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News From The Front

Jul 11th, 2007
Consumers Wounded

Consumers Take Fire

Before I begin to report the skirmishes at the HD format battlefront, I’d like to begin by expressing my disgust at yet another conservative protection for business profits at the expense of the consumer.  In 1911, the Supreme Court heard Dr. Miles v. Park and decided that vertical minimum-price agreements were illegal regardless of any potential impact on competition.  The United States Supreme Court overturned that nearly century-old antitrust precedent by allowing manufacturers, distributors, and retailers to collude to set minimum sale prices for products. 

This new decision harkens back to another anti-consumer, anti-competitive practice of a half century ago: fair trade pricing.  Manufacturers coerced retailers to sell their products at list price, forbidding any discounting.  The penalty to the dealer for being caught was the cancellation of the franchise agreement and the withdrawal of stock.  Audiophiles in particular found this reprehensible; respected lines, like Macintosh, were among those lines that were sold with such restrictions.  Dealers were only able to circumvent the agreements by selling package deals in which other non-fair trade priced components were discounted below cost to compensate.  It took an act of congress to outlaw the oxymoronically named fair trade practices.

But now the Supreme Court has decided that not only can manufacturers set minimum resale process, but they can confer with one another, apparently to avoid giving any one a competitive advantage by allowing deeper discounting.

Justice Anthony Kennedy wrote for the majority that "Minimum resale price maintenance can stimulate interbrand competition."  I fail to see how allowing manufacturers to collude to set minimum process promotes competition.  He continues, “[The practice] has the potential to give consumers more options so that they can choose among low-price, low-service brands; high-price, high-service brands; and brands that fall in between."  What utter rubbish.  Given the opportunity, what for-profit company or corporation won’t raise its prices at every quality level with the knowledge that it won’t be giving a competitive advantage to a rival that maintains a lower price?  This decision has to result in higher prices for all the high-tech products we enjoy, from computers to audio equipment to home theater components.  It may also affect the pricing of the media we wish to buy.

As you would expect, the ruling split the court along ideological lines. Chief Justice John Roberts, Justice Anthony Kennedy, Justice Antonin Scalia, Justice Clarence Thomas, and Justice Samuel Alito represented the majority.  Justice John Paul Stevens, Justice Ruth Bader Ginsburg, Justice Stephen Breyer, and Justice David Souter represented the dissenting minority.  This is yet another proud heritage of an administration that consistently put business interests ahead of those of our nation’s citizens.

European Union Investigates HD Disc Format War Tactics

And speaking of legal matters, the EU has decided to consider whether exclusivity agreements between HD Disc format organizations and motion picture studios represent unfair competitive practices.  The implication is that it might be considered an antitrust matter.  As you know, Universal and Weinstein are exclusive to HD DVD.  And Sony, Lionsgate, Fox, MGM (distributed by Fox), and Buena Vista are exclusive to Blu-ray Discs.  Warner, Paramount, Magnolia, and BBC are releasing in both formats. 

Most interesting are the reports that it’s the HD DVD camp that’s lobbying the EU to initiate the probe.  Since the introduction of the PS3 in Europe, BD has come to dominate the market.  Is the HD DVD lobbying effort an indication of desperation as BD gains a substantial lead in disc sales?  The timing is telling.  This holiday season, with its orgasm of spending, could decide the format war.

A ruling that such exclusivity agreements are anticompetitive could have bizarre results . . . in Europe.  The studios could be forced to support both formats.  This will likely drive both Fox and Buena Vista out of the European market since those are the studios most concerned with illegal copying.  Fox in particular withdrew due to the encryption breach and now we’re waiting to see if the layering of BD+ will coax the studio back into the market.  Things are complicated enough without a governing body sticking its bureaucracy into the format war.  The market should decide.  The EU should stand down.

At this point you may be thinking, hey Dan, didn’t you just bitch and moan about the Supreme Court striking down antitrust behavior restriction and now you’re criticizing the EU for investigating potential unfair competitive behavior?  In a word, yes.  The Supreme Court decision will result in higher prices; that will hurt consumers.  If the EU decides to force all studios to support both formats, Fox and perhaps Buena Vista, studios concerned about illegal copying and enthusiastic about BD+, may back away from HD on disc (at least in Europe) and, once again, the consumer gets hurt.  My concerns are: for the consumer; the availability of the films we all crave in a format that is as affordable as possible and that conveys the filmmakers’ vision most closely; and, the avoidance of any impediment that would get in the way of resolving the format war as quickly as possible.

More Blu-ray Disc Players On The Way

Sharp Electronics has announced the BD-HP20S player, to be marketed this fall.  Expect 1080p output capability at both 60 Hz and 24 Hz, audio support for lossless Dolby TrueHD, internal audio decoding, 5.1 analog audio outputs, and HDMI 1.3, which I hope will be able to pass advanced CODEC digital bit streams.  Pricing will be announced closer to release date.

Samsung is bringing its 3rd generation BD player to market: the BD-P1400.  It is expected to support HDMI 1.3, and Dolby TrueHD and DTS-HD with internal decoding.  Once again, I hope the advanced audio CODEC bit streams are available over the HDMI port.  This player is also due in the fall and pricing is to be announced.

A potentially more interesting entry from Samsung is the BD-UP5000, also due in the fall.  This is a dual-format player, but it’s no compromise.  It will support both BD-J and HDi interactive features fully.  You’ll recall that the LG Electronics dual-format player does not fully support HDi.  The Samsung also is expected to provide 1080p at either 60 Hz or 24 Hz.  As with the other players due in the fall, pricing is not yet available.

Amazon and Microsoft Partner To Increase HD Content Availability

Video Business has reported that Amazon and HD DVD proponent Microsoft have agreed to offer independent filmmakers’ works in high definition with free manufacturing through Amazon’s DVD-on-demand service CustomFlix.  A&M will offer no-cost authoring and setup services for up to a thousand independent films.  The HD DVDs will be compressed with the Microsoft VC-1 video CODEC and will feature Microsoft’s HDi interactive supplements.  (Any wonder Microsoft supports HD DVD?)

Once again, the timing is telling.  This comes shortly after Blockbuster announced it would expand its brick and mortar HD disc rental offerings exclusively with Blu-ray Discs.  Interestingly, Amazon spokesman Sean Sundwall explained that the deal is not exclusive to HD DVD and that the same arrangement could be offered to the BD camp if the opportunity presented itself.  He continued, “This is all about providing increased selection.  We don’t care about format.”  Hmmm.

Total HD Delayed

Warner Home Video announced that the first Total HD discs won’t be released until 2008.  What may we make of that move?  Perhaps Warner wants to see if this holiday season does, in fact, decide the format war.  After all, why bother with capital investments for a disc that supports both HD DVD and Blu-ray Disc (on opposite sides) if only one format survives the holidays? 

But even assuming that the format war won’t be resolved for years to come, the reality is that in the long run, it will be more costly for consumers to purchase many dual format discs than a purchase of a dual format player only one-time.  Furthermore, it’s unlikely that studios concerned with encryption security will allow their content to be offered in the HD DVD format.  As I mentioned, Fox is most likely waiting to see how BD+ is going to work out.  I suspect that Fox would consider HD DVD a step back.  So Total HD becomes a means to reduce stocking issues for those retailers selling content from Warner and Paramount.  It’s not a noble solution to resolve the format war.

Blu-ray Disc Marketing Moves

The Blu-ray Disc Association has announced an inducement for Blu-ray Disc player buyers.  Purchase a Blu-ray player including the PS3 between July 1st and September 30th and you’ll be eligible to receive five Blu-ray movies.  And since some manufacturers are running their own inducements (like Panasonic’s offer to give five Blu-ray Disc movies to purchasers of the DMP-BD10A player), some consumers could find themselves with an instant little library of up to ten discs.

There are twenty-one titles from which to chose, including: Babel, Black Rain, Blazing Saddles, Chicken Little, The Corpse Bride, The Devil's Rejects, The Guardian, Hart's War, Invincible, The Italian Job, Kiss of the Dragon, The Last Waltz, The Omen (remake), Pearl Harbor, The Phantom of the Opera, Resident Evil: Apocalypse, Species, Stealth, Stir of Echoes, The Transporter 2, and Underworld: Evolution.

As I previously reported, Sony introduced its BDP-S300 Blu-ray Disc player with an SRP $100 less than expected.  The $499 player currently has a street price of about $411.  Well, the ever aggressive Sony also has reduced the SRP of its Blu-ray Disc capable 60 GB PS3 from $599 to $499.  The $599 price will be transferred to a new PS3 model that offers an 80 GB hard drive; it should be available in August. 

Perhaps due to the price point, PS3 sales have lagged behind the other two newly introduced game systems.  Sony's American PS3 division spokesperson Dave Karraker explained that, "We need to increase our installed base.  That's no secret to anybody."  Sony Computer Entertainment of America President/CEO Jack Tretton further explained that reduced component prices also facilitated the reduction.  "Since the introduction of the original PlayStation 3 60 gigabyte model back in November of last year, the company has been able to reach some tremendous production milestones and ultimately has been able to reduce the cost of the PlayStation 3.  We want to pass those cost savings on to consumers, and as a result, we have been able to lower the price."

This also achieves parity between the least expensive Sony desktop BD player and the least expensive BD-capable PS3.  Sales of both products can only help Blu-ray Disc’s building dominance in the marketplace.

Is Fox Returning to the Blu-ray Disc Fold?

It’s been reported that Fox has announced plans to release in the fall twenty-two Blu-ray Disc titles in France.  Google’s translation of the French website’s announcement pages at DVDRAMA leaves much to be desired, but as far as I can tell, September 26th releases should include: Day After Tomorrow, Independence Day, and Platoon.  October 24th releases are expected to be: Predator, Commando, Robocop, Arthur and the Invisibles, The Hills Have Eyes, Ice Age, and Tristan & Isolde.

There are also a number of announcements for films that have already been released on BD in the States, so I won’t waste your time with those.  The important thing is that Fox seems to be returning to high definition.  It’s only a matter of time before those titles and others are announced for us.

Addendum:  A new website intended to promote Blu-ray Disc and supported by Sony Pictures, Twentieth Century Fox, and Walt Disney Studios, has published a report that contradicts DVDRAMA.  A Fox executive denies the site’s accuracy, stating that Fox has made no release announcement in Europe, Asia, and the U.S. since the last BD released in April.  Note that the executive didn’t deny release plans; the executive simply stated that Fox had not made any announcements.  And a writer in Tokyo contradicted the executive by noting an announcement of a Fox title for September 7th in Japan.  Fox obfuscation?  A carefully worded denial to hide release plans until an official announcement?  We have no choice but to be patient.  As I wrote previously, I still believe Fox will watch hackers’ attempts to defeat BD+ before jumping back in.

HD DVD Marketing Moves

Toshiba was so pleased at the jump in HD DVD player sales when it offered a limited time instant rebate of $100, that it decided to make the price reductions permanent.  This sets the bar at only $299 (SRP) for an entry level high definition disc player.  That SRP applies to Toshiba’s HD-A2; the HD-A20 will carry an SRP of $399 and the top-of-the-line HD-XA2 will remain at $799.

Toshiba sold 50% as many players during the rebate offer than it had in all the months leading up to the $100 instant reduction: one hundred thousand during the first year and fifty thousand during the offer.  Impressive.  But will price be the format war’s deciding factor?  I think not.  Content will reign.  And for those suitably equipped, the superior quality of BD will also have an effect.  Remember: more space and higher bit rate = lower compression = higher quality.

But to bring more intriguing interactivity to HD DVD, Toshiba has issued firmware updates that facilitate accessing supplements available exclusively from the Web.  Examples include the ability to re-edit the soon to be released 300 by rearranging the order of scenes.  Viewers will be invited to upload their cuts for other HD DVD owners to enjoy (I suspect that metadata describing the edit rather than the video content will be uploaded and shared).  The July 3rd release of Blood Diamond is the first HD DVD to offer such features; viewers will have the opportunity to participate in an online poll.

Toshiba has made updates available for models HD-XA2, HD-A20, HD-A2, HD-A2W, and HD-D2: firmware level 2.0.  Similarly, firmware level 2.3 is available for models HD-XA1, HD-A1, HD-D1.  Clearly, an Internet connection will be required to access the Web-exclusive content. 

The Answer To The Question No One Asked

I hope you’d agree that in the midst of a format war, we need a third competing HD format about as much as a third nostril.  Alas, the proponents of HD Versatile Multilayer Disc seem to disagree.  The system is expected to be what the early proponents of a red laser solution campaigned to bring to the American market instead of a blue laser solution.  The disc will be physically identical to a DVD, presumably use the same optics, but apply advanced CODECs to achieve the compression required to fit HD content on a disc capable of storing less than 10 GB.

The format's proponents are extrapolating Toshiba’s position that price is the deciding factor.  HD VMD production costs are about $1 per disc, ever so slightly higher than conventional DVDs.  Blu-ray Discs are claimed to be $3.40 per disc, and HD DVDs are claimed to be $2.50 per disc.  And since production costs may be marked up by as much as 400% by the time a disc passes through the hands of studios, distributors, and retailers, that would seem to account for the pricing we see in the marketplace.

But, please, HD on a disc with less than 10 GB of storage space?  Those of you who receive HD from cable, satellite, and over the air and have compared quality with BD and HD DVD know full well that physical media is far superior in quality.  Compared to the two formats already battling it out in the marketplace, HD VMD cannot deliver comparable quality.  This is a great step backward, and I can only hope that the studios continue to ignore this intrusion.

Parting Thoughts

The July 2nd print edition of U.S. News & World Report declared Blu-ray Disc the winner of the format war.  The article cited all the statistics I and others have reported about player and disc sales, studio support, and the Blockbuster decision.  Blu-ray Disc continues to outsell HD DVD by 2:1; it’ll be interesting to see how the two camps’ latest marketing moves affect those numbers. 

As I review more and more HD discs, I think I’ve accumulated a sufficiently large sample of data points from both formats.  It’s very clear to me that BD provides a better viewing experience than HD DVD.  The image quality is simply better, sharper, and more film-like.  (This is not apparent when studios use the same transfer for both formats.)  Audio tends to be a non-issue since both formats support lossless advanced audio CODECs (although the uncompressed PCM tracks on Sony and Buena Vista BDs are truly impressive).  So from a selfish craving for the highest possible quality, I must admit that I hope Blu-ray Disc triumphs. 

One last thought . . . Several readers wrote to ask why I wait to report format war items in one long column instead of reporting them as they occur.  The answer is that I prefer to give you a view of the larger picture.  Many stories are interrelated, some represent reactions to others.  The war moves in a logical progression, one that can best be reported with more interconnected news items that demonstrate patterns.  It helps me assess the flow of market forces and it makes you better informed when the dots are connected.

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