HD DVD and Blu-ray: Toward an Endgame
For more manufacturers to want to attempt the dual-format console option at prices that will be risky for them to manage at first, the aggregate number of titles for both high-def formats will need to be reasonably high - a respectable percentage of the number of DVD titles. But for studios to want to invest more in publishing new titles, they'll want to see not only more manufacturer interest but more consumer interest. So far, from each side's perspective, the other side hasn't shown enough interest.
That's the conundrum that NPD's Ross Rubin has been studying. Given that dual-format players are still perceived as new products, perhaps the earliest they'll mature for manufacturers to consider launching discounts will be the holiday season of 2009.
The best we can do is look at the precedents. Probably one of the best precedents is the SACD and DVD Audio war, where neither format was able to supplant the compact disc, which was a very strong legacy competitor. Toward the end of the [lifecycle] as prices dropped, we saw dual-format drives emerge in the marketplace, but they didn't have the impact that digital distribution did, and again in another two or three years, that's where the up-and-coming threat is coming from.
There's this window of opportunity for high-definition discs that is sandwiched on one side between standard definition DVD, and on the other side by digital distribution. Very similar to what we saw in audio.
SCOTT FULTON: And that window, if digital distribution manages to come up with a secure, manageable business model for itself...Maybe there comes a time when the optical disc itself will have been out-evolved, and that window will already be closed for it.
ROSS RUBIN: You know, we've seen lots of people talk about the death of optical for a long time.
SCOTT FULTON: I think I wrote that six or seven years ago.
ROSS RUBIN: And perhaps this is the last generation of movies distributed via disc. I've spoken to at least one company that is looking to do a future optical format, hundreds of gigabytes on a disc, and they are not targeting movies as an application for their technology. But some of that may have to do with production issues as much as market issues.
Right now, we're at about roughly 50% broadband penetration in the US. We're seeing telcos adopt various fiber implementations to increase available bandwidth, we're seeing cable companies respond to that with their own fiber initiatives and switch cable and DOCSIS 3.0, increase available capacity. So it's certainly going to become more viable in the future, where we're already seeing a couple of companies - Apple, Microsoft, VUDU - look at distributing movies via IP, and in terms of migrating that to HD, it's a simple tradeoff for download time.
So by the time dual-format disc players will have matured enough to make them attractive to the 73% who would otherwise be just fine with upconverting their old DVDs, thank you very much, the window of opportunity for high-def disc may have already been slammed shut by IP distribution. Unless...someone plays a wildcard and the whole game changes.
ROSS RUBIN: I wish I could remember back to the growth of the DVD, at what point penetration we were at when we really started seeing the Apexes and the Cyberhomes come in and spur the race to the $29 DVD player that's available today. I believe that the market had developed a bit more than this market has, where a cheap DVD player merely serves to accelerate the market, because here there are a lot of other issues at play, and even for someone who is satisfied with their DVD player, $100 is rather expensive when you have that option of the $40 or $60 replacement DVD player.
So it could spur some momentum on the HD DVD side, particularly with this promise of more exclusive titles becoming available.
SCOTT FULTON: But you're saying the market here in high-def has to ripen a little more before an accelerant like a cheap HD DVD player would take root?
ROSS RUBIN: It's difficult to say. It's certainly more complex than it was in the standard-def market. But yes, that's my theory, that there are broader issues beyond price right now. Price will certainly help, but I still maintain that the number one issue is competition with the legacy format, although part of that is the inexpensive availability of standard definition DVD players. Perhaps if there's a $150 HD DVD player on the market, the consumer - when that device finally breaks - will go into the store and say, "You know what, for fifty dollars more, I can get something that will play these high-quality movies, or something that will better complement my HDTV."
SCOTT FULTON: When the decision is forced upon the consumer, finally that extra leap won't seem so far.
ROSS RUBIN: Right, today there's a much bigger price gap. But remember, the content has to be there, and the Blu-ray camp would counter, first of all, that they too will be coming out with less expensive players. Are people really going to buy a player, no matter how cheap it is, that they can't watch Disney movies on, at least not in high-def?
SCOTT FULTON: Given that scenario, then, isn't there, economically speaking, an artificial price bottom, if you will, for the dual-format player, where it can't descend any further in price than a certain amount - maybe $350 or thereabouts - because of the fact that there are single-format players that will sell for less? And because of that, there won't be that easy leap from the DVD player that finally broke that I took back to the store and they couldn't repair -
ROSS RUBIN: Unless consumers throw up their hands at the format war, and [dual-format] is the only device that they'll buy, and those products will have a scale advantage [and] a volume advantage in the marketplace that stand-alone players won't really be seeing. I'd say that's exactly what we saw in the recordable DVD war. Where today, just about any product you can buy is dual-format, it writes to both [DVD+RW] and [DVD-RW] recordable DVDs.
But that was a little different, because it was primarily a PC-based product. The volumes in the consumer electronics decks are relatively low - about 10% of the market.
SCOTT FULTON: So there are still a lot of "if's," but there is in your mind a possible positive scenario, positive outcome for everybody involved, if they hop on all the right sides of the "if's."
ROSS RUBIN: Well, you know, whether it's positive is a question of perspective. It certainly still wouldn't be optimal, because you still wouldn't get the price advantages or the volume/scale advantages that you'd have with a unified format. Dual-format is probably the next best optimal scenario, but one that enables each side to collect its IP licensing royalties.
SCOTT FULTON: Where the money actually is, and that's the reason we still have this war.
ROSS RUBIN: Absolutely.