HD DVD Price Cut Shakes Up Format Wars

Mere days after a group of Blu-ray-supporting studios orchestrated an event to show off the Blu-ray Disc format in Los Angeles, the HD DVD format achieved a dramatic resurgence with Toshiba's move to a $100 player. Never let it be said that consumers don't love a bargain--but will price alone decide this format war?

That's a tough question to answer. Clearly, price plays a role. According to a report from market research firm The NPD Group, 62 percent of HDTV owners are waiting for player prices to fall before they buy. There's a historical precedent, too: Conventional DVD players and upscaling DVD players--which convert a standard DVD's 480i-resolution image up to high-definition 1080p for improved playback on an HDTV--both exhibited rapid sales growth as their prices fell below $200.

Toshiba's flashy, visibility-raising strategy was a success. When the price drop hit, Best Buy and Wal-Mart stores (plus a few other retailers that matched their prices) burned through unsold stock of Toshiba's second-generation HD DVD player, the HD-A2--and in so doing, put HD DVD players into the hands of reportedly 90,000 new users.

The aggressive pricing was somewhat stunning considering that the purchase of an HD DVD player also gets you at least five free movies by mail. The $100 price point was also right in line with the price of an upconverting DVD player, which made this deal a doubly good bargain. No matter how the format war turns out, having such a cheap HD DVD player at the very least improves your DVD playback, regardless of whether you end up using it to play HD DVDs. At $100, the buying paradigm changes: Now you're not so much choosing a new format as you are getting support for the new format as a no-risk bonus on top of the purchase of an upscaling DVD player.

"The low price point was, if anything, a test and a precursor," states Paul Erickson, director of DVD and HD market research at DisplaySearch. "The question was: How price-elastic are consumers for next-generation DVD below $200? Below $100?

"With this sale, Toshiba found out. Curiously, even Blu-ray owners said they took the plunge into going dual-format because the price was simply so close to that of upscaling DVD players; HD DVD was seen as practically no-risk--especially with five to ten free movies."

What About HD Movie Sales?

That no-risk assessment raises questions, however. Does a person's purchase of an HD DVD player mean that they intend to begin investing heavily in a new library of movies? The question is not unlike the one that hangs over the PlayStation 3's inclusion of a Blu-ray Disc player (and a very capable one, at that): Just because it can play Blu-ray Discs doesn't mean people will buy the discs.

Ultimately, the movie "software" is a key component of this story. The truth will be seen in the coming months, when we'll learn whether Blu-ray can maintain its healthy 2:1 disc sales ratio.

As of the beginning of August, The NPD Group estimates, cumulative units shipped to retailers totaled about 200,000 for Blu-ray and 256,000 for HD DVD. Of the stand-alone high-def players sold, NPD says, more than 70 percent sell for less than $500.

"You'll see a short-term rise in HD DVD software sales," theorizes Erickson, "rooted in the fact that a big burst of players have sold through [recently]. The first step to sustaining long-term large increases in software sales is getting the hardware in-house, which Toshiba has done. The HD-A2 is a Trojan horse, just like the PlayStation 3 is for Blu-ray."

The second step to boosting software sales, adds Erickson, is having a large library of content. In this respect, HD DVD still falters: Of the major studios, only DreamWorks, Paramount, and Universal are exclusively in its camp. Warner Brothers continues to straddle the line ably, although Dan Silverberg of Warner has said that the company is continually reevaluating its dual-format stance, based on where the market currently stands. Silverberg has indicated that such analysis could mean that nothing will change--or that everything might change by the start of next year.

Meanwhile, if you want to watch The Simpsons Movie, Close Encounters of the Third Kind, Cars, or Ratatouille, you'll need a Blu-ray Disc player, since those titles are exclusive to Blu-ray Disc.

Well, at least the HD DVD player you just scored for a song will upconvert your DVDs for your bedroom HD set. Or maybe it will come in handy when you want to buy the classic Star Trek series for the umpteenth time, on HD DVD.

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