Blu-Ray Looks Like the Winner

I’ve blogged a few times over the last year about the format war raging between two competing technologies in high definition disks, HD DVD and Blu-Ray. My opinion was that HD DVD was going to prevail for a number of reasons, but that the race was way too much in it’s infancy to call yet. A lot of things could happen to make a big impact overnight.

It looks like HD DVD just got dealt an unexpected death blow. Last week Warner Bros. studios, which had been releasing it’s films on both formats, suddenly announced it’s intention to go exclusively Blu-Ray in May of this year. Warner Bros is one of the biggest studios and has the largest back catalog of films on the planet. Their decision to back Blu-Ray means that 70% of all studios are now in the Blu-Ray camp. That is way too lopsided with regard to available content for HD DVD to compete with, even if Paramount, Dreamworks and Universal continue to release in HD DVD only. If nothing else this will prevent the small amount of momentum HD DVD had gained with relatively strong stand alone unit sales this holiday season from translating into big momentum.

Despite the fact they Blu-Ray disks had a higher capacity than HD DVD disks (25 GB per layer compared to 15GB) HD DVD had a small window of opportunity to win the war. They needed to take a commanding lead in disk sales while Blu-Ray standalone prices were still way too high and while Blu-Ray still struggled with not having it’s technology completely finished. Sony‘s Playstation 3 gamble had backfired a little, and that delayed an overwhelming surge for Blu-Ray early that provided an opening for HD DVD to sweep in and take the fight.

Sony had put Blu-Ray drives in all of it’s PS3 game consoles, thinking they had created a “trojan horse” that would place a full featured Blu-Ray player in millions of households almost instantly when the PS3 was released. Between the PS3 and standalone player sales, their installed hardware base would be far greater than HD DVD’s could possibly become with only standalone player sales and HD DVD add on drives for the XBox 360 to their credit. Unfortunately for Sony, several circumstances delayed and is still somewhat delaying the PS3’s success in being an accepted Blu-Ray movie player. First, the PS3’s Blu-Ray drive made the prices of these machines ridiculously high. At $699 for the high end model, PS3 sales were terrible out of the gate. Coupled with a total lack of any exclusive games, sales were way short of expectations. The much older Xbox 360 and the lower tech Nintendo Wii have far outsold the PS3 since it’s debut, at least until Sony further dropped the prices for the holiday season. More telling, the ancient Playstation 2 has so far outsold the PS3 since it debuted. The worst bit of news for Sony was that it was apparent that the majority of these early PS3 buyers had little interest in using the PS3 as a Blu-Ray movie player. Consider this: with the PS3, Blu-Ray’s hardware sales base was about 10 to 1 over HD DVD players. Yet, the sales of Blu-Ray disks were recently only about 1.8 to 1 compared to HD DVD. Every standalone HD DVD player was worth about eight PS3’s in terms of movie disk sales. At that rate, the much better HD DVD standalone sales (that’s largely to much cheaper prices) had to start taking big chunks out of Blu-Ray’s slim disk sales advantage. Keep in mind the number of high def disk sales in either format are still a small fraction of the sales in regular DVD format.

HD DVD had three other advantages that were not going to last forever.

First, it’s player costs were a lot less than Blu-Ray’s, and a significantly cheaper player would move a lot more units, shortening the gap in hardware base and disk sales. Players sold for as little as $99 this holiday season, and the most popular models were less than $200 at regular price, whereas the cheapest Blu-Ray player (not PS3) was about $399. The $200 price break is a significant one with mainstream electronics buyers. HD DVD moved a lot more players this holiday season than Blu-Ray, if you understand most PS3’s are not used as movie players.

Second, HD DVD’s players and disks debuted with the full compliment of features including mandatory internet connectivity and full featured support for things like interactive menus, picture in picture commentary and other bells and whistles. Maybe these are not very important to the average movie viewer, but they are to studios. Some studios were delaying the release of newer films on Blu-Ray because they weren’t ready with these technologies. Their BD-Java programming was proving troublesome, and until very recently all Blu-Ray players have been at best “1.0 profile” compliant, meaning they did not have internet features, picture in picture capabilities or other features that they’d been touting as great Blu-Ray advantages. Recently they’ve come out with “1.1 profile” players, but they still lack many of these features. Panasonic just recently announced the first “2.0 profile” player to be released, but still no word on when or how much it costs. There are going to be a lot of angry Blu-Ray player owners when they find out that the shiny new player they got this past Christmas will not be able to handle the cool features Blu-Ray 2.0 movies released as soon as this summer will have.

The third HD DVD advantage was production. While both formats use a “blue laser”, HD DVD is much closer to the old DVD technology than Blu-Ray is, and an inexpensive refitting is all that is required to convert a DVD production facility into an HD DVD production house. Blu-Ray requires entirely new equipment, and only a few Blu-Ray production facilities even exist today. Also, HD DVD’s waste ratio of “bad” disks to good ones is better than Blu-Rays, cutting down on wasted disks and resources and further reducing production costs.

Like I said these advantages were not going to last forever. Blu-Ray player prices have continued to drop and the gap there is narrowing. Now Blu-Ray has 2.0 players coming out and although they are going to be expensive eventually the prices on them will drop to consumer acceptable levels. Finally production costs on Blu-Ray disks will also continue to drop, and as more facilities are built any fears of production shortages or issues will be old news.

HD DVD failed to take advantage of these positives in their favor. Had they incorporated some insane price drops on their standalones, say to less than $100 for brand new players and used a rebate model for the 5 free disks that came with each player (so their sales counted in the final numbers), they would have generated a big holiday surge in both hardware and disk sale numbers that might have enticed Warner Bros to announce HD DVD exclusivity rather than Blu-Ray. That would have seriously swung the momentum in their favor and may have been the end of Blu-Ray. As it is, Warner recognized that a prolonging of the war might either result in neither format replacing DVD or it taking so long that profits from reselling catalog titles (the real benefit of a new format to studios: reselling the same movies over again in the new format) would be a far distant reality. Therefore they looked at which format had the best chance of ending this war quickly, and with the better studio support that Blu-Ray had they were the clear choice. Hence their decision.

HD DVD isn’t dead, but it’s on life support. Drastic action might still turn it around, but it would be a near miracle for them to win this thing now.

Personally I don’t really care who wins. Yes, I have an HD DVD player and a bunch of movies on HD DVD, but the player will still work even if I never get another HD DVD movie, and it can co-exist next to a Blu-Ray player someday. I’ll have no problem switching to Blu-Ray. However, I won’t be getting a Blu-Ray player anytime soon. I’ll get one once they have good 2.0 profile players out at a reasonable price. PS3’s are gaming consoles and have no place in a real home theater, I refuse to buy one of those. HD DVD is still the more consumer friendly format, and until Blu-Ray gets to it’s level in terms of player pricing and player features, it’s not a good buy yet.

One nice thing about Blu-Ray likely winning… for some odd reason Blu-Ray is more ready on the computer side for Blu-Ray burners and drives to be available at decent prices for your computer. Apple especially will be quick to adopt Blu-Ray Superdrives as they are part of the Blu-Ray Disk Association. Imagine having the ability to burn 50 GB of data on to a single disk for archiving purposes!