Investor's Business Daily, March 22nd, 2007
The format war between two rival high-definition video disc types soon could turn into a price war.
Cheaper players for both HD DVD and Blu-ray Disc formats are slated to come out later this year. But HD DVD players likely will continue to have the pricing edge thanks to cheap off-brands expected from Chinese manufacturers.
The low-priced HD DVD players could swing the high-def video disc format war in HD DVD's favor. They could sell for $299 this holiday season.
The cheaper HD DVD players will put pressure on makers of Blu-ray Disc players to lower their prices. Already, Sony SNE has announced a $599 Blu-ray Disc player, which is 40% less than its cheapest set-top box now.
The cheaper players from China are "an ace in the hole for the HD DVD camp and its answer to the strong tier-one brands supporting Blu-ray on the consumer electronics side," said Ross Rubin, an analyst with the NPD Group.
HD DVD is backed by a coalition led by Toshiba that includes Microsoft MSFT and Intel INTC. Blu-ray Disc is backed by a Sony-led group that includes Philips PHG, Samsung and Matsushita Electric Industrial's MC Panasonic.
Blu-ray Disc and HD DVD are vying to be the high-def successor to today's standard-def DVD.
VHS Vs. Betamax Redux
The split between HD DVD and Blu-ray Disc resembles the videocassette format war, where JVC's VHS ultimately defeated Sony's Betamax in the 1980s to become the standard. And like that long battle, this one is a fight to the death.
"There doesn't seem to be anyone who believes in the viability of two formats," Rubin said. "So it's a race of getting the boxes out there."
Dual-format players and discs have been floated as solutions. But many analysts say they're either an interim step or something likely to confuse consumers even more.
LG Electronics was the first to come out with a dual-format HD disc player. But it's priced at $1,200. Warner Home Video, a unit of Time Warner TWX, has announced plans for a disc with the HD DVD format on one side and the Blu-ray Disc format on the other. Warner says it plans to release movies on the "Total Hi Def" disc in the second half of the year.
Blu-ray Disc seems to be winning in the marketplace. The format has an installed base of at least 1.5 million players vs. a couple hundred thousand for HD DVD, says Andy Parsons, Blu-ray Disc Association spokesman and senior vice president of Pioneer Electronics.
HD DVD officials estimate there are 350,000 to 400,000 HD DVD players on the market in the U.S., including set-top boxes, PC drives and a plug-in accessory for Microsoft's Xbox 360 game console.
Blu-ray Disc has been helped a ton by its inclusion in Sony's PlayStation 3 video game console. The PS3 sells in two models for $499 and $599.
And Blu-ray movies have been outselling HD DVD movies by two to one, Parsons says.
Cheaper HD DVD players alone are unlikely to sway users, he says. Blu-ray Disc has more support from Hollywood studios than HD DVD.
"It's a content-driven business," Parsons said. "If you price your player low, that's fine. But if you have a limited availability of content, then the price becomes somewhat pointless."
Blu-ray has the support of every major studio except Universal Pictures, a unit of NBC Universal, which is backing HD DVD. Five studios on the Blu-ray side are exclusive to Blu-ray, including the Walt Disney Co. DIS, News Corp.'s NWS Twentieth Century Fox, Lions Gate Entertainment LGF, Sony Pictures Entertainment and MGM.
Below $300 By Year-End?
HD DVD backers hope cheaper players later this year will entice consumers to try their format. Now, the cheapest HD DVD player has a list price of $499. But that Toshiba model was selling for $357 recently on Amazon.com AMZN. The cheapest players could sell for $299 by Christmas, says Kevin Collins, director of HD DVD evangelism for Microsoft.
Shinco Electronics, based near Shanghai, China, and Alco Electronics, based in Hong Kong, have plans to ship low-end HD DVD players later this year.
If the number of households with HD DVD players gets large enough, some Blu-ray-only studios might have to support the format, Collins says. But analysts say Sony and Disney would never come out with HD DVD movies.
HD DVD supporters also hope to seed the market with combo discs that contain both regular DVD and HD DVD versions of a movie, Collins says. Universal is charging the same amount for combo discs as for regular DVDs.
The hope is that people buying combo discs today for the DVD movies will have a library of HD DVD movies when they decide to upgrade to a high-def disc player, Collins says.
Plus, those same combo discs can be used in regular DVD players around the house and in the minivan, he says.
HD DVD supporters claim their format offers better interactive features and sound quality. Meanwhile, Blu-ray offers much more storage capacity than HD DVD, allowing studios to cram more video and features on to each disc, its backers say.
The Blu-ray Disc today can store 50 gigabytes of video and other data, compared with 30 GB for HD DVD. And Blu-ray has a better road map for increasing its storage capacity, Parsons says.
Analysts say consumers are wary of the competing formats because they don't want to be stuck with obsolete hardware if the format they choose loses in the market.
Adams Media Research forecasts that the number of U.S. households capable of watching high-def discs will rise from 980,000 at the end of 2006 to 7.2 million by the end of this year. That includes set-top box players, video game consoles and PC drives.
HD DVD players debuted in April 2006, followed by Blu-ray Disc players in June 2006.
Copyright 2007 Investor's Business Daily, Inc.
