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Prepare For Fall's Battle Royal

Aug 15th, 2007
DVD contracts; HD disc grows

Trends, Trends, Trends and More Yawning Statistics

That there are stories to report and comments to be made on a weekly basis is indicative of how the format war is heating up. The red forces and the blue forces are regrouping, planning the strategy of their attacks, and issuing factoids, statements, and propaganda to bolster their positions. If the format war didn’t provoke consumer confusion and didn’t cause inevitable delays in the transition from standard definition to high definition, I’d find the conflict to be much more entertaining.

Consumers are spending less on home entertainment so far this year. A research report indicates a drop of 6.5% to $6.2 billion for sales of home video formats; rentals dropped 3.3% to $3.8 billion. This could be attributed to the continuing decline of DVD releases, which has reached its lowest rate in years. Or, it could be due to consumer reluctance to invest in an old format when one or more new formats are emerging. Or it could be constrained by reluctance to invest in a new format until one is victorious.

Ask studio home entertainment executives and they’d suggest none of the above. They contend it’s because of weak theatrical release offerings on DVD. They contend that 2007’s titles are simply not as strong as last year’s, when we enjoyed Peter Jackson’s King Kong, Harry Potter and the Goblet of Fire, and The Chronicles of Narnia. Their yardstick is the number of titles released that had exceeded $100 million at the box office, and on that basis, we’re off by 5%. So far. But since the big films are usually reserved for fall or holiday release, it may be premature to be concerned about this year’s profitability.

Quantitatively, DVD sales are actually doing quite well. DVD player owners are buying at a rate of 14.4 discs per year as opposed to 12.5 in 2006, but as prices erode, the sales numbers measured in dollars is off.

More interesting is the factoid that sales of Blu-ray Discs and HD DVDs have exceeded those of venerable VHS. Since VHS is a dying format and has been in decline for years, this is less significant than it is fascinating home theater trivia. But one thing is certain, DVD sales growth is also declining. And that motivates the studios to push high definition as the means to sell back-catalog one more time. So under the circumstances, it is a little surprising that Fox is still holding back after its withdrawal due to the encryption break and both New Line and DreamWorks have yet to issue their first press release announcing dates for high definition titles.

The studios must be looking at hardware sales trends and licking their collective lips. The firm iSuppli tracks semiconductor sales and one can look to the kind of semiconductor products and the numbers of those products shipped as a barometer for the types of consumer electronic products that are in high demand. And one trend stands out: an increase in components required for shipments of widescreen digital televisions. Based on current trends, it’s expected that such displays will enjoy a sales growth of in excess of 300% by 2010. And since such displays are a prerequisite for enjoying HD on disc . . .
Shyam Nagrani, principal analyst for display electronics at iSuppli said, "Global DTV shipments will rise to 230 million units by 2011, nearly three times the 77.4 million in 2006." That represents a substantial installed base ripe for the pleasures of an HD disc player. It will be interesting to watch the market impact when in mid-February 2009, all analog broadcasts are shut down in the States. (I doubt that within ten years analog TV transmissions will exist anywhere in the developed world.)

The other inevitable consequence of this trend will be savings passed on to consumers due to the savings of scale. In other words, like all forms of electronics, prices will drop. I continue to be fascinated by how consumer electronics products are constantly improving price-performance ratio.

As for HD disc players sales predictions, in excess of 37 million players are expected to be sold in 2011. I expect DTV sales and HD disc player sales will be mutually stimulating, a positive feedback loop in which each will stimulate sales in the other. I’m still on record as predicting that HD on disc will surpass DVD before 2012.

Player Action

We’re only a few months beyond HD DVD’s introduction in the marketplace and we now have a third generation of players announced. I’ve made the point before that HD on disc is evolving and growing faster than DVD did initially, even in the midst of a format war. But I have to admit that I’m surprised at the rapidity of product introductions.

Toshiba has announced three new HD DVD players, which will be priced between $300 and $500. I believe this an effort to further reduce the cost of players to stimulate sales. Toshiba has long held that the first format to offer $200 players will win the war. The street price of Toshiba’s new bottom end player will come close. And then there are the unconfirmed rumors of a Chinese-made HD DVD player to be introduced for the fall with an SRP of $199. Hmmm.

Toshiba’s $300 HD-A3 will be limited to an output resolution of 1080i, which should be fine for HD displays with respectable interlacers. Both the $400 A-30 and the $500 A-35 will produce 1080p, optionally at 24 frames per second. Full specifications will be available soon. The players are expected to reach stores in September (the A-30) and October (the other two models).

Toshiba is about to be joined by another manufacturer. Onkyo is going to offer its first HD DVD player, the DV-HD805. This is will be a capable player with a price to match: $899. That won’t appeal to mainstream consumers, but the technical abilities of the player will appeal to enthusiasts. The player will offer advanced audio bit streams through an HDMI 1.3a port for external decoding: Dolby TrueHD, DTS-HD Master Audio, Dolby Digital Plus, and DTS-HD High Resolution Audio. The unit is expected to be available in the September or October timeframe.

I previously reported the announcement of Samsung's capable (at least on paper) $1,049 dual-format BDP-UP5000 player. LG Electronics’ less capable dual-format player will now have some very serious competition, so LG has reduced the price of its Super Blu BH100 player by $200 to $999. Considering that the player doesn’t fully support HD DVD’s HDi interactive layer, that price is still too high. If the Samsung fully delivers, a $50 premium for full capability in both BD-Java and HDi is a small price to pay.

Who’s In The Lead?

For all the product introduction action on the HD DVD front, it’s interesting to note that recent sales trends, as reported by Ultimate Electronics and Abt Electronics, indicates that Blu-ray Disc players have been outselling HD DVD players. At Ultimate, BD players are selling at a rate of 67% higher than HD DVD players. The introduction of Sony’s $499 BDP-S300 was the turning point.

Apparently, Blu-ray Disc player sales could be even brisker, but are said to be constrained by availability; less expensive BD players are in short supply. Ultimate has yet to receive its first shipment of Panasonic’s $599 second-generation player, which has been available for weeks. And in San Antonio, Bjorn’s is complaining that it cannot satisfy customer demands for Sony’s BDP-S300. On a related note, that store reported that HD disc players outsold DVD players in June.

Toshiba has made much of the fact that it sold far more dedicated HD DVD players than there are dedicated BD players. Toshiba also cites attach rates as high. But for this writer, comparing sales of the same popular title available in both formats is the best indicator of which format is in the lead.

Warner Home Video’s 300 is a hit. It was released day and date on all three disc formats: DVD, HD DVD, and BD. The film grossed $210.6 million at the box office and was highly anticipated for home entertainment. Nielsen VideoScan reports that 300 outsold the number two title, Universal Studios Home Entertainment’s Hot Fuzz, by a staggering ratio in excess of 7 to 1. 300 was the top seller on both Blu-ray Disc and HD DVD charts, but here’s the kicker: the Blu-ray Disc release outsold the HD DVD release by approximately 2 to 1 (1.96:1 to be precise).

This is consistent with the format sales ratio overall since the beginning of the year; Blu-ray Discs out sold HD DVD by 2 to 1 (2.01:1 to be precise), 1.6 million Blu-ray Discs and 795 thousand HD DVDs. The aggregate numbers since April of 2006 are 2.2 million Blu-ray Discs and 1.5 million HD DVDs, a ratio of 1.47:1.

So in an environment where so many people bought PS3 game consoles (1.5 million), many with the intent to use it to play BDs, HD DVD capable playback devices remain highly outnumbered.

More BDs Spotted At A Big Box Retailer

In my last column, I mentioned BJ’s and Sam’s support of Blu-ray Disc. Now we have reports that Buena Vista Blu-ray Movie 4 Packs have been spotted at Costco Warehouse. These are the $84.99 combo-packs available in various flavors: Family, Disney, and Action. The sets will be available at any Costco carrying Sony’s BDP-S300 Blu-ray Disc player.

In case you hadn’t heard about them, the Action Movies four-pack includes Pearl Harbor, Gone in 60 Seconds, The Guardian, and Déjà vu. The Family Movies four-pack includes Pirates of the Caribbean: Curse of the Black Pearl, Pirates of the Caribbean: Dead Man's Chest, Invincible, and Eight Below. And the Disney Movies four-pack includes The Wild, Chicken Little, Dinosaur, and Bridge to Terabithia.

Parting Thoughts

Reports of the war's being over are highly exaggerated.  Both sides are still slugging it out.  I still have a preference; the best BDs outshine the best HD DVDs.  But this writer is not yet ready to predict a winner.  The fall should be very exciting indeed.