Home > Views > Industry Views > War Posturing

War Posturing

Sep 21st, 2007
Fallout, marketing, and research

Paramount Fallout

At a gathering at Goldman Sachs in New York of several prominent media company top executives, News Corp. (Fox’s parent company) CEO Rupert Murdoch said, “Paramount switched out the other day. God knows why.”  He quickly corrected himself, leveling a charge of purchased loyalty, citing the $150 million aggregate incentive paid to Paramount and DreamWorks Animation. 

Viacom (Paramount’s parent company) CEO Philippe Dauman was specifically asked about the financial deal later in the day.  He didn't deny the payoff, but added, “I won't comment on that number."   He justified the decision, explaining that supporting both formats “creates some inherent inefficiencies, and we would like to see the HD format have success.”

Disney Company CEO Robert Iger was outspoken about his organization’s support of Blu-ray Disc.  “We believe it's a no-brainer that the industry should be behind Blu-ray.  We haven't taken any money [to support Blu-ray Disc exclusively] because we think it's far and away the best business.”  (And since Fox chose Blu-ray Disc for its extra security layer of BD+, perhaps this might finally put to rest the rumors that the BD camp paid similar financial incentives.)

Murdoch, apparently unaware of the critical necessity of educating the mainstream public that believes upscaled 480p DVDs are high definition, said, “The public is going to want Blu-ray. The public can tell the difference.”

Time Warner CEO Richard Parsons explained Warner Home Video’s neutrality, “The consumer doesn't care about the format. It's linear penetration that counts.  Our objective is not to take sides on the format but to do what we need to do to get maximum penetration.”

Robert Iger clearly disagrees, “It's disappointing that the industry hasn't managed to be cohesive.  I think it's a foregone conclusion about which will win.”

No Inexpensive HD DVD Player At Wal-Mart

Wal-Mart has decided not to offer the $200 Ventura SHD7000 HD DVD player when it becomes available this fall.  There was no rationale offered.  However, we previously reported Target’s and BJ’s decisions to support Blu-ray Disc players rather than HD DVD players.  Perhaps Wal-Mart was influenced by its competition.  The Ventura HD DVD player is the first to reach the price point Toshiba always cited as that which would stimulate mainstream consumers to gamble on the format.  But with the very large chain’s rejection of the player, the mainstream public might not become aware of it.  I’m still concerned that the Chinese-made player might be buggy.  It’s been hard for Toshiba to maintain disc compatibility, so I’ll be most curious to read test reports about the Ventura.

Intel Neutrality

Semiconductor giant Intel is taking Warner’s approach of supporting both formats.  This is hardly surprising.  It’s logical and consistent with the PC industry’s need to support a vast assortment of hardware subsystems in a functional, integrated package.

Intel Corp. CEO Paul Otellini appeared before the Intel Developer Forum as keynote speaker.  He announced that Intel’s fifth-generation Centrino mobile processor codenamed Montevina will have native support for both Blu-ray Disc and HD DVD.  The product is expected to be available in the second quarter of 2008.

As you know, Intel is not alone.  We reported the availability of the Broadcom Corp. BCM7440 that combines Blu-ray and HD DVD support on a single chip.  Since then ST Microelectronics has demonstrated its Sti7200 decoder chip that also supports both Blu-ray Disc and HD DVD.  And, of course, we’ve seen the introduction of dual format players.

This modest but potentially growing trend has some industry analysts pondering an outcome of the war that is less decisive and more like the cessation of hostilities between North and South Korea.  Which brings us to . . .

Screen Digest Media Analysts Weigh In

The research and analysis company examined the market and predicted trends out to 2011.  The firm essentially believes that the war will wage long enough for a large installed base of each type of player to be established.  And as a consequence, both Blu-ray Disc and HD DVD are expected to coexist for years to come.

More telling is Screen Digest’s analysis of the financial impact of exclusivity on the studios.  As the installed bases grow, any studio supporting only one format will be losing substantial revenue in the form of lost sales to player owners of the other format.  For example, the firm estimates that BD-exclusive studios Fox, Disney, and Sony could potentially lose an aggregate $175 million in 2008 by not providing their films on HD DVD.  And since BD is outselling HD DVD by a significant ratio, the HD DVD-exclusive studios have even more to lose.  So the firm believes that one-format studios will reconsider their exclusivity in 2008 and opt for a format agnostic position.  This does not take into account the potential for more reasonably priced dual-format players.  Such players could stimulate sales of both formats, removing the incentive for the studios to release in both formats.

Screen Digest has a rather unique take on the recent Paramount and DreamWorks decision to go HD DVD exclusive.  The firm believes that this move will ensure the longevity of the war, stimulate the growth of the HD DVD installed base, but will not have a dramatic impact on the viability of BD.  So it is Screen Digest’s position that the decision will actually provoke the eventual move to format agnosticism by the studios.  I have serious doubts about Sony’s willingness to release its films in HD DVD, but then again, it did eventually produce VHS decks.

The support decisions are linked to the upcoming holiday buying season.  The firm believes that no clear winner will immerge.  And as a consequence, exclusive studios will realize that consumers have accepted both formats and will feel compelled to release in both formats.  Alas, this does not take into account mainstream consumer reluctance to buy either format out of fear that the investment will be wasted when the selected format goes belly-up.  It’s the opinion of this writer that prolonging the format war is more destructive than constructive.  We’ll see; I’d be pleased if Screen Digest were proved to be right.

Visibility

When DVD was an infant, this site any many others proselytized the new format and encouraged both laserdisc and VHS owners to buy into the new disc.  And as more players were sold and owners demonstrated to friends and family the higher quality, the higher convenience, and the coolness factor of supplements, the format took off and became the single fastest growing new product introduction in the history of consumer electronics.

Similar to our DVD apporoach of the late '90s, we have been unashamedly proselytizing HD on disc.  They really do have the potential to finally make possible the replication of the motion picture theater experience in the home, and we’d be remiss if we didn’t encourage you – film lovers that you are – to jump into HD on disc.  Both BD and HD DVD have been given substantial exposure through player reviews and disc reviews.  The ultimate intent was to have a similar effect on the readership, encouraging adaptation and securing the viability of HD on disc for the pleasure of all.  Perhaps our meager efforts haven't been as successful as we had hoped.

It was with some surprise that I read of research group NPD's recent survey results.  Despite the findings of another survey I described in my last column in which more respondents intended to buy a BD player than an HD DVD player, despite BD’s considerable sales advantage over HD DVD, and despite the considerably larger installed base of BD players available for demonstrations, consumers seem to have had little exposure to the formats by enthusiasts and early adopters.  It seems that 29% of consumers are aware of HD DVD, but only 20% are aware of for Blu-ray Disc.  Hmmm.  What comes as no surprise is that consumers are intrigued by HD DVD players’ lower costs.

Parting Thoughts

I could easily live with coexistence, assuming that halos are banished (I find halos on far more HD DVDs than BDs) and the quality of each transfer is high.  But I fear that consumers will remain reluctant to purchase any one type of player during a format war, they will not soon become sufficiently knowledgeable about HD technology to be motivated to buy either, and that dual-format players will remain out of reach financially.  However, it would be delightful if Screen Digest’s predictions come to pass, just as long as HD on disc becomes mainstream and not relegated to a niche product.  I’m sure I speak for many of you when I say that I simply want to sit down in front of my display and enjoy a presentation that comes closest to what the director intended.  It’s about the enjoyment of film on the best possible media; it’s not about a self-destructive war.

Comments (0)

Write comment

smaller | bigger