Karen Raugust looks at the two high-def DVD formats, HD DVD and Blu-Ray Disc, set to launch this spring and how it will affect the home entertainment industry.
The new high-definition DVD players being introduced starting in March 2006are viewed as the next generation of home entertainment, eventually expected to replace todays DVD technology. In fact, their debut comes just as sales growth in standard DVDs starts to slow. But the new technology is likely to appeal primarily to a small group of high-end consumers, at least initially. Observers believe it will be four to five years before high-def DVDs go mainstream.
One barrier to early adoption is that consumers are, overall, satisfied with their current DVDs. Some analysts question whether the recent slowdown in DVD sales growth really means the beginning of the end, as many sources have portrayed it. Is it really slowing down, or was there a surge [as consumers transferred their videocassette collections to DVD or bought favorite TV shows as they came available], and now were just seeing a regression to the mean? asks Bruce Leichtman, president and principle analyst at Leichtman Research Group in Durham, New Hampshire.
While much as been made of the impending format war between the two new high-def technologies, HD DVD and Blu-Ray Disc, a more important issue for the market overall is the low usage of HDTV devices and service, with only an estimated 12%-17% of households currently accessing high-definition television. And high-def DVD sales are likely to be to a fraction of HDTV users at first. Were talking about a niche within a niche here, says Leichtman. The studios understand that its just a niche, but they also understand its an important niche.
Its not so much to replace DVD but to augment it, at least initially, agrees Andy Parsons, svp of product development at Pioneer USA and chair of the Blu-Ray Disc Assoc.s U.S. promotion committee. He notes that as more people buy HDTVs especially given the planned switch from analog to all-digital television in the U.S. in 2009 interest will grow, particularly since standard DVDs dont look good on the big, high-resolution HDTV screen.
The high price of players is also a barrier to adoption at first, although prices should fall once sales pick up and manufacturing efficiencies rise. Parsons points out that previous technologies such as DVD, laserdisc and CD-Audio demonstrated that early adopters are more concerned with quality and content than they are with price. As time goes by, price becomes more important, but at first they just want the best they can get, he says.
Although everyone with a stake in the success of high-def DVDs wanted to avoid a battle between two competing formats, the two camps never came to a compromise and the competing technologies both will be introduced this spring. Each is a blue-laser format that allows data to be packed more densely than todays longer-wavelength red lasers allow. Each has significantly more storage space than current DVDs, allowing for more and better bonus features and increased interactivity, as well as far superior picture quality.
You can never have too much capacity, Parsons says, noting that, less than 10 years ago, films were released on DVD discs with 4.7GB of storage space, while now, many releases already need two 8.5GB discs to accommodate the film and extras. That would have seemed unimaginable then [in 1997]. DVD outgrew its native capacity quicker than anyone though it would.
Toshiba, which developed the HD DVD format along with NEC, is introducing its HD DVD players in March, with the first movies, from Warner Bros., expected to follow in April. HD DVD discs have the same physical structure as todays DVDs, which supporters argue makes manufacturing of players and discs easier and more cost-effective. Prices for the first wave of machines from Toshiba and others are expected to range from $500 to $800, compared to prices of $1,000 and up for early Blu-Ray players from manufacturers such as Pioneer and Panasonic.
Storage capacity for an HD DVD disc is 15GB per side, compared to 8.5GB for a dual-sided DVD using todays technology. There are 120 electronics companies (including Sanyo and Microsoft, as well as Toshiba and NEC), studios and allied organizations back HD DVD, as does the DVD Forum, an industry trade group. The format is coming to market slightly before its competitor Blu-Ray, and it may have an advantage in brand recognition since its name incorporates the terms HD and DVD, both of which are familiar to consumers.
Blu-Ray, developed by Sony, can hold 25GB per layer, or a maximum of 50GB per disc (significantly more than the 30GB max for HD DVD). Blu-Ray players are compatible with both current DVDs and CDs, while HD DVD is backward-compatible with DVDs. More manufacturers have announced plans to market Blu-Ray devices than HD DVD; among the brands supporting Blu-Ray, in addition to Sony, Panasonic and Pioneer, include Dell, HP, Hitachi, Mitsubishi, Philips, LG, Samsung, Sharp, TDK and Thomson.
One factor likely to boost the installed base of Blu-Ray quickly is the fact that each of Sonys PlayStation 3 gaming devices, planned for a November introduction, will include Blu-Ray players. That means consumers who purchase a PS3 will automatically be able to play Blu-Ray discs on it, although not all will have an HDTV screen. Meanwhile, Microsoft is expected to offer a separate HD DVD drive as an external peripheral to its Xbox 360.
The rivalry between the two formats presents several challenges. First, many consumers will wait to purchase a player until they are reasonably sure it wont quickly become obsolete. (Most observers expect one format to win in the end, but how long that will take is anyones guess.) Similarly, film studios and consumer-electronics companies have had to decide whether to support one format, effectively cutting out part of the potential market, or invest in both, not knowing which one will eventually fail.
Meanwhile, retailers must decide whether to take a wait-and-see position or carry players and discs for one or both formats. They dont like the idea that duplicate copies of the same film will take up valuable shelf space, nor do they like the idea of making consumers angry by selling them a product in a soon-to-fail format.
At least one manufacturer, Germanys LG Electronics, is making a dual-format player. But higher technology royalties and the additional investment in design and engineering make this an expensive proposition.
Having substantial high-def content available is another key to success. Thats the most powerful motivator of all, says Parsons. Initially, the emphasis will be on the better picture, he adds, but I also think the bonus features are not to be underestimated.
Some studios plan to support one of the formats exclusively, while others will release titles for both. Although the majority havent announced details, outside of their roster of initial titles (which many made public at Januarys Consumer Electronics Show), most are expected to release a mix of new and library titles, some with additional extras and some with the same bonus features as the standard DVD, and a few containing both high-def and standard versions of a film. Most high-def new releases are likely to debut day-and-date with the standard version.
All told, more than 50 HD DVD titles will be available shortly after the release of the first players, with over 150 on the market by the holiday season, according to the HD DVD Promotion Group. Warner will introduce 24 HD DVD titles starting in April, including Batman Begins and Charlie & the Chocolate Factory; additional titles, including Superman Returns, will follow later this year. New Line, Paramount, Universal, Studio Canal and the Weinstein Co. have also announced releases for HD DVD, with animated examples including Weinsteins Hoodwinked. (Both Warner/New Line and Paramount/DreamWorks plan to release titles for Blu-Ray as well.)
Blu-Ray is expected to have 100 music and movie titles available soon including several at or just after the release of the first players from seven studios. Exclusive releases for Blu-Ray will come from Sony (plus subsidiaries Columbia and MGM), Disney, Lions Gate and Fox. Animated titles include Dinosaur (Disney/Buena Vista), Sky Captain and the World of Tomorrow (Paramount), Ice Age (Fox) and, for Japan only, Steamboy (Bandai Visual).
Most of the studios have been circumspect about details such as launch dates and pricing, but observers believe discs will retail in the $25 to $40 range, with new releases and dual versions (standard and high-def on one disc) at the higher end and library titles at the lower.
Dealing with Delays
The industry has faced a number of delays in the introduction of high-def DVD players and discs. Toshiba had originally announced it would debut its HD DVD players for last years holiday season, but that was moved back to this spring. Sony had intended to launch its Blu-Ray-equipped PS3 this spring, but that debut was postponed to the fourth quarter, reportedly leading Sony to consider introducing its standalone DVD player first rather than establishing the format through PS3 as originally planned.
As for software, Warner had announced it would release its first titles close to day-and-date with the introduction of Toshibas player, but its plans were held back three weeks, until April. (Wal-mart.com had been taking pre-orders for these titles, but cancelled them without explanation shortly before the delay was announced.) Manufacturing issues related to new compression and copy-protection technologies have been cited as one reason for the slower-than-expected introductions.
At the same time, competitive issues are keeping studios from divulging their plans, including not only release dates but distribution, packaging and marketing strategies. This has been frustrating for many retailers, who say they dont know where the discs will be released or how many will be allocated to each type of store, preventing them from putting together viable merchandising plans.
The Retail Landscape
Studios are expected initially to allocate discs primarily to retailers who also sell players, including Amazon.com and Best Buy (as well as some software-only online and rental venues), which would ensure that consumers could purchase both software and hardware at the same location. This is similar to how DVD was launched. Some retailers have said they will wait and see what happens before stocking any high-def discs, while others plan to sell both formats as soon as they become available. Even the most bullish are planning to order conservatively at first, according to reports.
High-def DVDs are similar in size to standard DVDs, which brings up the issue of how they will be packaged to differentiate them. Retailers are hoping for smaller box sizes, since retail shelf space will be at a premium when HD DVD and Blu-Ray discs are added to current standard DVD supplies.
Creating eye-catching in-store displays and providing educational materials at retail are both likely to be critical steps in driving consumer purchases. But retailers are waiting for studios to divulge their promotional budgets and marketing strategies before moving forward with their own plans. In fact, its likely that the first significant promotional push wont come until the fourth quarter, when consumers will start considering the technology in earnest.
Karen Raugust is a Minneapolis-based freelance business writer specializing in animation, publishing, licensing and art. She is the author of The Licensing Business Handbook (EPM Communications).