Are the Holidays Make or Break In the Format War, or Just Break Even?

Way back when, say July of this year, the holiday shopping season seemed poised to be make or break time for the format war, and HD DVD in particular. Blu-ray was rolling along, outselling HD DVD handily in software, and looking to a holiday season with a broad number of exclusive to the format titles that would mop the floor with poor HD DVD, and leave it in the scrap heap next to the BetaMax.

Then Paramount jumped ship, going with HD DVD exclusively, and all of a sudden the little format that could had a few more hot exclusives of its own to deliver for the holiday shopping season, namely Shrek the Third and Michael Bay's summer hit, Transformers.

Transformers held up its end and stormed out to huge sales, and thus far has handily outsold day-and-date Blu-ray exclusive hits such as Spider-Man 3 and even Pixar's Ratatouille. All of a sudden even Sony's Howard Stringer is widely quoted (or misquoted) as calling the format war stalemate.

And a stalemate for both formats has the unpleasant consequence of looking more and more like a loss for both sides. And Hollywood doesn't want this. DVD volume sales are already in decline. Only the popularity of high priced TV show box sets has kept the dollar amounts about even for the last year or two. Hollywood definitely wants one more physical medium to use to resell its wares.

The two formats so far are doing OK in year 1-2 comparisons to DVD's sales milestones in hardware and software. But there's no question that neither format is making anyone forget DVD. The biggest selling titles have sold a few hundred thousand copies on both HD formats combined. A big DVD release will do 4-5 million units in a single week.

Explosive growth in years three and beyond made DVD the CE industry's biggest success story ever, driving those kind of software sales. While it's doubtful any physical format will ever be as ubiquitous as DVD, 2008 is when Blu-ray and/or HD DVD need to push into the mainstream. And whenever consumers are asked (polled), they respond with apathy in general and negativity over the competing formats. This leads to the perception that neither format will have mainstream success unless or until there is only one format.

Do any of the studios want that badly enough to try something bold to make it happen?

In looking at this question, Warner has got to be the elephant in the room. Paramount is reportedly tied to HD DVD exclusively for the next 18 months, and Universal is apparently not going to change course until something dramatic happens. I think we can be sure Sony and MGM (which Sony owns) wouldn't do HD DVD until a very bitter end is forced upon them, and Disney and Fox have publicly been staunch in their belief that BD's victory is inevitable.

So, barring another unforeseen defection from Fox or Disney, that leaves Warner, which currently supports both formats, as a potential swing vote. If Warner decided one format was needed which way would it go? If it wanted the swiftest resolution to the format war, probably Blu-ray. Already leading 2:1 in software sales, which has even held up on Warner's own dual-format releases, how could HD DVD stand if Warner jumps ship? Moreover, how could Warner justify jumping ship to HD DVD?

Toshiba is definitely building an HD DVD player install base. It claims there are now 750,000 combined HD DVD players and Xbox add-on drives. Toshiba also claims that people who buy HD DVD players and Xbox add-ons not only buy HD DVD movies, they buy lots of them, whereas PS3 owners are far less reliable movie buyers for the studios. Transformers performance against the top exclusive BD titles so far might be an indicator this is true (then again Shrek the Third's numbers could mean the opposite). Of course if there were ten or fifteen million PS3s in the US instead of two and change, the question would be moot. The PS3's price drops are gaining it some momentum, but it's clearly not enough so far to KO HD DVD.

Even casting all of the above in the most flattering possible light for HD DVD, is any of that enough to get Warner to take such a bold step as dropping Blu-ray support? Blu-ray has made as big of a mess of its hardware support and platforms as imaginable, and its stabs at interacivity are doing nothing but decreasing the performance of the players out there now. If Warner hasn't pulled the plug on BD by now it's hard to imagine what would tip the balance.

Who knows. But we've got one month left in 2007 and a few more big exclusive releases on both sides. Warner will have some more dual format titles to gather sales data from. Both the price reduced PS3 and Toshiba HD DVD players figure to make their way down a lot of chimneys. We'll see if anything happens that could break this thing loose moving into 2008, or if we'll just keep meandering toward a loss for both sides.

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Comments
MJR's picture

I still have no long term faith in HD-DVD. Not so much the format but way Toshiba and Microsoft are approaching it. Interactivity and internet connection will not move stand alone players; as more regular people come to the format they won't want a machine that needs to hooked up to it. Hopefully the Blu-ray camp won't fall into the same trap because if they do say goodbye to both formats. Free standing players are all about home theater and that means the best picture with a minimum of fuss. Push play and that's it. If it's not as simple as DVD's and it doesn't deliver superior performance with minimum of fuss it will not catch on with the general public who are mostly on analog cable with non HD sets.

Shane's picture

The Internet isn't a fad and it isn't going away anytime soon, whether you or the other regular people out there want it or not. Interactivity aside, both formats will require occasional if not relatively frequent firmware updates to play new release titles, and your choice is to connect your player or live with the inconvenience of updating your player some other way. I'm also a little mystified that you single out HD DVD here. Neither format requires an Internet connection to simply play movies (firmware updates notwithstanding for both formats). HD DVD's platform is far more stable, and the standalone players are far less fussy when simply playing movies and navigating menus. In interactivity, Toshiba and MS aren't alone. Since broadcast HD is becoming more prevalent the studios feel superior picture and sound isn't enough- they want interactivity to attract consumers. I might not agree either, but this isn't specific to HD DVD they've just done a better

Stephen - Ontario's picture

The war is still, in my opinion, for blu-ray to lose. Even with the Paramount/Dreamworks defection, and except for the Transformers blip, blu-ray titles are still outselling HD-DVD most weeks by 2 to 1, and I hear 3 to 1 for Black Friday - can anyone confirm this? Disney is one of Blu's key assets and the main reason that some diehard HD-DVD fans I know bought a blu-ray player (usually PS3) - they want Disney/Pixar movies! Arguably Transformers is the movie that blu-rayers want, but of those I've spoken to, they say they will wait till the Paramount/Dreamworks deal is over. I agree, Warner is the key to ending the war. Hopefully they will decide soon or else we will be viewing DVD discs for a long time - and this is hard after watching HD discs!

David Vaughn's picture

Stephen, Shane has said on more than one occasion that it is BD's game to lose, and you will get no argument from me on that either. Frankly, if they end up losing this thing, it will make beta blunder pale in comparison. But all is not well in Blu-land. First, BD-J is having issues with way too many BD players that are on the market with Fox and Disney titles. This doesn't bode well for the format with high profile titles. Granted, the PS3 plays anything you throw at it, but what about the people who paid for the Samsung players? Manufacturing processes are also an issue on Blu-ray. I recently went through over 100 BD50 discs and over 95% of them were made by Sony DADC! The other's were made by 1 other company (Cinram). For the format to hit mainstream, it is going to have to have more manufacturing than they are currently using.

Johnny Mac's picture

Ways to stop the insanity. 1. All studios agree to support both formats. 2. Cheap (price not quality) dual format players. 3. $19.95 maximum price on individual HD DVD/Blu-ray discs. 4. Apologies from the major players, hardware and software, for screwing this whole thing up and a commitment to quickly fix the problem in a way that the consumer wins. It might have been Shane who asked "How much cheaper do the players have to get (a reference to HD DVD when the players fell below $300 with 5 free movies) before you buy one?" I did and I don't regret it even if Toshiba ends up "losing". I have a quality HD/SD disc player that I expect will give me many years of service.

L T Puig's picture

Good article Shane, As for me, I am waiting to see the results after the holidays, and then I think the picture will be a bit clearer. I agree that this war is for Blue ray to loose, but let see if the HD DVD players sold can give HD DVD the lead they need. Until all bets are off...

Stephen - Ontario's picture

Hi David, I agree all is not well in blu-land, at least for stand alone players. This make the blu-ray software lead all the more remarkable. HD discs (and all their features) require a player that is more than what we had with DVD. It seems to me that it is no surprise that Sony and Toshiba, both of whom make computers, have the best HD players (though I am a little puzzled that Sony doesn't incorporate the PS3 processor into its stand alone player). I am encouraged, however, that the other manufacturers keep trying. Also I am not certain it is just BD-J. We don't really have any non-Toshiba HD-DVD players to look at, except the combi players, and of the reviews I've read on those, they couldn't handle HD-DVD's interactive features. But I agree, whoever wins the war needs to ensure that the standalone players of all manufacturers provide maximum consumer satisfaction. The "test" phase is over.

Chris's picture

Up until now I had been thinking that the user would do the talking with their dollar, and that eventually the user would, through their purchase, end this format war. For me though, that thought has been challenged in the last weeks, and I'm starting to think that the larger corporations will decide the format war, and that we may not have much say at all. Until I can walk into any store and buy any hi-def DVD format as easily as I can a DVD, I don't think that we will be able to decide. Until I can walk in to an electronics store and talk to a salesperson and NOT get told which format is better and listen to all sorts of flawed logic, I don't think that we'll be able to decide the war. I walk into blockbuster, and I can rent from 1000's of dvds, 40+ BD, or 15 HD. I walk into rogers, and I can choose dvd. I walk into walmart and, yup, only dvd. I find it hard to listen to people get told that BD is better and thats why it's more expensive when all evidence so far tells me the o

Chris's picture

A convincing salesperson can use the cheap price of HD-DVD to sell Blu-Ray units. Most users don't know any better. It's Sony, they're the best, right?? I am truly convinced that salespeople are the root of all evil, at least the ones who speak with no knowledge of what they speak. Also, didn't Sony just sell it's manufacturing processes for the cell to Toshiba? and didn't a private equity firm just buy a large stake of Sony? I thought I had seen these in the news.

MJR's picture

Another mystery..A major electronics retailer has stacks of HD-DVD players and Blu-ray machines but there is no HD_DVD machines hooked up for demonstration and multiple Blu-ray machines hooked up. This retailer does not use commission salespeople and sells discs of both formats. It would seem that some corporations have started the deciding. And this one might surprise you as to who it is. I don't want the internet to go away. But the world has way more technophobes then we realize they have money and it got to be falling off a log simple or they will stick with their DVD (and VHS) and it's still a 4x3 and full frame world to a lot of people.

Claude's picture

Shane - Welcome back! Interesting analysis. Bringing things up to date, it appears that Blu-Ray dominated Black Friday sales by 3 to 1. POTC 3 is now out this week and hopefully selling well, I bought a copy. There has been alot of news lately on sales the world over and it appears that most of the world is Blu. The US is a huge market though and Blu is leading here. As others have stated here, it's Blu's game to win or lose. What I find interesting is that looking at my microcosm of life, including myself, I know five people who own a PS3, I don't know anyone with an HD DVD player. Of this group, one is mainly a gamer, two renter/buyers, one uses his for work(Linux), and one mainly for Blu-Ray dics.

Claude's picture

I do have a question: I really have not followed HD DVD at all. Looking at the trend on blogs here at Ultimate AV, it's continually pointed out that Blu-Ray is lagging in terms of interactivity and problems with playback because of BD-J.....does HD DVD have any issues? I'd really like to know without having to peruse the HD DVD Forums.

David Vaughn's picture

Claude, HD DVD has its issues as well. There have been reported problems with combo discs, but when the HD DVD promotional group asked for discs to be sent in to be tested only 6 people replied from AVS and Home Theater Forum. So what was reported as a big problem turned out not to be as bad as reported. There was one recall though on Universal's Children of Men because the bonding layer was too thick, but no other recalls have been issued. Of the two formats, HD DVD was more ready to launch IMO with complete player specs and Toshiba has done a very proactive job with releasing firmware updates before discs hit the marketplace that may cause issues. In fact, in one case, the firmware was shipped with a review disc in order to ensure compatability for the review. But if the software sales don't start to change, it isn't going to matter in the long run.

Shane's picture

MJR- a harsh reality with the price slashing Toshiba has engaged in is that HD DVD players are very low margin products. I can see retailers getting behind the format with players from more manufacturers and higher margins. Sad for consumers but perhaps true. Claude- Blu-ray is still winning the volume software sales battle, and that shouldn't be a surprise. More studios, more movies, more movie sales. For all the vitriol online by the BD fan boys who decry Toshiba's player pricing, the dirty secret in the software sales is the big impact of the BOGO (Buy One Get One Free) is having on keeping BD's advantage high. Don't know who's eating the costs on that, but the VideoScan numbers show the impact on catalog sales very clearly. I don't begrudge BD or its supporting studios one bit for this, it's a format war after all. But I think some of my fellow online pro-BD journalists have been conveniently ignoring this and the continual price drops of the loss leader PlayS

Stephen - Ontario's picture

This link is interesting: http://www.businessweek.com/magazine/content/07_51/b4063028294846.html It basically confirms what Shane is saying, that Warner is the clincher. Assuming the numbers in the article are accurate then if Warner signs with Blu-ray, that would give Blu-ray 70% of the market share (of exclusive studio support). If Warner goes with HD-DVD, then the split would be 51:49.

Stephen - Ontario's picture

Sorry, the link provided didn't work. Try this one: http://www.businessweek.com/magazine/content/07_51/b4063028294846.htm?ch...

Shane's picture

Stephen- thanks for linking to that. Warner is the key, and might be making the decision that decides this thing, eh? Where have I read that before? Sorry to be self-serving, but if I won't toot my own horn, who will? All I can add to that piece is that the whispers of Warner making a decision one way or the other are getting louder, both in articles like this and behind the scenes. May be Q4 really will be what we thought it would be.

Claude's picture

Just saw the news article here that the Samsung 1400 is now under $300. Costco actually has it for $279 and Amazon $269. The Costco deal comes with 3 free movies plus the 5 free current offer. Prices are definitely going down quickly. I'm seriously going to have to think about a unit for the bedroom set soon! I've never seen anything like this in all my audio/videophile year.

L.ouis T.  P.'s picture

Gentlemen, Like I have said here before, price is the key?price of players. Just read the latest survey published today on HDTV adopters preferences when it comes to buying a HD Disk player: http://www.marketwire.com/mw/release.do?id=801433 Survey found that most prefer HD DVD, probably due to the players been cheaper, a logical result given that after spending lots of money on that HDTV a lot of people do not have much cash left afterwards. Also Blue Ray (in the form of Samsung) has lowered its Blue Ray player prices?...have they been reading my comments?? Who knows?...=) What I care is that it looks like they are finally coming to their senses, and coming down from those astronomically high prices to more reasonably ones ("Samsung Blu-ray Player Hits New Low of $270"): http://www.highdefdigest.com/news/show/Costco/Amazon/Samsung/High-Def_Retailing/Samsung_Blu-ray_Player_Hits_New_Low_of_$270_/1256 It is an interesting read.

Claude's picture

Louis - price is important and definitely spurs sales, but it's not the whole enchilada. A perfect example would be HDTV sets. Vizio is selling very well, yes, but I don't know how many times I've heard people in Costco saying "the Vizio is ok, but I really like the Sony picture better". The next thing you know they've spent the extra and are carting out the Sony. People are willing to pay for either real or perceived better quality. As to the argument that "I've blown my wad on the TV so I'll get a cheap player to feed it"....I don't buy it. Some folks are probably doing this, but many others are buying up the line in either format. I don't see many Ultimate AV'ers following the cheap player to feed expensive TV logic.

Louis T. P.'s picture

Well Claude.... Numbers don't lie...: http://www.marketwire.com/mw/release.do?id=801433 That survey shows that the average Joe, which is the next big buying block due to jump into HD players is very price conscious! And to them HD DVD is the choice due to low price, the survey show it! ...And why perhaps Samsung is lowering their prices of players, I mean how much clearer does it has to get so everyone gets it, price is it! You, I and others like us, the "tech fanatics" are but a small percentage of the consumer crowd, the main block, the average Joe block is not like us and they DO care about price... I will hold my final judgement until the holidays, but numbers affirm my call that players price

Claude's picture

Louis - I will agree with you that price is a factor and now the Sony DVP-S300 is at $299. However, I don't believe HD DVD is going to win this thing based on lower hardware prices. They have not done it yet. Last week's sales number percentages has Blu-Ray with a 3:1 lead. That's huge. granted, Hd DVD should make a comeback for the latest Bourne movie. Heck, I would have bought that one on Blu! I believe people actually do look at and realize that some of the big films they want from a powerhouse such as Disney don't exist on HD DVD. Of course we can only speculate on the future, but the numbers are not going HD DVD's was and haven't for 2007.

Cliff Howard's picture

We keep throwing out these numbers (3:1. 2:1. etc) which fluctuate wildly from week to week depending on what's released as if they're gospel. BD had the bigger releases this quarter, and not to mention a plethora of BOGO's which drove the sales of some catalog titles up 1000%. I think if WHV makes a decision, they'll likely be looking at THEIR bottomline. I don't see why they'd care how much Universal, Paramount, Sony or Disney sells of their titles, but how their own titles sell on each format. BD is still more expensive to replicate, so there'll likely be many other tangibles taken into consideration - not just looking at the Nielson numbers. It will also be nice to see how sales trends go once both sides stop giving away a dozen titles with each hardware purchase. Lol.

Louis T Puig's picture

Claude - My link says it all: http://www.marketwire.com/mw/release.do?id=801433 75% of the Blue Ray numbers in movie sales are due to the game stations with Blue Ray players, and NOT stand alone Blue Ray player numbers (according to Home Media Magazine), so that lead in movie sales is due to all the gamers buying movies in addtion to the games, BUT the public in general has not adopted either one of the 2 high def formats in mass yet, when they do the survey shows they are going to go for HD DVD due to its cheaper price, these are facts! The bubble of numerical movie sales superiority of Blue Ray is an illusion, when looked at in the context of the Big Picture! Only after the big block of consumers start buying in great mass either one or the other format will this war be decided, and as it is right now, preference of HD DVD stand alone players by the general public indicates that at best for Blue Ray, both formats will survive, ...worse case? consumers follow survey and Blue Ray is done in a year!

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