Analysts: Studios will gain from HD DVD's exit, but consumers' won't

Consumers would really have been better off right now with Toshiba's HD DVD format for high definition video than with Sony's Blu-ray approach, a principal analyst at ABI Research told BetaNews today.

Big film studios will gain from Toshiba's exit from the high definition (HD) disk market, although not as much as they'd like -- and consumers won't benefit at all, at least initially, according to analysts at market research firm ABI Research.

The format battle between Toshiba's HD DVD format and Sony's Blu-ray approach was causing major problems for 20th Century-Fox, Warner Bros., and other movie studios, noted ABI Principal Analyst Steve Wilson.

"Consumers spent [only] about $170 million on high-def DVD in 2007 and Fox, for one, is hoping that jumps to $10 billion in 2008," Wilson said, in a Q&A today with BetaNews.

Still, even industry standardization around Blu-ray won't boost sales as much as the movie studios want.

"They'll be lucky if they get to two-thirds [of the $10 billion]," the analyst remarked.

Wilson also suggested that consumers would really have been better off with the HD format than with Blu-ray.

"Storage capacity is the one area [where Blu-ray] can claim an advantage," he elaborated. But the outcome of the format war, which became official on Tuesday, "doesn't benefit anyone today and it comes at a cost. [Blu-ray] discs and players are both more expensive to manufacture. The DVD format was less expensive to implement and further along in its deployment. [Blu-ray] is twelve months behind in terms of its feature set."

To wrap a bit of historical perspective around the reactions of ABI and other observers, only a year or two ago, a lot of people would have been quite surprised by any notion that Blu-ray would prevail over HD. Back then, an independent market research group called Cymfony analyzed postings on message boards, blogs, and other Web pages to gauge the opinions of early adopters of blue-laser consoles, mainly among gamers and videophiles.

"Positive discussions about HD DVD are 46 percent higher than for Blu-ray, with over twice as many post authors being 'impressed with HD DVD' as 'impressed with Blu-ray,'" according to the results. (PDF available here) which covered the period between October 1 and November 23, 2006. Cymfony describes itself as "a market influence analytics company that sifts and interprets the millions of voices at the intersection of traditional and social media."

The Cymfony researchers further found that Sony and its Blu-ray format suffered from a "credibility gap" due to Sony's past failures with technologies such as Betamax and MiniDisc.

In addition, gamers at the time were found to have been unhappy that the PS3 console comes with a Blu-ray player. "Beyond the increased cost, they objected to Sony giving them no choice," according to the report. Ironically, based on their analysis of the Internet content studied, the Cymfony researchers posited "strong dislike for Blu-ray" as the the main reason why users have been hestitant to adopt HD drives.

"Mainstream media focus on the high cost of Blu-ray and the 'format war' as reasons consumers may be slow to embrace high definition video. But these aren't the biggest reasons currently discussed in social media," according to the study. "Post authors express a general dislike for Blu-ray, often based on doubt regarding Sony's credibility as a technology innovator and ability to succeed with a new platform."

In fairness, Blu-ray did suffer from some technical issues in 2006 that no longer exist. Most notably, studios have weaned themselves from MPEG-2 compression, which was often visibly noticeable and not nearly as efficient as H.264-based codecs such as MPEG-4. As a result, the first BD discs couldn't take full advantage of the huge space alloted for them. And the first BD discs off the block suffered from film transfer problems that early adopters initially attributed to faults with the format rather than the process.

Plus, early Blu-ray players suffered from bugs with noise cancellation and other features, resulting in disgruntled customers. But that anger became very public, thanks to the Internet, and it was that anger that may have helped taint the second wave of adopters -- those contacted by the Cymfony study.

In the end, though, it wasn't customers' likes or dislikes that powered the fatal blow in the format war, according to ABI. It was Warner Bros.' decision to switch allegiance to Blu-ray, along with subsequent moves to dump HD by major retailers such as Wal-Mart, Netflix and Blockbuster, that served as the key catalysts in the rather sudden industry migration to Blu-ray.

"Consumer spending on DVD sales and rentals was pretty flat in 2005 and 2006 at about $22 billion. It dropped last year for the first time, by about 3 percent," Wilson said today.

"The studios really need the new high-def format to catch on so they can drive revenues back up," the ABI analyst told BetaNews.