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Latest HD Disc Market Report

Jun 13th, 2007
Move and countermove

The studio war of words continues as the primary proponents of the two formats up the ante with player purchase incentives. 

Disney’s Take

During a recent quarterly analyst call, CEO Robert Iger was vocal in The Walt Disney Company’s support of Blu-ray Disc. 

    “We made our bed with Blu-ray because we believed more in that format for a variety of reasons; some technical in nature, some due to the fact that it simply had broader support from a variety of industries, notably the motion picture studios but also what I’ll call the consumer electronics and the tech industry.
    “What we are seeing lately is that sales of Blu-ray discs are outpacing HD discs by at least two to one. As more quality Blu-ray product comes on the market, which is going to happen, notably with Pirates on May 22, we actually believe that the difference or the advantage of Blu-ray is only going to widen.
    “What we are also seeing is that the adoption of the platform right now is being held back a bit by a perception among consumers, really, that there is a format war; and that the hardware or the players are too expensive. We see the players coming down in price nicely, particularly by the Christmas season. We also believe that if Blu-ray continues to outpace HD DVD the retailers are ultimately going to weigh in, because they only have a limited amount of shelf space, and they are going to have to choose a format in order to manage their own shelf space. Once that happens, the advantage is going to go even more in Blu-ray’s direction.
    “I think the single greatest thing we can do right now is to not waffle, but to be very, very blunt about it, to continue our support of Blu-ray because we sense a real advantage. The best thing that could happen is for the format war to end, which will be very pro-consumer, particularly as hardware comes down.
    “The other thing I want to note is, if you look across the globe, the only place there is really a format war is in the United States. In other markets where next-gen DVD is starting to penetrate, Blu-ray is winning, and substantially; so much so there isn’t even a perceived format war.
    “So I think we made the right decision, the trends we are seeing seem to validate the decision. We think long-term, this is going to be a nice growth area for the company, because as you know sell-through DVD is a big business for the Walt Disney Company, even though we believe in things like VOD and the rental model. People want to own a Disney DVD, particularly in the next-generation format."

Universal’s Take

No less confident is Universal Studios Home Entertainment executive vice president of HD strategic marketing Ken Graffeo.  In an interview published by The Philadelphia Daily News, he expressed the reasoning behind Universal’s unflagging loyalty to HD DVD.  Only Universal and The Weinstein Company Home Entertainment remain exclusive to HD DVD.

Q: I imagine the pressure on you is pretty intense when you talk with your studio peers. Having two rival formats keeps most consumers on the sidelines waiting for a winner. How do you respond to that?

A: I'd argue that this format war is actually beneficial to the consumer. A little over a year ago, the least expensive HD DVD player was $799. Now, with Toshiba's current rebate promotion (good through June 16), you can get an HD DVD player for as little as $299. On the Blu-Ray side, the players started at $1,000 to $1,800 at the end of [2006] and this summer will be down to $599 with new models from Sony [$499 actually - Ed.] and Panasonic. It's the format war that's driving pricing down at such a dramatic, accelerated rate.

Q: Why did Universal opt for HD DVD?

A: Several years ago, we looked at the technology and decided that this format would offer the better set of mandatory specifications. From day one, every HD DVD player made has to have an Ethernet port for online connectivity. And every player had software to support unique, interactive viewing experiences either programmed onto a disc or available online. We're exploiting this on many Universal releases. In Blu-Ray, the interactive specs are still just an option. The only Blu-Ray player now sold with an Ethernet port is the PlayStation 3. A lot of their players can't even support the interactive BD-Java software that's running the two new (Blu-Ray-exclusive) Pirates of the Caribbean titles. [But quickly corrected with firmware updates - Ed.]  In fact, the Ethernet and Java specs for Blu-Ray won't be fully firmed up until Oct. 31.  That's why Warner Bros. is putting out a more sophisticated, online-connected version of Blood Diamond on HD DVD, and also why they've put out Batman Begins and the new Matrix box sets first on HD DVD.

Q: How about the manufacturing costs?

A: Also very important - and lower for HD DVD discs and players. When you can get below $300 for hardware, you open up the mass market. Now people are willing to jump in and buy a player. Even if the other format were to eventually win, there's no risk. Because that HD DVD player you buy will still play your regular DVDs and, by upconverting, will actually make the discs look better. I can't imagine Blu-Ray getting even close to a $300 player this year. I expect their lead dog, PlayStation 3, to drop $100, but that's it.

Q: Sales figures for Blu-Ray movie discs are significantly higher this year than for HD DVD. How do you counter the argument that the tide has turned in Blu-Ray's favor?

A: We didn't have many hot releases in the first quarter, or many releases at all. They had some real biggies, like Casino Royale. The fourth quarter will be telling. Our releases will be stronger, and we're looking for a big attach rate [that's disc sales per player] when people jump for an inexpensive HD DVD machine to show off their new high-def TV set. To that end, we're doing a lot to educate the retailers and the consumers. You know, there are now HD sets in probably 25 million households. But more than half of those owners still believe, incorrectly, that anything they plug in - including basic cable and standard-definition DVD - is going to be in high definition on those sets. We've got to show them what they're missing.

The PS3 Impact

The introduction of the PS3 in Europe repeated the experience we had in the States.  When the console was introduced here in November 2006, Blu-ray Disc sales surged.  Similarly, after the PS3 was introduced in Western Europe on March 23rd, Blu-ray Discs accounted for almost 87% of all HD disc sales according to data provided by the Blu-ray Disc Association.  Recent European sales figures demonstrate a 3:1 Blu-ray Disc to HD DVD sales ratio. 

Blu-ray Disc is also outselling HD DVD domestically.  According to the most recent Nielsen VideoScan point-of-sales statistics for June 13th, Blu-ray Disc dominates 67% of HD disc sales in 2007 - a ratio of 2:1 - and 59% of HD disc sales since inception - a ratio of 1.4:1. 

Sony faces a short-term downside; there’s a price to pay for its PS3 strategy.  It posted its biggest quarterly loss in four years - $563 million - attributed to the PS3 introduction.  But the consumer electronic division is doing exceptionally well; there is considerable overall sales growth.  Quarterly sales rose nearly 13 per cent to $16.8 billion.  Sony predicts that the current fiscal year through March 2008 will more than double its net profit to a record $2.7 billion.  Sony expects its sales during this fiscal year to grow six per cent to a record $73.2 billion.

Second Generation Blu-ray Disc Player Pricing Down

Perhaps encouraged by those expectations, when Sony introduced its second-generation Blu-ray Disc player, the BDP-S300, the player was not priced at the expected $599 level, but $100 lower.  The SRP of $499 makes the BDP-S300 less expensive than the PS3 as a Blu-ray Disc platform, and it even has an HDMI 1.3 output port.

Panasonic has also introduced its second-generation Blu-Ray Disc Player.  The DMP-BD10A was marketed at an expected SRP of $599.95.  It has 7.1 channel internal audio decoding, but I can’t confirm whether it offers HDMI 1.3.  I don’t know how long an introductory bonus will last, but Panasonic is bundling five Blu-ray Discs right in the box: Pirates of the Caribbean: Curse of the Black Pearl; Pirates of the Caribbean: Dead Man's Chest; Transporter; Fantastic Four; and Crash.

The most important indicator is that Blu-ray Disc player prices are dropping fast. 

HD DVD Gets Aggressive

Not to be outdone, Toshiba initiated an instant rebate offer that reduced the prices for its players to a remarkably low level.  The $100 rebate began on Sunday May 20th (sorry for the delay, but I’ve been away), and ends on June 16th.  During the last week, the rebate applies to its entire line.  The HD-A2 has a net SRP of $299, the HD-A20 $399, and the top of the line HD-XA2 $699.  And that’s without any discount you can negotiate with the retailer. 

The strategy seems to have worked.  As of this writing, all three Toshiba HD DVD players are in the top ten bestsellers list (DVD Players & Recorders category) at Amazon: #1 Toshiba HD-A2; #2 Toshiba HD-XA2; and, #4 Toshiba HD-A20.

The HD DVD Promotion Group and Toshiba have reported that as a result of the aggressive campaign, player sales increased five to ten times compared to previous sales history. 

And to further put HD DVD drives in the hands of consumers, Toshiba senior vice president Hisatsugu Nonaka has announced that beginning in 2008, every Toshiba laptop will come equipped with an HD DVD drive.  Since Toshiba is estimated to have sold 9.2 million laptops in 2006, this should prove to be a significant enhancement of the installed base of devices that will play the HD DVD format.    (Although the value of watching a film in high definition on a small computer screen and without a fine surround sound system seems a little silly to me.)

The Battle of the High Profile Releases

In a modest manipulation of the statistics, it was reported that the two Pirates of the Caribbean films on Blu-ray Disc outsold the two Matrix box sets on HD DVD by a factor of 3.4:1.  In fact, the two Pirates BDs made their way to the top two spots on the HD disc sales charts according to the Hollywood Reporter.

Some writers, pundits, and HD DVD owners objected to comparing the sum of the sales of two Pirates titles with the Matrix box sets.  That's completely justified.  It's fairer to compare a bundle of the two Pirates movies with the sum of the two box sets each containing the trilogy in high definition.  That reduces the sales ratio to 1.7:1. 

Absolute Numbers

Warner Home Video recently announced that The Departed exceeded one hundred thousand combined HD DVD and Blu-Ray Disc units sold (as opposed to shipped).  As of the end of May, The Matrix box sets sales were about fourteen thousand and the combined Pirates sales were about forty-seven thousand units.  Now, compared to DVD, these numbers are diminutive. 

Naysayers point to those sales and claim that it’s an indication of consumer apathy, that HD on disc is provoking a colossal yawn.  I suggest that HD on disc is doing quite well.  Allow me to take you back to 1997.  From the time DVD was introduced in March to the end of the year, only slightly more than 315,000 DVD players were sold during that ten-month period.  If we add the next four months of sales to compare with the current duration of the availability of HD disc players, that adds about 150,000 more for a total of about 465,000 players.  I suggest that such a small installed base generated modest individual title sales as well. 

It’s been almost fourteen months since Toshiba introduced it first generation HD DVD players and Samsung introduced its first Blu-ray Disc player.  It’s been only seven months since Sony introduced the PS3, and only five months since it introduced its first generation player.  (I consider the Sony introductions the real beginning of the Blu-ray Disc format entry into the marketplace.  The Samsung was initially sold with defective firmware and did not live up to expectations for the Blu-ray Disc format.  And BD disc releases ramped up considerably after Sony entered the market.)  HD on disc is still in its infancy.  Software standards are evolving.  Consider my experiences with the Pirates BDs, the fact that firmware update after firmware update has been issued (particularly from the HD DVD camp), and that neither Managed Copy nor BD+ have been deployed.

Final Thoughts

I’ve written before and I’ll write again that HD on disc is the absolute best thing to happen to home theater.  Ever.  For those who’ve written me to say that they couldn’t care less about HD DVD and Blu-ray Disc and they find our coverage of HD on disc excessive, I can only say that high definition media is the future of home theater.  It is the most effective technology for drawing the viewer deeper into the experience of film.  HD is the means to enjoy films as the filmmakers intended.  And once you’ve become accustomed to the detailed visuals and more accurate audio, going back to DVD is very hard indeed.