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Analysts Debate Blu-ray Significance

By Erik Gruenwedel | Posted: 10 Feb 2009

Depending on who is talking, Blu-ray is either evolving steadily as the high-definition sequel to standard DVD or a pricey consumer electronics curiosity.

J.P. Morgan analyst Imran Khan said he believes Blu-ray unlikely to be a significant near-term catalyst for packaged-media sales going forward considering the economy.

In a consumer survey conducted in December by a third-party vendor, just 62% of respondents were familiar with Blu-ray, and of those, more than 50% said they had no plans to buy a BD player in the next 12 months. This compared to 20% who indicated an interest in purchasing a player and 6% who already owned a BD player.

Among BD consumers, 4% said they intended to replace their collection of standard DVD with Blu-ray once the titles became available. Khan said the fact that only 14% of BD consumers intended to replace their DVD libraries underscored his position.

“The replacement of VHS libraries with DVD was a strong catalyst for the [home video] industry over the past decade,” Khan said in a research note. “For now, at least, it does not appear consumers intend to repeat the cycle with Blu-ray.”

However, a separate study from SNL Kagan found that despite BD’s sluggish start, the next-generation high-definition packaged-media format would attain nearly 60% market share in 2014 and generate $13.1 billion in revenue. The Monterey, Calif.-based research firm said BD market share would soar to 73.8%, or $15.6 billion in revenue by 2017.

“Blu-ray will be the driving force behind the video retail market throughout the next decade,” said Wade Holden, analyst at SNL Kagan. “The current economic climate, however, will slow the growth of this new format and likely keep it from reaching the heights that it may have [reached] in better times.”

Indeed, J.P. Morgan analyst Khan said his consumer study found price to be the primary deterrent to wider consumer adoption of Blu-ray. He said 42% of respondents would consider BD if the price rivaled DVD, even in the current economy.

In a comparison of the top 50 BD and standard-DVD movies on Amazon, Khan found the average price for a new BD release to be $23.90 compared to $17.91 for DVD. Library titles averaged $20.23 for BD and $10.66 for DVD.

The analyst determined that the average 33% price premium for Blu-ray movies over DVD was actually 29% on a weighted-average basis when factoring that the most in-demand releases such as The Dark Knight, Wall-E, Iron Man and Transformers in BD were priced just 12% above DVD.

“We expect Blu-ray discs to drive some incremental sales, but think it’s unlikely their contribution will drive significant out-performance in the coming 12 months,” Khan said.

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