Death Knell for Blu-Ray?

August 25th, 2007 | Posted in It's All Geek to Me!

Remember the format war heating up between competing High Definition disk flavors HD-DVD and Blu-Ray? Back when I blogged about it things were just starting to get going, and as the crucial holiday season approaches the gloves are coming off. Blu-Ray had been enjoying the lead in disk sales at about 2 to 1 over HD-DVD, thanks in large part to the “PS3 effect” and stronger studio support with Fox, Sony, Disney and Lionsgate films being Blu-Ray exclusive versus only Universal being HD-DVD exclusive (other studios produce thier films in both formats). Blu-Ray supported have been crowing victory on AV tech forums and message boards for months.

Not so fast.

Never mind that it’s still way too early to call the fight, earlier this week a surprise announcement that Paramount and Dreamworks studios, who were previously neutral, were going to abandon Blu-Ray for exclusive HD-DVD distribution of their films. These will include “Transformers” and “Shrek the Third“, both expected to be humongous sellers this holiday season. This announcement rocked the AV world, sending Blu-Ray fanboys into the fetal position and HD-DVD fanboys smelling victory.

Not so fast.

The move, which included a reported $150 million incentive from HD-DVD supporters to the studios, is a major victory for HD-DVD and negates much of the advantage Blu-Ray had with having far more exclusive titles. Still, it’s far from a death blow. Thanks to the PS3, which is also a Blu-Ray movie player, Blu-Ray still has a 6 to 1 hardware install base advantage (there are 6 Blu-Ray players in homes for every one HD-DVD player), and exclusive deals with several studios including Disney, which is the key studio powerhouse in their corner. The PS3 is going to sell this holiday as well, increasing their installed base even more. Blu-Ray backers still scream about the higher disk capacity and bit-rate of their medium and studios are enamored of their higher security anti-piracy copyright protection. Blu-Ray isn’t going anywhere quite yet.

Blu-Ray backers cite HD-DVD’s technological inferiority in capacity and copyright protection as being backward thinking. They remind everyone the PS3 is a Blu Ray player, and it is already in millions of homes. It has the support of more studios. On paper Blu-Ray looks like the better technology and product. However that isn’t what drives the market or what decides the winner of format wars.

Still, things are looking up for HD-DVD. It might not have the technological specs that Blu-Ray has, but it has a lot of other things going for it and much of Blu-Ray’s advantages are nullified by circumstances. Blu-Ray has no competitive edge over HD-DVD in terms of picture quality, which is what people really care about. With the same encoding and compression, the pictures are equal. The other stuff is mainly for geeks to drool over, as a 3 hour movie fits completely on an HD-DVD disk and that is all the consumers care about. The PS3 has been a disappointment for studios who bought Sony’s sales pitch that it would sell like the PS2 did, and that would put a Blu-Ray movie player in 10 million homes practically overnight. Because of it’s enoromous price and lack of specific games, the PS3 hasn’t done nearly as well as expected in sales anyway, but a bigger issue is the small number of owners who actually use it as a Blu-Ray player. Consider this: even though thanks to the PS3 Blu-Ray enjoys a 6:1 advantage in players sold, their disks are only outselling HD-DVD’s by 2:1. Why? Obviously most of the PS3 owner’s out there use it for gaming and don’t buy or watch movies on it. Meanwhile every single HD-DVD player sold (including the XBOX 360 add-on drive) has only one purpose: to watch HD-DVD movies. Hence their buyers also buy movies. Blu-Ray also is not a ‘finished technology’, meaning players sold today do not have the final specs promised by the technology. They have no internet connectivity, do not support PIP, etc. HD-DVD had all features ready hardware-wise and has completed firmware specs even with their first players. Studios are starting to look cross-eyed at Sony, and that probably had as much to do with Paramount and Dreamworks decision as the money that changed hands did.

All that stuff is interesting, but it’s not technology that will decide the war, it’s economics. Geeks buy early but it’s Joe Six Packs that buy forever, and what matter to them is price and content. HD-DVD is the more mature product, and costs drop as products mature. HD-DVD players can be purchased today for as little as $240.00, whereas the cheapest Blu-Ray player is still well over $400.00. The electronics market is a 4th quarter market, and this holiday season will go a long way to deciding this war. When Joe Six Pack hits the Best Buy’s, Wal-Marts and Targets in November and HD-DVD players are priced at less than $200.00, they are going to fly off the shelves compared to BD players which will likely still be around $400.00. The hardware advantage BD enjoys thanks to the PS3 will shrink, and the attach rate (disk buying) of every stand alone HD-DVD player is gigantic compared to the PS3. I would not be surprised to see HD DVD take over software sales leads once all those HD DVD players are hooked up in January.

Some observers are lamenting that this Paramount/Dreamworks announcement might prolong the war and cause both formats to die. The cite the battle between Super Audio CD’s and DVD Audio, two competing “HD like” music formats that both lost and became small niche formats. That comparisons is ridiculous. This is not the SACD/DVD-A format war, which amounted to a fight for something the consumers didn’t care about and refused to buy regardless. Nobody but audiophiles cared about the superior sound because it meant all new equipment for what they perceived as a small or hard to notice improvement in the content. They were happy with CD quality, and the fact that the even lower quality of MP3’s have exploded in popularity shows that the consumer cares more about convenience and portability than ultra-sound quality. HD is a huge and noticeable improvement in picture quality, and the world has made a lifestyle out of sitting in front of the boob tube in their living rooms. HDTV is all the rage, and consumers are replacing their old TVs with HD units every day in growing numbers. Cable companies and satellite content providers are launching new satellites and racing to increase the HD content they provide.

One way or another, there will be an HD format for home video. Consumers want it and will buy it when it’s priced right. Maybe this war will last so long that it will be neither Blu Ray nor HD-DVD, but it will happen. Personally I’ve thought all along HD-DVD would win based on their mature product and more aggressive pricing. Studio support has been their achilles heel (that and a lack of aggressive marketing, since corrected), and the P/DW announcement helps there.

Now rumors swirl that Warner Brothers, right now a neutral studio, might go HD-DVD exclusive. IMO, If WB goes HD-DVD exclusive, there will be a lot of mainstream publicity over it. The public perception will be of rats deserting a sinking ship just as the holiday season is upon us. I think that will push people over the edge to HD-DVD this holiday season by a very large margin. All it would take after that is Disney going neutral… not exclusive but just neutral, before the Q4 2008, and Blu Ray might as well wave the white flag.

It’s not over yet, but HD-DVD is starting to deliver some solid body blows. I think another studio will either go from neutral to HD-DVD exclusive, or more likely one of the Blu-Ray studios will go neutral. If that happens Blu-Ray will find it hard to recover.

Comments

  1. SteveH says:

    Interesting info Tom as I have been thinking about moving to blu-ray in the future, what with Christams coming up, my daughter informed us only this morning that it is exactly 4 months to Christmas!

  2. Tom says:

    I would certainly not buy a Blu-Ray player right now for several reasons:

    1. They are too expensive, at over $400.00 for the cheapest one. Buying one at that price is gambling a lot of $$ on what might end up a useless piece of equiment.

    2. They still lack all the features they have promised: no internet interactivity, no picture in picture, etc. Buy one now and in a year, even if it wins the format war, it will not be able to take advantage of all the format eventually has to offer.

    3. The Paramont/Dreamworks deal will, if nothing else, prolong the war.

    I’d get a cheaper HD-DVD player, which are closing in at the $199.00 USD price, or just wait until the war is over. At $200.00, if Blu-Ray wins you are only out that much, and if HD-DVD wins you have a player that has all the features you’ll want for future releases.

  3. TomNguyen says:

    Tom, so funny you wrote this because I am kind of in the market looking for a Hi-Def player, and in fact was going through your earlier reviews of Blu-Ray vs. HD DVD last night. I think I will hold off a bit longer, although the price of HD DVD players are very tempting!

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