of a fire sale. (The latter now carries an SRP of only $130, half of its original list price.) The discounts and price reductions are so deep that some consumers did decide to speculate on an HD DVD player. But even with remarkably low prices, Toshiba managed to capture only 28% of HD disc player sales in late January. More telling, by dollar volume, Toshiba took in only 14% for that same week, indicating just how severe the price erosion is.

Other electronic manufacturers earned an equal or greater percentage of dollar volume compared to unit volume. The overall numbers for Blu-ray Disc players are 65% unit volume and 69% percent retail sales dollars. The rest are combo players, representing 6% of unit sales and 17% retail sales dollars. All numbers exclude game consoles.

Software

HD DVD disc sales have been creeping up slowly since the Warner announcement, but still haven’t recovered the market share of late 2007.


Neilsen VideoScan Numbers
Week Ending
Blu-ray Disc
HD DVD
February 3rd
74%
26%
January 27th
82%
18%
January 20th
83%
17%
January 13th
85%
15%

Retailers React

Two major players have also taken note of HD DVD’s lagging fortunes. Best Buy announced that it has established an official policy of recommending Blu-ray Disc as the high definition disc of choice.

Brian Dunn, Best Buy's president and CEO was quoted as saying, “Consumers have told us that they want us to help lead the way. We've listened to our customers, and we are responding. Best Buy will recommend Blu-ray as the preferred format. Our decision to shine a spotlight on Blu-ray Disc players and other Blu-ray products is a strong signal to our customers that we believe Blu-ray is the right format choice for them.”

Best Buy will continue to carry HD DVD products for customers who prefer them. That is not the case for NetFlix. On Monday, the rental giant revealed that it would stock Blu-ray Disc exclusively as a result of studio support announcements. The overwhelming support and popularity for Blu-ray Disc convinced Netflix to purchase only Blu-ray Discs going forward; the company will withdraw HD DVD completely by the end of the year.

Toshiba’s reaction was rather tepid, “We have long held the belief that HD DVD is the best format for consumers based on quality and value, and with more than 1 million HD DVD players on the market, it's unfortunate to see Netflix make the decision to only stock Blu-ray titles going forward. While the Best Buy announcement says they will recommend Blu-ray, at least they will continue to carry HD DVD and offer consumers a choice at retail.”

Fortunes of War

For the consumer, the war represents a rare opportunity to score inexpensive hardware and software. Both BD and HD DVD players have been offered as free bonuses to those purchasing new large screen HD-ready displays. Best Buy offered a “Buy 1 Get 1 Free” promotion for selected HD DVDs. Amazon is cutting in half the selling price of selected discs in both formats. Wal-Mart blew out its remaining stock of Toshiba’s HD-A3 HD DVD player when it offered it to online customers. Player process dropped faster than they did when DVD was introduced.

I’m waiting for the “Buy one Blu-ray Disc player and get two HD DVD players free” sale so I can add a BD player to our master bedroom and put in inventory two spare HD DVD players to cover hardware failures after my existing HD DVD players are no longer supported.

Pundits Predict

The most recent prognostication comes from market research firm Gartner. Sounding a tad like a Borg, principal research analyst for Japan, Hiroyuki Shimizu, predicts that by the end of 2008 Blu-ray Disc will have won the format war and any of the HD DVD camp's efforts will be “useless resistance.”

From Gartner's Semiconductor DQ Monday Report, Shimizu wrote, “Gartner believes that Toshiba's price-cutting may prolong HD DVD's life a little, but the limited line-up of film titles will inflict fatal damage on the format.”
 
A Blu Suit

But all is not completely well in the Blu-ray Disc camp. I was surprised to read that a baffling decision by Samsung has prompted a lawsuit. As you are probably painfully aware, both HD DVD and Blu-ray Disc players need frequent firmware updates to keep up to date with features on released discs. Fail to do so and a newly purchased title is no more valuable than a coaster.

The lead plaintiff in the class action lawsuit, Bob McGovern, is not pleased that Samsung has stopped issuing firmware updates for his BD-P1200 Blu-ray Disc player. For example, it’s been reported that Fantastic 4: Rise of the Silver Surfer and The Day After Tomorrow, fail to play on that Samsung player (issues quite likely associated with BD+). But most baffling is Samsung’s position that it does not intend to provide future firmware updates to correct these problems.

This is an anomaly in the entire high definition disc marketplace; to the best of my knowledge, every consumer electronics firm issues suitable firmware updates for all players. After all, none are more than two years old. Samsung’s actions could give Blu-ray Disc an undeserved black eye, and provide a publicity opportunity for the HD DVD camp (if this were politics, the negative ads would be all over your TVs).

Closing Thoughts

I’m thoughtful of Lewis Black, my favorite standup comedian. He’s been known to respond to the ovation that greets his walking on stage with a warning. He’ll jab the air with his finger and in an angry voice accuses the audience of too high expectations and that puts him under a lot of pressure.

At this point, many believe that the resolution of the format war is a foregone conclusion and that HD DVD cannot possibly win. There could be a surprise, perhaps another studio seduced by a financial incentive. It’s hard to know, but you’re already aware of my wish that quality prevails and BD wins. But I’ve been writing about HD on disc and the format war for over three years and when it’s all over, I must suddenly find new and interesting things to write about. And that’s going to put me under a lot of pressure.

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