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Fourth Quarter Fervor

Dec 5th, 2007
Strategies and sales

Warner's Total HD Is History

When Paramount bolted for cash, Warner Home Video became the last major studio to support both formats. Earlier this year, Warner had proposed its solution to the format war, a hybrid disc that would contain HD DVD on one side and Blu-ray Disc on the other. Warner expected to introduce the hybrid (which I predicted would be prohibitively expensive) by the fourth quarter. Introduction was delayed even before the Paramount defection. Now comes word that the concept has been shelved for the foreseeable future.

Warner Home Video president Ron Sanders said, “It would be tough to proceed, since we are the last man standing in both formats. This only makes sense for studios supporting both formats, and since Paramount went the other way and retail didn’t push the issue, one studio isn’t enough for us to pull the trigger. It’s on hold.”

European Statistical Spin

The Blu-ray Disc Association has reported the results of a high definition disc market study by research firm GfK. The BDA touted a 73%:27% or 2.7:1 disc sales advantage in Europe for the period of the last twelve months. The European HD DVD Promotional Group was quick to point out differences in attach rate, the number of discs bought by each player owner. Based on an installed base of 1.7 million BD players and 97 thousand HD DVD players (a ratio of about 17:1), and disc sales statistics, the attach rate for HD DVD is 3.8 discs per player, whereas BD only achieved a 0.6 attach rate per player. That could imply that the HD DVD owners are more enthusiastic about owning films in high definition, but a more logical explanation is that a significant portion of the PS3 game consoles that were counted as BD players in the installed are simply being used for games. Had I been on the European HD DVD Promotional Group’s PR team, I don’t think I’d publicize BD’s 17:1 player advantage. It only reinforces BD’s 2.7:1 disc sales advantage as an indicator of European format preferences.

A Representative Microcosm

No sooner did I write that weekly sales statistics were too volatile to represent trends accurately, I was confronted with the sales figures from a single weekend and had to consider those numbers a significant indicator. Black Friday, the day after Thanksgiving, is when the overwhelming percentage of retailers finally turn a profit for the year. Black Friday (and its associated weekend) arguably can be considered a representative microcosm for the entire year.

Disc sales jumped dramatically. According to Nielsen VideoScan data, disc sales were 6% higher than the previous year’s Thanksgiving week. And, not surprisingly, disc sales jumped 175% compared to the previous calendar week. Among those sales, BD outsold HD DVD by 72.6%:27.4% or 2.65:1. So even though there were dramatic discounts of HD DVD players, and the retail success of Shrek The Third exclusively on HD DVD, BDs are still outselling HD DVD by a considerable margin.

Those HD DVD player discounts gave its installed base a boost. The North American HD DVD Promotional Group reports that there are now three quarter of a million HD DVD players in the hands of consumers. That’s the aggregate total of Toshiba players and Microsoft Xbox 360 HD DVD drives.

There are about three weeks left for holiday shopping, and then we have a couple of weeks of discounting to deplete inventories and to sell returns. I’m very curious to see what the numbers for the year will be like and whether it affects consumer perception of the war. Major retailer spokesman have reported that the competition, the sales, and increased store presence, have helped the average consumer become more aware of HD on disc. And that’s stimulating sales.

One retailer, Bjorn’s, reported that HD disc players constituted 15% of its optical disc business during Black Friday weekend in 2006, but was 50% for the same weekend in 2007. Crutchfield reported that it sold four times as many HD disc players during Black Friday weekend than during any seven-day week. It was the largest sales surge among its electronics categories. Crutchfield executive VP of merchandise Rick Souder said, “There wasn’t a whole lot of high-def business for us last year, but it was a significant business for us this holiday weekend.”

Price seemed to drive interest. Ultimate reports that it sold three times as many Toshiba HD-A3s ($149 after discounts and a manufacturer’s rebate) than all Blu-ray Disc players combined. More significantly, Ultimate reported that for Black Friday weekend in 2006, HD disc player sales represented 30% of its optical disc player sales, but for the same period in 2007, HD disc player sales represented 50%. Matt Duda, director of merchandising at Ultimate, said, “This tells us that people are becoming aware of next-generation and high-def content as it relates to HD DVD and Blu-ray.”

Growth.  Consumer awareness.  Sales.  The transition to HD is gathering momentum.

Summary To Date

As of November 24, there are 2.7 million Blu-ray Disc players and 750,000 HD DVD players in the North American installed base (3.6:1). Aggregate disc sales year-to-date hover at 2:1, advantage Blu-ray Disc. In Europe, the player advantage is a more dramatic 17:1 and disc sales are running 2.7:1, both giving the advantage to Blu-ray Disc.

Parting Thoughts

In a bit more than a month, we’ll have a clear picture of the performance of both formats for calendar year 2007. But that will not diminish the fervor of proponents on either side. Patience, open-mindedness, and the purchases of better displays will. A while ago, a skeptical reader who owns players and discs in both formats wrote to disagree strongly with my contention that the higher bit rate and greater storage capacity of Blu-ray Disc results in better images than are produced by HD DVD. He insisted that HD DVD looked better. That same kind reader more recently wrote to say that he purchased a new high-quality 1080p display and is now changing his position. He can now see that BD produces a more satisfying, more detailed, and more film-like presentation. I can only hope that as display price-performance ratios become ever-better and more high quality displays are made available that everyone will perceive the differences as well.

But perceived cost is still an impediment.  If all BD-exclusive studios priced their discs as competitively as Warner, and if the BD player manufacturers would lower their hardware prices to amortize their development costs over a longer period (the parts cost for equally featured players in both formats is essentially the same), the format war would soon be over. Regardless, it is my hope that quality prevails.

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