Hooray! Consumers have finally made a choice about the future of home entertainment on DVD, and the news is not going to be pretty for certain companies or videophiles who may have invested too much in the wrong format. Some, like Blockbuster and Target, have already made decisions consistent with these trends, and we’ll get a chance to see how all of this plays out as the fall shopping season approaches.

And what exactly was that news? It’s that sales of High-Definition DVDs finally eclipsed those of VHS. According to Video Business Research, the high-def DVD segment is showing really good growth, while the rest of the DVD sales and rental scene is slowing down (obviously VHS too). Some of that slowdown is blamed on the lack of big hits released on DVD in the first part of this year, but home video execs expect to do a lot better as the summer’s mega hits become available for Christmas.

With sales at only single digits (around less than 3%) the high-definition DVD segment (HD DVD and Blu-ray combined) represents a tiny piece of the home entertainment market, but it’s a growing section and one that the studios will pay more attention to in the months ahead. For example, we can look forward to simultaneous releases of movies on HD DVD as well as standard DVD instead of waiting an extra month or two. The movie execs know that high-definition DVD sales will eventually start affecting DVD sales, but they’re not expecting it to happen this year.

As for VHS… I’m sorry fellas, but those of you still attached to this ancient technology finally need to move on. Even instructional and free infomercial videos are moving to DVD. Heck, if AOL was still at it, they’d be sending out DVDs too. Brand-name DVD players can be had for under $50, and HD DVD players are already in the low $200 range and heading lower each month so there’s not much reason to prolong your agony.

Phillip Swann, who runs TVPredictions.com, managed to get a few minutes with Microsoft’s HD DVD evangelist, Kevin Collins, and he put out a few videos on YouTube of the whole thing. This is a doubly challenging presentation for Kevin because Phillip is an HD DVD skeptic, and he’s also doubtful whether anybody really cares about interactive features.

In my opinion, interactivity is not the main reason to get HD DVD, but it sure adds some additional value to the discs and movies. Menus and options on HD DVD discs are amazingly more powerful than what you’re accustomed to on regular DVDs. For example, you can go to the menu and select your next chapter or feature while the movie is still playing.

In this video, Kevin demonstrates an HD DVD exclusive on the movie 300 where you can turn on a picture-in-picture mode and see the same scene before the special effects were added:

(click here in case the video is not visible up above)

Here, Kevin demonstrates more interactivity features such as (more…)

Warner Brothers and Paramount are the two studios releasing movies in both HD disc formats. One of the things that Warner has promised is a dual-format disc called “TotalHD” which contains both HD DVD and Blu-ray versions of a movie on a single disc. One side would have the HD DVD version, and you’d flip the disc over for Blu-ray. TotalHD discs were supposed to come out later in the year, but Warner announced at a DVD merchandising conference today that TotalHD will come out at the start of 2008 instead.

Warner would like to give retailers a good quantity of titles in the TotalHD format so that they can make the best use of their shelf space. Having to only stock one box instead of two is a big convenience for retailers, and a whole set of hybrid discs is probably easier to plan for than just a handful. Either that, or they’re having trouble getting discs ready in time for Christmas. Whatever the story, it will be much nicer for HD fans to be able to get both formats on a single disc. I’m sure these will cost a little more than a single-format disc, and we’ll have to see just how much more. I might pay an extra couple of bucks for both formats on a single disc, but it depends on the movie… and whether I have any plans on getting that other format.

And here’s the “Blu-ray becomes more like HD DVD” part of the news for the day: As reported in Video Business, the Blu-ray camp has decided to follow in the footsteps of HD DVD and put out their own 5 free movies deal with purchase of a Blu-ray player. I guess they just couldn’t deny the effectiveness of lower prices and good rebates. They’re still working on that lower prices part, and for their sake, I hope the free movies help move those $500 Blu-ray players off the shelves.

It makes me gloat a little bit inside because the arguments made about sales incentives being an HD DVD act of “desperation” are now effectively nullified by Blu-ray basically doing the same thing.

This analysis from Screen Digest, a media research firm based out of London, points out a few things about Blockbuster’s decision on HD DVD rentals. The analysis is generally consistent with my own blathering on the topic (my comments are in italics):

• Screen Digest’s research indicates that most HD rentals are being made online and not in-store. Blockbuster is still offering HD DVD online and HD DVD owners need not be concerned about being left out of the high-def party.
• Blockbuster can significantly reduce inventory costs in 1,700 outlets, which is a sound business decision. It’s much easier to provide a variety of titles instead of doubling up on movies in both formats (for the movies that come in both formats). Remember, each outlet has physical limitations on what can be displayed on the shelves, whereas the online operation can use warehouses galore.
• The announcement establishes Blockbuster’s relevance in the video rental business and is a good PR move. This was more positive news for them than they’ve had recently.They had announced a price-cutting plan sure to lose short-term money, but win customers away from Netflix; Earlier in May, they had posted bigger than expected first quarter losses.

I’ll be first to admit that this analysis sounds like someone from Toshiba’s HD DVD team wrote it, but I looked up Screen Digest and found they’re an old company whose media research, even on games and music, has been widely quoted by many outlets over the years. Companies like these earn their income from selling their research work, and need to be very objective or else they get written off as biased and unreliable. While it’s expected that the editor at HDDVD.com might be saying great things about HD DVD, it would be totally inappropriate for Screen Digest to come from that same kind of place.

I’m hoping I can keep this promise, but the next couple of posts won’t be about business issues. I’m sure some of you might prefer to hear about new movies or other developments.

The reason I’ve been highlighting the business cases is to demonstrate to all those who count themselves as early adopters of HD DVD, that they need not worry that they bought into a losing prospect. Those who say that one format or the other one has won or lost are not looking at the big picture. It’s way too early for gloom and doom, or even overjoyous headlines of victories. It’s very much like predicting the outcome of a sporting event only a few minutes into the first period. It makes for good banter, but not much more.

A lot about how things play out in the HD DVD and Blu-ray format war are just plain common sense. One need only refer to other competitions in the consumer electronics marketplace to see how history is repeating itself with the next-gen DVD formats. This week’s edition of Business Week has a great analysis that echoes themes and ideas presented here in past articles:

• Sales figures are too inconclusive to say that one side is doing better than the other, and retailers will need to keep supporting both formats for quite a while.
• Not counting PS3 sales, Blu-ray player sales are behind those of HD DVD players, and sales of HD DVD players have dramatically increased in the last couple of months.

An interesting tid-bit in that article is about Toshiba’s efforts to invite Chinese manufacturers to the HD DVD party. In recent months, there had been news about WalMart possibly bringing out a $199 or $299 HD DVD player later in the year from one of these manufacturers. That deal was since denied, but I’m predicting that we’re likely to see a bunch of inexpensive HD DVD players as 2008 starts in another five or six months. That’s the kind of pricing strategy that will ensure HD DVD a solid footing on retail shelves for quite a long time. And it’s another good reason for you to get off that fence and get in on the HD DVD action now.

By the way, you don’t have to wait until 2008 for a $199-$299 HD DVD player, because players are already selling in that price neighborhood right now at retailers like Amazon.

As June draws to a close, so does the $100 instant rebate program on Toshiba’s HD DVD players. You might recall that for the first half of the month, the $100 discount started on the lower-end models, was then extended to all models, and also included an additional discount on Toshiba’s HDTV sets in the last couple of weeks. It’s an instant rebate, which means the savings happen at the time of purchase. Well, this all ends on July 31, so if you’ve had your eye on an HD DVD player, act soon or you’ll miss the great deal.

Or will you?

I am not a Toshiba insider, but my business sense “radar” tells me that one of the following scenarios is likely, or maybe some combination:

• Surprise! Welcome to the new prices on HD DVD players! They’re all $100 off from now on.
• Prices will be lowered by $50-$75 on most HD DVD players. This would still make them cheaper than before, though not quite the $100 off that happened in June.
• Another rebate program will come along by the end of the Summer or in time for Christmas.

Any kind of good discount will be enough to keep the sales momentum going, and increasing the adoption rate for HD DVD is crucial in the first couple of years of this technology. The competition’s adoption rate got a big boost from the mandatory inclusion of Blu-ray on PS3 units, but the sales numbers for individual Blu-ray players is actually lower than HD DVD players. Now that the initial PS3 sales boom is over, most of the new Blu-ray numbers are dependent on sales of dedicated players, and in this particular arena, HD DVD has always been ahead. Sales of Toshiba’s HD DVD players and Microsoft’s HD DVD add-on for the Xbox 360 have been pretty darn good. The corporations file their quarterly reports in a couple of months, and we’ll get to see first-hand what the real sales results are for the June rebate program. When those numbers come out, I think we’ll find that consumers have chosen HD DVD in large enough numbers that the studios and other providers (ahem, Blockbuster) will have to support the format if they’re not already doing so.

Blockbuster has chosen a side in the format war, and they didn’t pick the side that this site is named after. This is definitely a significant event and qualifies as a setback for those on the HD DVD side of the fence. Is it the end of the world for HD DVD? I doubt it. Is it the beginning of the end? We’ll have to wait for sales numbers to come in from the rest of the summer to know for sure. Rebate and free movie promotions brought in a lot of HD DVD owners in the month of June, and they’re still coming aboard. This momentum will carry forward into the 2007 Christmas shopping season and result in demand for HD DVD movies at various retailers (and rental outlets including Blockbuster whose Blu-ray decision only applies to their store locations—they’ll continue to offer HD DVD online).

In reading around the internet about this Blockbuster news, I saw a few comments that suggested some ulterior motives were at play. Maybe they are, and maybe not. All we can do at the moment is take their news at face-value and see what happens in the weeks and months ahead.

I’ll only start worrying if retailers stopped carrying HD DVD players. I really doubt that’s going to happen very soon, and it’s not because I’m a “fanboy” with an emotional attachment to HD DVD. It’s because the consumer electronics world is pretty complicated, with quite a few interdependencies. There are various incentives to dealers and distributors that we consumers know little about, which determine the products that appear on store shelves and the prices that we see. Here’s a practical example, but not from the consumer electronics world: haven’t you ever walked into fast-food places and noticed that you only get to choose between all Coke-related brands of drinks or Pepsi-related brands? It’s that way because of the way soft drinks are distributed by bottling companies, and whatever deals the bottlers have made with the fast-food chains. Coming back to consumer electronics, there are many of the same kinds of business principles and practices to factor in.

The game is not over for the HD DVD format. In fact, I bet more good deals are about to start coming our way very soon as the HD DVD camp decides to fight back and fight harder, and other businesses decide to step in and take advantage of the business opportunity that Blockbuster just handed them on a silver platter.

UPDATE: I’ll expand on the “interdependency” thing in another post. What I meant to convey is that stores won’t decide to stop carrying players just because a rental company makes a decision. They have many things to consider for themselves, such as other product lines that are related to HD DVD, and not just the HD DVD players or movies.

It happens all the time in politics, and business is not immune to it either: everybody paints the best picture possible for even the smallest bit of good news.

In my opinion, the specific numbers don’t really matter because these kinds of press releases come and go all the time, but it was just the other day that Toshiba and friends announced that their rebate program had resulted in some really great sales numbers for HD DVD players. The increased sales data were actually pretty good in terms of percentages and short time-frames, but in the bigger picture, the format war is still on and going strong.

The Blu-ray camp is no stranger to spinning either. For example, large numbers of player sales makes it sound as if the world has overwhelmingly chosen that format. The truth is (more…)

Some of you might say that day will come when “hell freezes over,” but history demonstrates that this particular hell has frozen over numerous times in response to evolving business conditions. Let’s go back a few decades (perhaps before you were born) when the major videogame consoles were made not by Sony, Microsoft, or Nintendo, but by Atari, Mattel, and Coleco. Atari was the biggest of them, and they could boast about the numerous exclusive titles in their library. Mattel had some pretty good games too, but nobody could really compete against Atari’s big lead.

The business reality for both Atari and Mattel was that there were plenty of people in the other camp who would never cross over. There were enough of these potential customers that it made business sense to make games for the competitor’s system. It seemed like heresy to suggest that Atari would make its classic games like Battlezone, Centipede, and Pole Position available for play on Apple ][ computers, PCs, or the game systems from Mattel and Coleco—but they did. Atari’s venture into making games for PCs and other game systems was called AtariSoft. Mattel and Coleco even joined the cross-platform lovin’ and followed Atari’s example. (By the way, The First Quarter : A 25-year History of Video Games is a great book to read if you’re interested in more videogame history)

What’s the HD DVD and Blu-ray point here? (more…)