In the battle over next-gen DVDs, the winner may be decided more by price than by which format has the most backers
The war for dominance of the next-generation DVD market may be decided on price. Some analysts are betting that whichever format—HD DVD or Blu-ray—has the most players in stores for $500 or less in time for the holiday season will ultimately win over consumers. Everything else, including the movie studios that have already aligned with a particular format, will follow the money.
It may at first seem strange that the format competition would come down to price. High-definition discs are still relatively new, having made their debut, more or less, at the Consumer Electronics Show in January, 2006 (see BusinessWeek.com, 10/6/05, "Daggers Drawn over DVDs"). Typically, the early adopters who want the latest and greatest in home theater are more interested in having the best technology, even if it costs more.
The problem with HD DVD and Blu-ray is that there's no clear "best" format. The 2007 offerings in both camps let users make the most of their high-definition TV and audio systems. Both deliver a sharply detailed, color-rich picture and audio capable of making home theater sound like the real thing. Both have extra storage space for features such as multilanguage broadcasts, directors' cuts, and interactive menus (though Blu-ray has more storage capacity). And both have backing from major studios such as Warner Bros. (TWX). "There is not enough distinction between these two formats to justify that one should win," says Chris Crotty, senior consumer electronics analyst at iSuppli.
Price over Porn
And even though Blu-ray, championed by Sony (SNE), has more major movie studios in its camp, that alone is unlikely to give Blu-ray the edge, says James McQuivey, a principal analyst at Forrester Research (FORR). No major movie studio will ultimately refuse to support a format compatible with players being used by a significant slice of the potential audience, McQuivey says.
The same logic extends to HD DVD, which has won the support of the multibillion-dollar adult entertainment industry. There was early speculation that backing by adult film studios would decide the format wars, as arguably was the case in the battle between VHS and Betamax in the 1980s (see BusinessWeek.com, 1/22/07, "Next-Gen DVD's Porn Struggle"). However, with plenty of porn on the Internet available for download, the adult entertainment industry doesn't carry the weight it once did. "Now adult content is so widely available, I don't see it as important," says Steve Wilson, principal consumer electronics analyst at ABI Research.
Without a clear winner, consumers are confused. And confused consumers wait for clarity. If they don't get that, then they'll settle for cheap, says McQuivey. Buyers won't drop $800-plus on a 2007 model that may or may not support their favorite films in a few years. On the other hand, consumers might risk a few hundred dollars on the wrong format as long as they can play great movies for a year or two, says McQuivey. "Whoever gets below $500 might have a chance [to win] if it looks like the other guy isn't going to get there," says McQuivey. "People were waiting for a decision and, because there isn't a decision, they are waiting for price, so it doesn't matter if they make a bad decision."
Bypassing the DVD Route
Already, the HD DVD camp has players by Toshiba (TOSBF) in the $400 range. However, the 2007 HD DVD players—which are equipped with better processors and typically support significantly better audio formats—are priced several hundred dollars higher. And Blu-ray players are, on average, more expensive still. A notable exception is Sony's PlayStation 3, which supports Blu-ray discs and is available in the $400 range. Yet it has not sold enough to be a real deciding factor. Neither has the $200 HD DVD player that attaches to Microsoft's (MSFT) Xbox 360 player, says McQuivey.
Some consumers are bypassing the DVD route altogether, downloading high-definition videos right off the Internet, says McQuivey. While the number of people downloading high-definition content is still small, it could grow as computers become faster and devices such as Apple's (AAPL) TV set-top box make it easier for consumers to beam downloaded files to a TV. The warring formats "have spent so much time and effort fighting each other and they should be battling their common enemy, which is online delivery," Crotty says.
Instead of fighting at all, some companies such as LG Electronics (LGERF) and Warner Bros. are choosing to bridge the gap between the two formats, making players and discs, respectively, that will support both formats (see BusinessWeek.com, 3/28/07, "The Best of Both High-Def Worlds") . The hybrid approach may ultimately win—if the companies supporting it can develop compatible players and discs for a sufficiently low price. Ultimately, iSuppli's Crotty believes that the dual-format supporters will succeed in the price competition, developing players for a couple hundred more than the single-format players. He notes, "a lot of savvy people will be willing to spend a bit more to get something that is future-proof."
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