thoughthead

So the format war still rages on, it seemed like the news concerning the two formats had died down for quite a while, though recent announcements by Blockbuster concerning their support have brought it back into the forefront again. Now is as good a time as any to re-evaluate where these two formats stand, read on to find out for yourself.

The Blockbuster Support:
I’m sure many of you have heard the recent news about Blockbuster’s added support for Blu-Ray. Maybe you’ve even read the subsequent anonymous source from an anonymous location making claims about the aftermath of the news. Before I get into what this means lets look at some facts.

Blockbuster made available for rent both Blu-Ray and HD-DVD movies in 250 of it’s corporate owned stores for a number of months. After looking at the rental data they saw some 70% of the total rentals for the two formats going towards the Blu-Ray format. After those results they decided to start offering Blu-Ray discs at some 1450 of their corporately owned locations.

That’s what we know from the article, now some other facts you might not realize: Blockbuster has over 7000 locations, so 1450 is still a small percentage of their stores, they also still carry HD-DVD both through their mail based rental service as well as the original 250 test locations. This also doesn’t say anything for other rental services and stores such as Netflix or Movie Gallery or any other place that hasn’t even made a token effort towards picking a side. So what we’re seeing here is added support for Blu-Ray for a small percentage of one rental chain.

In terms of Blockbuster’s intended effect this really doesn’t mean much, it’s more of an extended test bed, Blu-Ray making it into Beta testing if you will. In all likelihood the higher percentage they saw was due to PS3 owners looking to try out the Blu-Ray feature on their new console. Even home theater fanatics who have purchased players for both formats are probably renting more Blu-Ray simply because there is more content available on the Blu-Ray format.

What this really means is something a lot bigger, I don’t think it was Blockbuster’s intent but in terms of where consumers put their money, perception is everything, and this genuinely small potatoes story has been blown very much out of proportion to the point where it actually does make difference. It doesn’t matter what the facts are, what matters is how consumers see the news and this news has been presented and hyped such to look like the beginning of the end for HD-DVD. The real support for Blu-Ray here didn’t come from Blockbuster, it came from the news outlets that hyped it up to be a much much bigger deal than it really should have been.

The Install Base:
According to the Digital Entertainment Group Blu-Ray hardware has outsold HD-DVD hardware by a five to one ratio. with Blu-Ray having an install base in the US of about 1.5 million and HD-DVD having an install base of about 300 thousand. That seems like a pretty big differentiation between the two. When you take a closer look at the numbers you’ll see that only 100 thousand Blu-Ray players are stand alone players while the remaining 1.4 million were included with the PS3. Meanwhile 150 thousand of the HD-DVD players sold were standalone players with the remaining 150 thousand being sold as Xbox 360 add-on drives.

It stands to reason that all 300 thousand HD-DVD hardware owners made their purchase because they wanted an HD-DVD player, and at least 100 thousand Blu-Ray owners made their purchase because they wanted a Blu-Ray player with the remaining 1.4 million Blu-Ray drives from PS3 sales being a big uncertainty.

That big uncertainty could be used to make the market look which ever way you want it to look. The reality is that uncertainty aside the HD formats on a whole are selling pretty poorly when you compare it to the market it’s attempting to replace. Looking at DEG’s numbers for DVD hardware sales in the US some 33 million DVD players were sold last year in the US with an install base close to 200 million. When you compare it to those numbers you find that Blu-Ray and DVD combine equate to less than one percent of the entire disc based movie market.

DEG also reported last year that HDTV penetration broke the 30 million mark last year in the US. When you compare the sub 2 million penetration of both blue laser formats combine they’re still not even selling to a sizable chunk of HDTV market on a whole. Even if they were to reach 100% penetration within the HDTV market it still has a substantial ways to go before it could hope to sell even close to the level of DVD.

Once again none of the facts matter when you’re dealing with perception If people think your format is squashing the competition they’re more likely to bite.

The Media Sales:
Certainly if there is uncertainty in whether or not the PS3 owners are using their console for Blu-Ray movies or not it would be apparent when comparing the sales figures of Blu-Ray movies to that of HD-DVD. Up until recently there actually haven’t been any real figures released. Most figures were extrapolated from Amazon.com rankings and other very unscientific sources. Luckily Neilsen VideoScan released some concrete numbers last February.

Looking at the year to date numbers Blu-Ray is outselling HD-DVD by 2:1. Certainly not reflective of the hardware penetration but definitely beneficial for Blu-Ray. Alternatively HD-DVD has still sold more overall since it’s release.

This can be interpreted in two different ways, either Blu-Ray is simply riding high off it’s relative newness since last holiday was when it first started getting a decent library together while HD-DVD owners had already got past the initial excitement. Or you could look at it as Blu-Ray simply selling at a higher rate then HD-DVD and likely to surpass them eventually. Either way, it’s still far too early to tell and in general these figures simply tell us that it’s still a really close race.

Once again when you look at the cumulate HD movie sales in comparison to DVD the two formats are really just squabbling over peanuts. Seeing as Blu-Ray and HD-DVD have sold about 2 million movies cumulatively since their inception DVD sold over 1.6 Billion movies in 2006. At the level that both Blu-Ray and HD-DVD are selling all it takes is one major release to turn the tides one direction or the other, and with the numbers so close and so low neither format is really going anywhere fast.

The Studio Support:
In the end content is king, all sales figure aside looking at the studio support should give the clearest view of what the market holds in the future, right? So lets look at which movie houses support which format:

Blu-Ray Exclusive:
Columbia Pictures
MGM
Disney
20th century Fox
Lionsgate
Starz Home Entertainment

Cross Platform Support:
Paramount Pictures
DreamWorks
Warner Bros. Pictures (Although a number of titles are HD DVD exclusive at the present)
Warner Music Group
New Line Cinema
HBO
Studio Canal
Image Entertainment (including the Discovery Channel)
Magnolia Pictures
Brentwood Home Video
Ryko
Koch/Goldhil Entertainment

and adult films by:
Vivid Entertainment

HD-DVD Exclusive:
Universal Studios (including subsidiaries Rogue Pictures, Focus Features and Polygram Filmed Entertainment)
The Weinstein Company (including Dimension Films and Genius Products)
First Look Studios

and adult film studio support by:
Wicked Pictures
Pink Visual
Bang Bros
Digital Playground Inc.
ClubJenna Inc. (now part of Playboy Enterprises)

In terms of sheer number of supporters there are more studios making movies in both formats then there are on either side of the fence definitively. World wide HD-DVD has the most exclusive support while Blu-Ray has the most support in the US. Big studios like Universal, Disney, and Fox picking sides does a lot to shake things up, but you also have big studios like Paramount, Dreamworks, and Warner Bros. that are cross-platform. So looking at this aspect doesn’t tell us much except there are a few good moves that will either come out on one format or the other, and a lot of movies that will come out for both.

The Adult Film Issue:
Lots of people cite the overwhelming support from the Adult film for the HD-DVD format as the kiss of death for Blu-Ray. This support is more of a political issue as Sony, much like in the Betamax days, refuses to license the technology to adult film makers. Adult film studio Vivid Entertainment managed to find someone to manufacture them unofficial Blu-Ray discs despite Sony’s refusal, even still they’re a cross-platform supporter.

Support from adult film studios was certainly instrumental in helping VHS win over Betamax back in the day. Being able to playback movies in the privacy of your own home for the first time was a big advantage for VHS. These days many would argue that it’s not as important as a majority of adult content is now accessed online. Looking at this argument from a factual standpoint sales of DVD content sold made roughly 24.1 Billion in the US in 2006 of that 3.62 Billion was contributed by the Adult film industry in the form of DVD sales and rentals. That means the adult film industry controls more than 15% of the market for all DVD sales and rentals.

Cost of Ownership:
Certainly being a cheaper format has it’s advantages in terms of luring in consumer dollars. But which format has the lowest cost of ownership? HD-DVD certainly came out of the gate at a lower price point in terms of hardware as well as discs. This isn’t all that surprising as the players completed development long before Blu-Ray and was released earlier than Blu-Ray. The design of the disc also lends itself to looser tolerances within the hardware which in-turn allows them to be produced cheaper, the disc similarities to DVD also allows them to be manufactured on DVD machines with few changes. Blu-Ray on the other hand requires completely new machines to manufacture.

How has this played out? Well the cost of HD-DVD ownership has dropped substantially. Xbox 360 owners can pickup an HD-DVD drive for $200 and stand alone players are selling for as low as $300 these days. On the other hand Blu-Ray’s cheapest players are still up in the $500s.
The cost of the media has gone the other way. While HD-DVD is easier to manufacture it would seem the economics of scale have worked in Blu-Ray’s favor as most Blu-Ray titles are selling around $5 cheaper than similar HD-DVD movies. This holds true not just for cross format releases but on average. I can only assume this is due to the numerous PS3 games being produced on Blu-Ray and helping to drive down the cost of the format on a whole.

Again this makes it difficult to judge the two formats, on a long enough timeline cheaper media would win, however as time goes on I’m sure both formats will drop in price, Though, the stark difference in player costs today would allow any consumer entering the HD market to purchase quite a few movies before even approaching the cost of just a Blu-Ray player. The price differences will play a bigger role this holiday season, but right now neither seems to be making much of a difference.
The End Result:
From a purely technical feature and manufacturing standpoint I’ve always felt that HD-DVD was the superior product. At this point I really don’t care which format, I just want one of them to disappear so I can start buying discs on the other one, I suspect my sentiments are not unique. I collect DVDs as it is and I’ve bought nothing but TV shows and Anime over the last year (generally SD/ED only content) as I wait for signs of a clear cut winner. At the moment I think Blu-Ray has the better ‘vibe’ going for it what with the recent Blockbuster announcement, cheaper media prices and a whole lot of PS3 owners who just happen to also own a Blu-Ray player.

The problem with determining a victor at this point is the market is so incredibly small that even something as pathetic as Blockbuster announcing that they’re increasing Blu-Ray from 3% of their locations to 20% of their locations seems to have a monumental effect on the feeling in the blue laser disc market.

The real winner? That would be video streaming and download services like Comcast’s “On Demand” which by the end of 2006 was serving some 12.7 million people in the US. When you consider that is just one provider out of many others that offer similar services you have to question of either HD-DVD or Blu-Ray will ever reach the levels that DVD enjoys today. When you consider that the supposed revolutionary IPTV services haven’t even rolled out yet you have to wonder if HD-DVD and Blu-Ray will wind up the DVD-Audio and SACDs of the Movie world where services like “On Demand” play the role of the MP3; coming in from behind and sweeping the consumers up while the fancy new physical media formats fade away into obscurity. I really hope this doesn’t happen, I like my physical media, I still buy CDs and I even buy DVD-Audio discs when I can (I’ve yet to find a single album on SACD that I like). I just call it like I see it and from what I see both Blu-Ray and HD-DVD have a very very long road ahead if they want to replace DVD and remain strong in the face of alternative content delivery systems.