DVD

HD-DVD was formally launched last week with a single, $499 Toshiba deck. HomeTheaterView has not had a chance to get in a review unit yet, but Evan Powell over at Projector Central bought a unit and gushes buckets about it.

Part of his review is a primer on the difference between 1080i and 1080p at the source vs. how its delivered to the display; this type of arcane differentiation is what pushes normal people to choose formats based on even dubious specs. For now, there’s nothing concrete to compare HD-DVD to in the market. But there’s so little content for HD-DVD that a few month lead over Blu-Ray probably won’t make much difference in the long run.

-avi

Yes, at long last, the industry is consolidating the number of media types for pre-recorded movies… unfortunately, it looks like both Blu-Ray and HD-DVD will be launched as is, without any compromise.  This really isn’t all that unexpected, given the jockeying back and forth lately: Blu-Ray announced that its media can be manufactured inexpensively (which was supposed to be a key HD-DVD advantage) and HD-DVD announced 45GB capacity versions (nearly matching Blu-Ray’s 50GB storage, which was supposed to be a key Blu-Ray advantage).  But the two formats are fundamentally different at a technical level.  For example, the laser reads a different depth for each format.  It might not be impossible to create one player that handles both discs, but it turns out it is impossible to merge the two formats themselves.

So what’s dead? VHS.  I know I haven’t rented VHS since the dawn of DVD almost nine years ago, but I’m an early adopter; established formats generally take a long, long time to die.  However, Beuna Vista (a Disney subsidiary) has announced that Herbie: Fully Loaded will arrive on DVD on October 25th, and on VHS… never.  Keep in mind that this was a moderately successful family film, the type of title that often makes most of its money on video sales and rentals, if not at the box office.  This is the type of title that keeps full frame versions alive.  This is the type of title that traditionally sold well on both VHS and DVD.  And yet, Beuna Vista plans no VHS version.

May the VHS format rewind in peace.

-avi 

There’s been a flurry of news over the past month about Blu-Ray and HD-DVD backers getting together to avoid a format war for the next generation of high definition discs.  I’ve avoided covering each step on the drama, so here’s a quick recap of the posturing between the two camps:

• "Hey, we’re new here at Sony, and going proprietary hasn’t worked out so well in the past few years. Let’s work this BD/HD-DVD thing out"
• "OK"
• "Um, we can’t,"
• "No, really, we’re still trying,"
• "Look! HD-DVD can do 45GB per disc, too!"
• "A single format doesn’t look likely – the technologies don’t mesh well."
• "…but we’re getting our CEOs involved to hash out licensing revenue share possibilities"
• "Nope, not looking likely…"

To this, Bill Hunt over at The Digital Bits took in a bit of E3 hype and concluded that Blu-Ray has already won (5/17/05 "Early Post"), based on the potential PS3 installed base:

I’m going to go out in a limb right now and post something that some of you may consider a bit controversial. But I think the writing is on the wall. I think the format war is over before it’s even begun, and the Toshiba/HD-DVD camp is toast.

Why? You know how many PlayStation 2 systems Sony’s sold since that unit’s launch? 87 million. Let me repeat that. 87 million. 1.5 million were sold in the PS2’s first month of availability alone.

I already covered the PS3 angle back in March noting that with PS3 support, Blu-Ray should be able to solve the chicken and egg problem better than HD-DVD to get an installed base. Of course, that assumes that Sony prices the unit within reach of the masses. Despite lots of details coming out of the PS3 launch this week, pricing hasn’t been announced, so Sony could theoretically decide to sell the PS3 at $999 and kill the market.  They won’t do that, but console pricing will have an outsized impact here.

-avi

It seems like everybody’s writing stories about the upcoming HD disc format war between HD-DVD and Blu-Ray (BD).  The technical specs are reasonably locked down, but everything else is up in the air – perfect fodder for journalism/rampant speculation.  Gizmodo had prematurely called HD-DVD the winner based on studio support (I called them on it here).  More recently, DVDFile.com posted a follow up of sorts – also trying to predict a winner based on the various studios and where they’re currently lined up on the issue. This is pretty hard to do because the studios are about evenly split, and will likely move to whichever format appears to be winning.

A couple of key points that tend to get overlooked:

HD-DVD is cheaper/easier to replicate.  OK, this isn’t overlooked, everyone points this out.  But the implications go well beyond speed to market and Warner’s willingness to flood the market with titles.  Plain old DVD penetration is now approaching 75% in the U.S. market. With cheap players, cheap software, a huge installed base, and no need for an expensive high definition TV, regular DVD looks likely to remain a mainstream format indefinitely.  No HD format is going to kill off regular DVD any time in the next decade; killing the golden DVD goose would be suicide for the studios.  If Hollywood is going to make any additional money over and above regular DVD revenue, there are just two ways to do it:

·        One way is to sell high definition discs as a higher priced separate SKU in addition to regular DVDs. Never mind retailers’ reluctance to stock even more SKUs of each title, nobody wants to reinvent the limited laserdisc market.  However, I should point out the videophile market is considerably larger now than it was: Joe and Jane Q. Public has gotten used to director’s commentaries, proper film aspect ratios, and are beginning to gain exposure to HDTV.

·        The other way is to sell HD-DVD as part of every "collector’s edition" SKU along with regular DVDs. If HD-DVD replication costs are essentially the same as regular DVDs, that would enable studios to continue with a business model that seems to be working already: a basic movie-only SKU, and a deluxe, 2 or 3 disc collector’s edition — only one of those discs has the movie on HD-DVD, adding value, and keeping the pricing of the collector’s editions from slipping down DVD’s brutal price curve. This strategy may also negate BD’s space advantage — just keep all the supplements on the regular DVD disc – most of them don’t have to be in high def anyway.

So HD-DVD is a winner, right?  Not necessarily.  At least initially, prices for the decks will be in the $1,000 range.  CE vendors will be reluctant to push prices too low, too quickly, as there’s no margin left in regular DVD players, and they’ll want to make back their R&D.  Still, prices will have to fall fast because a pricey HD-DVD player is going to be a tough sell with a full blown format war on — consumers will simply wait on the sidelines.  Even with reasonably priced players, DVD may be considered "good enough" and consumers may direct their attention elsewhere in CE-land (it’s shocking, but if you look at the numbers, apparently everyone has not bought an iPod and a cameraphone yet). And then you have a classic chicken and egg problem — just how much will studios push a format for an installed base that doesn’t exist? 

It’s here that BD has a secret weapon: the Sony Playstation 3.  If Sony’s next gaming console is a hit, that will put millions of subsidized BD players in homes, neatly solving the player/software chicken/egg problem. If the software is difficult to master and costly to replicate, you still may end up with a more limited, laserdisc-like audience.  But if HD-DVD players don’t sell in volume, a limited videophile market may be all we get from this group of HD disc formats, until the next new thing rolls along, or the whole industry goes hard drive or on-demand.

Aren’t format wars great?

-avi

Wired is reporting that Disney has given up on Flexplay’s EZ-D disposable DVD format.  The press had a field day getting environmental activists all riled up against the format, but that’s just a sidebar.  If consumers found disposable DVDs moderately convenient, then the used discs would end up in the landfill alongside the rest of our disposable society.  If the discs were a smash hit, then we’d end up with another color plastic recycling bin for media (which might not be a bad idea anyway.  I must throw away hundreds of discs a year, even after AOL stopped mailing them to me twice a day).  Since the format didn’t even make a dent, conventional wisdom says that consumers aren’t interested in a disc that self destructs 48 hours after you open the case.

Conventional wisdom is wrong – the product hasn’t been adequately tested to determine anything at all about consumer willingness to adopt one-time-use media.  Simply put, the business model here is all wrong.  Traditional video rental places won’t carry the product because there’s no return trip to encourage repeat business, and the pricing structure doesn’t fit in with their large scale agreements with Hollywood. Non-traditional locations (supermarkets, convenience stores) can’t sell the product at $5 or $7 each – there isn’t much margin in it for them, and they’re already carrying regular DVDs that sell in or just above that range.  Target has an entire line of DVDs for $5.50, including some decent flicks (for example, the Special Edition of Total Recall).  Other limited-use entertainment is priced lower: any cable subscriber with a STB can get VOD from their cable provider for $3 to $5 without ever leaving the house (and many digital systems provide for multiple start times or fast forward/rewind capabilities). 

So let’s recap: nobody wants to sell this, “real” DVDs are priced at or just above EZ-D, VOD is priced below it. How exactly do you conclude from this that consumers aren’t interested in anything that self destructs after 48 hours?

Somewhat related, The Wall Street Journal had an article today (I got the paper version, no link, sorry) comparing services for legally downloading and watching movies over broadband on a PC. MovieLink and CinemaNow provide downloable movies for $3 to $5, which also self destruct (within 24 hours of hitting “play”).  However, there’s a unique value proposition there for anyone who specifically wants to watch movies on their PC (for example, notebook users heading out on the road).

-avi

I don’t know why this didn’t come out at CES, but Samsung is expanding their lineup of upsampling DVD players.  The key product feature is added 768p support, which is the native resolution for many plasma and projectors (the players will also do 480i for regular TVs, 480p for digital EDTVs, and 720p and 1080i for other HDTVs).

This is great news if you have a recent model 768p TV with DVI or HDMI, but this is NOT HD. It’s merely moving the process of image manipulation from your TV over to your DVD player. Your HD TV has more lines of resolution than are on a DVD, so the image must be upconverted somewhere; doing it in the player itself can offer a slightly better picture by keeping the signal digital throughout its journey from disc to screen.  Of course, that’s only if you

1. have a digital TV
2. with digital video inputs (DVI or HDMI)
3. use those inputs, and
4. set everything up correctly.

I highly doubt most consumers will understand the nuances or set things up to properly take advantage of them.  I remember how many questions I got when progressive scan DVD players came out (progressive scan DVD players make NO difference on analog TVs and often make no difference even on digital TVs that have good internal image processing). Lately it seems that any time you put the word high definition in the product description, consumer confusion ensues.

But can you blame the CE industry for trying?  Margins on regular DVD players (even ones with progressive scan) are in the toilet. My supermarket sells $29.99 DVD players.  So does the local gas station.  Banks give them away instead of toasters when you open a checking account.  Adding progressive scan didn’t help things for manufacturers, as that simply became another feature on even the cheapest DVD players.  Consumers rejected Nuon and similar "DVD and" schemes, and consumers are ignoring DVD-Audio and SACD without even discovering that they exist.  Video killed the audio star (receiver and component sales have been dropping for years), and DVD has been a gravy train for Hollywood but not Japan.  HD-DVD and Blu-Ray are the CE industry’s last hope for reclaiming profits out of media players, which is why we’re getting a HD disc format war nobody wants.  In the meantime, the hope is that upsampling players will convince consumers to buy another deck (and spend actual money on it this time).

-avi