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The Latest News From The Playing Field

Jun 27th, 2007
Blu-ray scores, HD DVD loses ground

The Rental Score

After experimenting with renting both Blu-ray Disc and HD DVD in 250 stores, rental heavyweight Blockbuster determined that 70% of HD disc rentals were on Blu-Ray Disc.  So when the huge chain expands its HD disc offerings to 1,450 stores, only Blu-ray Discs will be offered.  The original stores stocking HD DVDs are expected to continue to rent them; what is not clear is whether Blockbuster will invest in more HD DVD titles going forward.

I have no statistics to quantify the potential impact on the format war, but this can only hurt HD DVD and help Blu-ray Disc.  With BD player prices falling fast, consumers who were on the fence, concerned about making an investment in the wrong format, might now interpret the Blockbuster move as definitive assurance that a BD player purchase is safe.

Matthew Smith, senior vice president of merchandising at Blockbuster, justified the decision succinctly, “The consumers are sending us a message. I can't ignore what I'm seeing.”  He added that the greater number of available BDs and the lopsided studio support also affected the company’s decision.

As you know Universal Studios Home Entertainment and The Weinstein Company Home Entertainment are the only content providers to support HD DVD exclusively.  But Warner Home Video and Paramount Pictures Home Entertainment continue to release discs in both formats, so I’m not sure one can characterize HD DVD offerings as scant.  And exclusive BD supporter 20th Century Fox Home Entertainment has backed away, likely due to the encryption breach.  (That may change as BD+ is deployed; more about that below.)  That leaves Buena Vista Home Entertainment as the only content provider exclusively supporting Blu-ray Disc with ongoing releases. 

To date, there have been 224 HD DVD releases (62 scheduled for a total of 286) and 259 BD releases (42 scheduled for a total of 301).  BD has an edge, but I’d hardly call it lopsided.  So I was not completely convinced when Smith said, “When you walk into a store and see all this product available in Blu-ray and there is less available on HD DVD, I think the consumer gets that.”  Less?  Yes.  Significantly less?  No.

However, what cannot be denied is the overwhelming lead Blu-ray Disc enjoys in sales.  The current ratios favor BD to HD DVD by 5:1 for players in the installed base and, for 2007, a 2:1 advantage in disc sales.  According to research performed by the Digital Entertainment Group, there are 1.5-million Blu-ray players in American households, of which 100,000 are set top players and 1.4 million are PS3s. (That will shift now that less expensive BD players are coming to market.)  HD DVD players number 300,000, roughly split equally between set top players and peripheral drives on Xbox 360s. The DEG also determined that $55 million has been spent on HD Discs cumulatively to date; $35 million was spent on BDs and $20 million on HD DVDs.

What Smith did not address was Blockbuster’s potential impact on the format war.  If other retailers follow Blockbuster’s lead, HD DVD could find itself at an even more competitive disadvantage.

The HD DVD Camp Reacts

Executive Vice President of High Definition Strategic Marketing for Universal Studios and Co-president of the HD DVD Promotional Group Ken Graffeo was not impressed by Blockbuster’s decision.  He stated that the rental market amounts to less than one percent of HD DVD revenue.  That would have been a more interesting defense if he had stated the percentage of units sold to the rental community; after all, a single disc can be rented to dozens of not hundreds of consumers.  He also neglected to acknowledge the potential psychological impact on consumers: the possible impression that a BD player investment is safer than an HD DVD player investment.

Graffeo cited current set top player sales statistics, indicating that HD DVD players are outselling BD players by a factor of 3:1.  This is clearly a result of Toshiba’s very aggressive instant rebate offer that pushed its player sales into three of the top ten sales spots at Amazon.  But as I previously reported, Sony recently introduced a BD player with an SRP of $499.  With a street price about $100 lower, will Toshiba’s current price advantage be enough to overcome any consumer doubts about HD DVD provoked by the Blockbuster decision?

He acknowledged that over a million PS3s have been sold in the U.S., but claims that only about 30% are connected to an HD-ready display.  That may explain his other claim that HD DVD has a much better attach rate: four HD DVDs per player compared to only one BD per player when PS3s are included.  Again, that’s not convincing.  BDs continue to outsell HD DVDs by a factor of about 2:1.

Graffeo expressed confidence that HD DVD will win the format war because its players will achieve the tipping point of a critically low price point before BD does.  (Many mainstream consumers view DVD players as commodities, expecting street prices of anywhere between $75 and $200.)  He may be right.  HD DVD player prices are expected to drop further when expected Chinese manufactured HD DVD players hit the market, likely before the end of the year.

Blu-ray Disc Picks Up Two More Studios

Starz Home Entertainment, formerly known as Anchor Bay Home Entertainment, formally announced that it’s embracing Blu-ray Disc exclusively.  Its first title is expected to be released before the end of the year: the first season of the popular Masters of Horror.  More titles are being prepared for high definition release, but won’t be announced for months.

An even smaller victory is Exoptron Limited; it, too, has announced exclusive support for Blu-ray Disc.  Its first high definition offerings will be three documentaries: The Valley of Roses; Bacchanals in Modern Times; and Spirulina the Astronauts Nutrition.  Those will be released before the end of the year.  A fourth title was announced for 1Q08: Olive Oil & Med Diet.  Admittedly, these are hardly entries that will determine the resolution of the format war, but it is an indication of insider thinking by people who have access to more information than you or I.

A Format Agnostic Boost For HD On Disc

It’s been years since I gave any thought to Columbia House, the video club that gleefully delivers video to your door.  It got its start with prerecorded VHS videocassettes and quickly branched into DVD when that market developed.  Now Columbia House has indicated that it will add both HD DVDs and Blu-ray Discs to its product offerings.  This is a great indicator of industry perceptions of the inevitable mainstream acceptance of HD discs and another psychological boost for hesitant consumers.  Columbia House is the oldest and largest such club in the world, with an estimated fourteen million members; its participation can only help HD disc market acceptance.

What Has Adult Entertainment Done For The Format War Lately?

I previously wrote about Digital Playground’s foray into HD disc.  One title hardly earned the distinction of high definition, but another was vastly improved.  Now, Vivid Entertainment has released its first high definition title, Debbie Does Dallas . . .Again.  Vivid is being format agnostic, releasing the title on both HD DVD and Blu-ray Disc.  I was sent an HD DVD screener and I must say that the VC-1 transfer looks quite impressive (I assume that, like Warner, the transfer is the same on each format).  Vivid has done it right and this transfer looks as good as or better than many HD discs I’ve reviewed.  Highly detailed with superb finely grained textures and great small object detail, it becomes a more intimate experience than watching in a lower resolution format.  Add a welcome lack of edge halos, natural flesh tones for the copious flesh, and a reasonable video dynamic range, and you have a transfer that draws the viewer into the onscreen action.  The only downside I spotted was the presence of what appears to be electronic noise in some low-light scenes and some granularity in the compression work.  Neither is frequent and neither is a distraction.  If this were a formal review, I’d have to rate the video at 8.5 on our scale of zero to ten.

There are very few adult entertainment (AE) titles currently available; they can be counted on the fingers of one hand.  My impression is that these initial HD releases are experiments, testing market acceptance.  I’m certain that the AE studios are aware of the size of the installed base and the limited potential for sales.  But these discs still represent the means to assess the percentage of HD disc player owners interested in adult material. 

I still feel that AE has the potential for influencing the outcome of the format war, but the high price of such content (higher than mainstream film) may discourage sales.  And since the need for novelty stimulates AE fans to become bored with each title and move on, those high prices may discourage serial purchases, diminishing the influence of AE on the format war.

Blu-ray Disc Expands Audio Options

Not too long after I updated my Sony BDP-S1 Blu-ray Disc player with firmware level 1.60 to cope with Buena Vista’s ambitious BD-Java rich Pirates of the Caribbean discs, I received another disc in the mail.  Firmware version 2 is reported, among other things, to add decoding support for the lossless Dolby TrueHD advanced audio CODEC.  But wait a minute . . . I couldn’t recall a Blu-ray Disc title that offered Dolby TrueHD.  But then I discovered that Sony Pictures Home Entertainment will market on August 21st the BD release of Immortal Beloved, which will indeed have a Dolby TrueHD audio track.  And then I noticed that an on-hand BD screener for Ghost Rider also has a Dolby TrueHD track.  (It’ll be interesting to compare the lossless compressed TrueHD track with the lossless uncompressed PCM track.) 

The new firmware also provides support for a new form of user-controlled subtitles; the text position can be adjusted onscreen.  So for films with aspect ratios higher than 1.85:1, the viewer will be able to put the subtitles in the letterbox bar at the bottom of the screen instead of having them overlap the images. 

I’m pleased that Sony put the proverbial horse before the cart.  Too often since the advent of HD on disc, players could not fully exploit some of the features authored on the disc, and the player manufacturers had to play catch-up by issuing firmware releases.  At least Sony got the order right this time; perhaps this is an advantage of being a player manufacturer and a content provider.  Such firmware upgrades are an indication of the rapid development of Blu-ray feature-set software standards and another example of the delightfully convenient ability to upgrade both formats’ player functionalities at home.

And Speaking Of Standards: BD+ Has Been Finalized

When those who felt it perfectly justifiable to steal high definition disc content broke AACS encryption, 20th Century Fox Home Entertainment retreated from Blu-ray Disc, taking its MGM properties with it.  Fox was the HD disc holdout that insisted on a BD+ layer on top of AACS to protect its intellectual property from illegal copying.  But that extra layer’s standards weren’t ready when BD first came to market and . . . you know the rest.

It’s now been announced that the initial specification for BD+ has been finalized and the technology is now available for licensing to developers.  We can expect that BDs will come to market relatively soon with the added protections, undoubtedly requiring more firmware updates for existing players.  BD+ represents a virtual machine that can be programmed with title-specific security mechanisms that can be so unique that they may only apply to one film.  Additionally, there is BD-ROM Mark technology, which encrypts the keys.  But the most interesting concept is that content can carry with it the means to renew revoked devices by updating protection mechanisms.  The studios hope that the combination of these techniques will return control of content to the content provider. 

Now, let me make myself perfectly clear:

1.  I’m not a fan of any copy protection methodology that gets in the way of enjoying a disc’s content.

2.  I recognize but cannot comment on the apparent contradiction between court-recognized fair use rights and the Digital Millennium Copyright Act that makes breaking digital encryption a crime.  That’s a matter for the courts.  I will mention that Managed Copy, the standards for which are running late due to the hacks, was intended to solve that contradiction.

3.  But, if the studios, in the full knowledge that this may be the last time they can sell their back catalog titles to consumers, insist on serious copy protection as a condition to releasing films on HD, it’s a price we should be willing to pay as long as it does not interfere with the normal playing of content on legal devices.

4.  I firmly believe that unless the studios are satisfied that they have a secure format on which to release content, they will withdraw to wait for a new delivery mechanism or format for high definition.  We will all lose.

That said, at first I found optical storage analyst Wesley Novack’s outlook concerning the impact of BD+ availability overly optimistic, “BD+ will be the proverbial thorn in the side of Blu-ray movie rippers. With AACS and BD+ switching up encryption keys and methods routinely (BD+), it might become too much work to determine how to rip every Blu-ray Disc title out there.”

Alas, dedicated hackers seem to take so much pleasure in defeating each system that’s fielded, I have no doubt that there will be a concerted effort to show the studios that they don’t stand a chance against the onslaught of the irresponsible.  Their attitude will undoubtedly be, “Damn the consequences; full hack ahead.”

And then Novack added a more realistic and somber note, “Only time will tell and there is no guarantee that BD+ will be effective against the persistence and tenacity of the talented online community.”

There remains one possibility that could be the saving grace.  The hackers will succeed, but honest consumers will so greatly outnumber those who are dishonest that HD discs will become a great financial success and another windfall for the studios.  The studios will swallow their pride, give up the small additional profit losses to the thieves, come to terms with the possibility that hackers probably wouldn’t buy the HD products anyway, and simply issue content.  That’s essentially what happened with DVD.  Maybe we’ll get lucky.

When Will Fox Return?

When the BD+ standard was announced, some websites reported that MGM, distributed by Fox, was going to resume releasing content on Blu-ray Disc.  That is not yet the case.  No official announcement from Fox for any additional Blu-ray Discs has been released.  I suspect that Fox will likely play a wait-and-see game, watching the hacker forums for evidence that the extra layers of protection are sufficiently robust before it releases any more films on Blu-ray Disc.

Panasonic COO Coos

In a recent interview, Panasonic executive VP and Chief Operations Officer Joseph Taylor bluntly said that the format war is over and Blu-Ray Disc has won.  He’s reported to have said, “I'm giving a very politically incorrect answer. I think the battle is over. I think Blu-ray has won. [There are two] determining factor[s].  Who did the content providers select? At the moment, overwhelmingly, the content providers have selected Blu-ray. What are consumers buying? Since the beginning of the year content [sales have been] almost two to one for Blu-ray. There may be some noise for a little while, but in the end I think Blu-ray will be the technology that wins the battle.”

Mighty strong words from a prominent Blu-ray Disc advocate.

But Are There Structural Flaws In Blu-Ray Discs?

Posters on the AVS Forum have reported that some very specific BD titles seem to have been afflicted with what can only be described as looking like little colonies of bacteria growing in a Petrie dish.  Photos have been published showing a smattering of small spots, sometimes dark gray and sometimes cinnamon brown, contaminating the data side of a very few titles including The Prestige and Stranger Than Fiction.  The problem renders the disc unplayable.  These seem to be isolated incidents, a mere handful of reports among over a million BDs sold (none of my over one hundred BDs, including those two titles, are similarly afflicted).  It is most likely a manufacturing flaw rather than an inherent design or structural weakness. 

As I would expect, both studios are standing behind their products.  From BVHE: “We encourage customers that are experiencing any kind of problem with The Prestige Blu-ray Disc to call our Consumer Relations hotline at 800/477-2811. It is important to conduct forensic examinations of the affected discs in order to rule out any form of external tampering. Our customers are first and foremost and Buena Vista Home Entertainment always strives to meet the highest standards for the consumer.”  And a Sony insider posted a personal offer to volunteer as a liaison to get defective discs replaced.  I’d expect a cold call to Sony’s consumer support, which I believe is 800-860-2878, would yield equally willing exchanges. Another poster wrote to say that Amazon exchanged his defective disc with no questions asked.

It is extremely unlikely that this is a systemic problem that puts anyone’s Blu-ray Disc collection at risk.

DVD Sales Down Due To HD Discs?

There have been published reports that some analysts are speculating that the slowly growing success of HD discs is responsible for diminished DVD releases and flat sales.  A quick analysis of some statistics reveals that the DVD format is slowing down noticeably. 

Compare sales year-to-date with the same period last year and you discover that the number of DVD releases has dropped by 15% (4,851 new DVD releases in 2007 versus 5,708 for the same period in 2006).  New theatrical releases are down by 10.4% and TV-on-DVD sets are down by 10.7%.  Only back catalog theatrical releases have actually gone up, but only by 2.9%. 

When one considers that the DVD market is measured in the billions of dollars, and that total aggregate sales of both HD formats to date is about $55 million, it becomes unlikely that HD discs can be held responsible . . . yet.  The last prediction I can recall that cited HD disc sales reaching parity with DVD sales was in 2012.  So it is inevitable that HD discs will do to DVD what DVD did to VHS: render obsolete.  But the current sales numbers don’t support the analysts’ claims for causality.  However, it could be the psychological impact of an emerging new technology.  Perhaps some consumers are putting off all disc purchases until the format war resolves and they can satisfy a pent up demand with an orgy of HD disc purchase when the winner immerges.

I’d like to think that HD discs are making an impact, but I don’t believe they are responsible for the drop-off in DVD releases.  There have been over 75,000 DVDs brought to market.  With the exception of the newest theatrical releases and box sets of Have Gun Will Travel beyond season three, my DVD wish list is satiated.  I suspect the studios simply are running out of content to release in standard definition.  And I suspect that the DVD market is so saturated (there have been over 126 million DVD players sold since March ’97), that few new owners are being added to the installed base that would be inclined to start a new DVD collection.

Parting Thoughts

The HD disc market grew faster in its first year than the DVD market did in its first year in’97-’98.  But the format war, higher perceived prices, and lack of consumer education concerning things hi-def still seem to be impediments.  Even so, widescreen HD-ready display sales are very strong, analog broadcasting will go dark in the States within two years, and in a recent market analysis report, it was estimated that by 2010 within the United States and Europe there will be 187 million households with HD-ready displays and televisions.  Will we really have to wait for 2012 for HD disc sales to achieve parity with DVD?  I don’t think so.