Big Sale Brings Big Results
by Pravin on November 7th, 2007 in news.
An article in Video Business estimates that around 90,000 HD DVD players were sold in the last few days surrounding the Walmart $99 promotion. This number includes the Walmart price-matchers such as Circuit City and Best Buy, but since it doesn’t cover every single retailer, they think that the final number could even be a little higher.
Let’s say that they overcounted by several thousands. For example, many of these units are now being resold on eBay and craigslist, and many more are not going to be opened up until Christmas morning. (If you buy one from eBay, etc. make sure the seller hasn’t removed the UPC code, thus disqualifying you from the “5 free movies” offer)
Even if only half of those HD-A2s and A3s were immediately put to use, we should start seeing a healthy bump in HD DVD software sales in the next couple of weeks. This is important because it sends a message to retailers and content providers about the vitality of the HD DVD format. Concrete numbers proving HD DVD is here to stay means that retailers who already carried HD DVD will make more room for it on their shelves, and those who didn’t offer HD DVD will have to think about starting. It translates into better selection when HD DVD owners go looking for movies to buy or rent.
Some of you might have heard that Toshiba lost a ton of money on each of these players, and that this was some sort of desperation sale. A few critics try to point out that this was a discontinued model. A lot of this is just noise from those opposed to HD DVD.
On the discontinued model issue… Thanks to the fact that the HD DVD spec was sufficiently finalized two years ago, all generations of HD DVD players can do pretty much the same thing, and firmware updates provide some level of future-proofing. Buying an older model doesn’t mean you’re losing out on cooler features. It’s natural for Blu-ray supporters to make the incorrect assumption because it’s a different story for them and how features work across their generations of players.
Now, about that loss. Yes, $99 is a huge discount, but the reported $500 loss per player is way off. The author at Gizmodo even said he was making the number up. That figure was based on costs for the very first HD DVD player which was basically a PC with an HD DVD drive. The first of anything is always much more expensive to make than the next few tens and hundreds thousands. It’s easier to make an HD DVD player today than it was two years ago when Toshiba’s first player cost them almost $700 a unit. Whatever loss Toshiba had on these HD-A2s, it was more likely to be in the neighborhood of $100 and not $500.
By the way, the Gizmodo article was updated to report that Toshiba did not instigate the price move, and that it was all Walmart’s idea, and the other retailers just followed. So maybe Toshiba didn’t even lose the $100 in the first place.
The retailers who participated in the big sale were counting on making up the difference with HDMI cables, movies, and other purchases. Which brings us to why this whole thing was not a desperation move…
It might sound crazy, but selling things at a big loss is standard practice. You already see it in the “free phone” and rebate deals offered by cell phone carriers. There’s another great example in the video game industry where Sony and Microsoft take huge losses on their game consoles in the first few years of manufacturing. This sacrifice pays off later as the user base grows and money can be made on software sales and licensing fees. It’s the same story with HD DVD players.
There’s a small difference on the Blu-ray side where Sony is the only company willing to take the big hit on the $399 PS3 (the game console that plays Blu-ray movies), while the other manufacturers make more modest sacrifices. As a result, $399 and $350 are likely to be the lowest prices we’re going to see from Team Blu-ray this holiday season on “current” Blu-ray players.
And that works nicely in our favor for you and I as HD DVD owners.
November 7th, 2007 at 6:21 am
This is certainly very good news as it should not only permanently lower HD DVD hardware, but eventually trickle down to the software as well. Of course Walmart already had a sale on a sizeable number of titles at $14.96 to coincide with the hardware sale. As to the whole discontinued issue, I agree that is a NON issue. I have an A2 that I purchased back in July and there have already been two firmware updates. I have not run across any disc that it would not play. This is a rock solid performer and at $100 it was an absolute steal. Further people who purchased the player at that price will not think twice about upgrading down the road should they follow the need. When you spend $500 for a player you are going to want to hold on to it longer than you would a $100 model.
For those who are in the BluRay camp this is also good news because I have to believe that we will see some price reduction on their stand alone players as well over the next quarter. Lower prices are good for ALL of us.
On the subject of taking a loss on the hardware, that is also a NON issue. Microsoft took a big hit on the Xbox 360 and they seem to be doing fine. It is called a loss leader. If you ever order a lobster in a restaurant, that is a perfect example of loss leader. Lobster always costs the restaurant more to purchase and prepare than they charge. The restaurant makes that up (and more) by selling you a glass of wine that costs them eighty cents to pour for five dollars. It is a sound and successful technique. People who question that have never been in retail or the service industry. If I am any barometer of the average customer, that 90,000 players should translate into about a million discs sold within three months. I am basing that on a little more than 10 discs purchased by each person who bought the player. In fact I am being conservative on that as I have purchased 30 movies in that time but I suspect I purchased more than the average.
November 7th, 2007 at 1:00 pm
This is great news for HD DVD. Finally, the entire mass market can afford an HD DVD
player, including myself. I bought one of the $99 players, and it was THE LOOK AND
SOUND OF PERFECT. Sorry Blu-ray fan boys.
November 7th, 2007 at 1:33 pm
I have been lucky to get the HD-A2 for $99 as well. I’m very pleased with the performance of the unit, considering absolutely stunning video quality. Now the only drawback is the need to upgrade the A/V receiver to the one capable of decoding Dolby HD and Dolby Digital Plus.
Couple of days ago I was glancing through the High Definition DVD selection (both HDDVD and BluRay) at the local Circuit City. While volumes wise, they both offer a comparable selection, I notice that BluRay had more cartoon movies. Personally, for the sake of my kids, I would like to see titles like Cars on HDDVD as well.
November 7th, 2007 at 2:44 pm
I just heard on the radio that this weekend if you buy a 40 inch Toshiba HDTV and a HD DVD player that you get an instant $200 rebate. I did not catch the details as to the stores involved but this essentially would five you an HDA2 or HDA3 for FREE!
November 7th, 2007 at 7:12 pm
@JK - It would be great to have those Pixar movies, but the silver lining is that they up-scale decently. No, it doesn’t beat having them on HD, but it’s all we can do for now.
@holmes - Best Buy has an offer like that: http://www.bestbuy.com/site/olspage.jsp?type=category&id=pcmcat135100050033
November 12th, 2007 at 6:32 am
Sometimes we forget that the US is not the only market for High Def:
The US Sony boss may have recently expressed doubts over the format war, but here in the UK, it’s all gun blazing as another PR release is sent out concerning HD DVD statistics.
The European HD DVD Promotional Group has announced that European HD DVD player owners have already bought an average of 3.8 movies each, compared to 0.6 movies sold per Blu-ray player.
The figures were collated by independent research group GfK and analyse the number of movies sold for all HD players (standalone players and consoles) across the UK, France, Germany, Spain Italy and Benelux countries.
The overall attach rate is highest in Spain, where HD DVD owners have bought an average of 5.7 movies per player, which is over 14 times the attach rate for Blu ray (at 0.4 per player). Here are the other country breakdowns:
* Italy: HD DVD owners have bought an average of 4.4 movies each (11 times the Blu ray figure of 0.4 per player).
* France: HD DVD owners have bought an average of 5 movies each (over 8 times the Blu ray figure of 0.6 per player).
* Benelux: HD DVD owners have bought an average of 2.9 movies each (over 7 times the 0.4 movies bought by Blu ray owners)
* Germany: HD DVD owners have bought an average of 2.9 movies each (which is over 4 times the 0.6 movies bought by Blu ray owners)
* UK: HD DVD owners have bought an average of 3.7 movies each (which is over 4 times the 0.8 movies bought by Blu ray owners)
“HD DVD not only offers all the picture and audio benefits of other HD formats, it also has the most affordable and feature-rich players on the market today. Unlike other HD formats, every player produced gives the consumer the same consistent HD performance and experience,” said Alan Bell, chief technology officer, Paramount Pictures.
It’s your turn, Blu-ray camp…
November 12th, 2007 at 6:55 am
By the way, “It’s your turn, Blu-ray camp…” is taken from the article that has been quoted, and is not an invitation for PS3 fanboys to explain anything here. I think it alludes to the common format war practice of each camp coming out with their own explanation of why the other side’s numbers and reports don’t matter.
November 12th, 2007 at 7:32 am
Correct. I should have deleted that line but in all honesty it got past me. I for one am completely baffled by the passions this whole “format war” seems to bring out in people. One would think we were talking Sports or (even worse) POLITICS! I am pretty much brand neutral with technology, looking for the best individual device for my needs. I have Dell and Toshiba computers, a Sony PSP, Polaroid DVD recorder, Xbox 360 (Microsoft) etc. None of those companies pay me or any of my family so my only concern is getting the best device at the best price. When it comes to High Def DVDS (Blu-ray or HD) I have yet to see any real difference in quality between the two. Yes i know there are lots of arguments along those lines but they are really of the nit-picking variety. Sort of like the difference between various levels of CPU where the REAL LIFE difference is not apparent. Thus I got in with HD DVD because of the price, the only real difference between the two. Of course there is the argument about content but that is pretty much even and for those not on HD DVD, I can get the SD DVD and upconvert. I don’t coun’t every pixel in a picture and SD looks great upconverted. At the end of the day I am sure that if/when Blu-Ray players dip to around $200 I will pick one up as well.