Blu-ray winning studio war, but needs to sway consumers

By Mike Snider, USA TODAY

The end of the high-definition disc war seems in sight, say industry observers, with major studio Warner Bros. jumping to the Blu-ray Disc camp and leaving the competing HD DVD format with a dwindling base of Hollywood support.
But ahead lies the real uphill battle: selling high-definition discs — in any format — to consumers who appear more than satisfied with the DVDs they've already bought over the past few years.

DVDs, like CDs before them, were adopted by the mass market quickly because they represented a demonstrable combination of improvements in convenience and quality over VHS and LPs, respectively. But U.S. consumers typically give greater weight to convenience — remember laserdisc? — over quality.

And most of what high-definition discs are selling is a prettier picture.

Seven out of 10 households with high-definition TV sets see no need to replace their DVD players, according to a recent NPD Group survey of more than 5,500 households. Many said they plan to wait for the format war to end, for prices to drop and movie selection to increase.

"DVD was replacing a clearly inferior product," says Russ Crupnick, NPD Group senior entertainment industry analyst. "The quality of the picture, and ability to find particular scenes and the bonuses, all those things simply didn't exist on VHS. And once the prices started to come down to something more reasonable, it truly became a mainstream product.

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"One of the main challenges for the next-generation" disc, he says, "is you have a product out there that is pretty darn good in consumers' eyes."

DVDs do fall short of maxing out the potential of today's popular high-definition flat-screen sets. And movie studios and consumer electronics manufacturers, having seen DVD sales plateau, want movie lovers to make the transition to the next wave, with up to six times more resolution plus more interactive features.

The problem to date has been the struggle between the formats — HD DVD, supported by Toshiba and Universal, Paramount and DreamWorks, and Blu-ray Disc, backed by Sony and studios Disney and Fox. Warner recently announced its plans to quit releasing movies on both formats and support only Blu-ray starting in June.

"This was really driven by consumer behavior and the market research we did," said Kevin Tsujihara, president of Warner Bros. Home Entertainment Group.

As a result, "we saw a sales boost for Blu-ray after the Warner announcement," says Bill Hunt of The Digital Bits (www.thedigitalbits.com), a video enthusiast website. "A lot of people who have been interested but were sitting on the sidelines will take that risk (of buying a Blu-ray player) now."

It faces an enormously popular entrenched format. Since DVD launched in 1997, consumers have purchased 229 million players, and more than 90 million homes (84% of all U.S. homes) have at least one, according to the Consumer Electronics Association. That's nearly as popular as CD players (85%), though still behind VCRs, which topped out at 94% in 2002.

So far, consumers have bought about 4.5 million high-definition disc players. But the statistic is skewed because nearly three-fourths of those are Sony PlayStation 3 game systems, which also play Blu-ray movie discs, and 270,000 more are HD DVD add-on drives for Xbox 360.

That means slightly more than 1 million standalone players have been sold since April 2006. Market tracking firm DisplaySearch estimates about 52% of those are HD DVD, which had a two-month head start in stores and generally lower prices for its players. But nearly two-thirds of all movie disc sales have been Blu-ray (6 million vs. 3.7 million).

Officially, the format war continues. HD DVD developer Toshiba ran an HD DVD ad in certain parts of the USA during the Super Bowl (a pricey proposition that can cost $3 million); the ad touted price reductions that brought some players below $150, a move to counter recent retail promotions offering free Blu-ray players with TV purchases at select retailers. And the last word from Universal Studios is that it plans to continue to support the HD DVD format.

Despite criticism that neither format has grabbed consumer attention, total player sales are ahead of DVD's early growth rate. "So in a sense, one could argue that the uptake has been a little bit better than the DVD," Crupnick says.

If marketers simply tout the formats' higher quality, they could face the fate of laserdisc and sinking music formats SACD and DVD Audio, says Richard Doherty of The Envisioneering Group.

"There is too high a chance of that," Doherty says. "Months have gone by without either side really communicating these other features that go beyond the picture and (better surround) sound. That is the challenge of the next six months, convincing consumers that a high-definition disc does a lot of things, like giving you versions that work on your iPod and can shift around the house."

Hitman, due March 11 from Fox, is the first Blu-ray to include a digital copy of the movie that can be transferred to portables such as Apple's iPod. Newer titles will take advantage of online features such as downloadable content, live events, games and fan communities.

"Blu-ray is going to become a creative playground for filmmakers, even more so than DVD was or ever could be," says Fox's Steven Feldstein.

The Digital Bits' Hunt, who still has a small collection of laserdiscs he won't part with, initially worried that the format war could marginalize the discs. But now, he thinks Blu-ray could flourish. "I have a feeling that even those who said 'DVD is good enough for me,' once they start watching high-def, will change their mind."

And despite increasing availability of movie downloads, packaged media in the form of shiny discs remains the most convenient method of distributing high-def content, says Doherty. "With physical media, you carry around a couple discs and it's like 10 hours of broadband time. So it's still got a lot of bang for the buck," he says. "The Internet is not ready to replace DVD, let alone high-definition."