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The Format War Abroad

1 Feb, 2008 By: Chris Tribbey

The high-def format war runs hot in North America, with each piece of daily news causing giant waves.

But in the rest of the world, high-def causes barely a ripple. Everyone outside of the United States is sitting back, watching Blu-ray and HD DVD duke it out. Because, analysts agree, high-def will likely live or die based on what happens in North America.“Outside the U.S. the high-def market is still exceptionally small, a result of higher hardware costs and later launch dates,” said Richard Cooper, video analyst with research firm Screen Digest.

Andy Parsons, SVP of product planning for the home entertainment group at Pioneer Electronics and marketing director of the Blu-ray Disc Association, said: “I think one reason the situation in the U.S. is closely watched has a lot to do with Hollywood studio alignment, since this is where a lot of highly valued content comes from.”

It's not that other markets are unimportant. While high-def barely registers in most of Africa and the Middle East, areas such as Asia and Australia are being watched closely.

Outside of North America, nowhere is high-def more important to the industry than in Europe.

Blu-ray moving ahead in Europe

Standalone high-def players didn't come to Europe in force until the beginning of 2007, and Blu-ray's biggest advantage, the PlayStation 3, didn't land until last March.

“Consumer electronics manufacturers tend to launch products later in Europe than in the U.S.,” Cooper said. “High-def hardware habitually costs around twice as much in Europe as the equivalent machine in the U.S.”

But in just a short time, the region, especially Western Europe, has become a significant battleground for the hearts and minds of high-def consumers.

“Both [sides] have been running TV and magazine marketing campaigns alongside software bundling deals like those in the U.S.,” Cooper said. “HD DVD had been active in courting European studios, ensuring that European product would be available on the format.”

Both sides have also done well in highlighting the advantages of moving to high-def in general, Cooper added, although the interactivity and Internet connectivity that's been a big high-def push in North America is nowhere to be seen in Europe.

“BD sales dominated in Europe … thanks to PS3,” said Jim Bottoms with research firm Understanding & Solutions. “HD DVD did have some earlier success in gaining support among the local independents, who are important in Europe, on the basis of lower disc manufacturing costs. Although during the course of 2007, many of these content companies either changed to BD or added BD to their lineup.”

Just as in the United States, including the PS3 in tabulating Blu-ray numbers has given that format a leg-up in terms of the high-def installed consumer base in Europe. The PS3 sold at least 750,000 units for the year.

“Certainly, the PS3 had a tremendous impact on the launch and adoption of the format in Europe,” said Matt Brown, EVP of international for Sony Pictures Home Entertainment. “It provided an immediate install base and we saw how consumers viewed PS3 as a complete entertainment device — from playing games to watching movies. This provided a significant advantage over HD DVD.”

But as it has in the United States, HD DVD's lower standalone player price has kept it in the game.

“Toshiba is still competing on price, lowering hardware prices even further,” Bottoms said. “However, they are now repositioning their high-def players to emphasize the upscaling capabilities when viewing standard-def DVD.”

The European HD DVD Promotional Group claims a 60% share in the standalone high-def player market share for the region, and boasts that HD DVD owners buy nearly four times as many movies as Blu-ray owners.

HD DVD's biggest win in Europe is standalone hardware sales, with a total of 15,000, according to Understanding and Solutions. Additionally, more than 40,000 HD DVD add-ons for the Xbox 360 were sold there, according to Screen Digest.

Yet Understanding & Solutions' data shows that Blu-ray has a 3-to-1 software sales advantage for the year, with Blu-ray passing the 1 million mark in November for discs sold mark in Europe.

Consumer purchases are based on content, Bottoms said, and Blu-ray has more to offer there.

HD DVD took a hit in the European market Jan. 28, however, with news that British retailer Woolworths would no longer carry the format in its 820 stores starting in March, selling HD DVD online only.

Yet for all the gains high-def made in 2007 in Europe, the future of high-def still faces the same challenge it faces in the United States: competition with DVD. Total DVD sales in the United Kingdom in 2007 were 250 million, according to the British Video Association. And that was a gain of 29 million units from 2006.

Another reason that high-def still has a long way to go in Europe and most of the rest of the world is the lack of other high-def content.

“Compared with the U.S., there's a lack of HD broadcasting in Europe, which can impede uptake and understanding of HD,” Bottoms said.

Sony's Brown agreed: “There is less consumer awareness for HD outside of the U.S., due to more limited high definition programming. However, all around the world HDTV adoption is growing rapidly and Blu-ray provides a viable option for consumers to see even more pristine high definition content on these new displays.”

Outside Europe

In Japan, the format making the most waves is Blu-ray. A recent study of more than 2,300 retailers across Japan found that Blu-ray recorders accounted for 90% of all HD recorder sales in a three-month period, and at last count, data from research firm GfK Japan showed roughly a 9-to-1 sales lead for Blu-ray over HD DVD for both hardware and software. Sony says it has sold more than 1.3 million Blu-ray players in Japan.

“I don't know that there is one specific reason we can point to,” Parsons said of Blu-ray's Japanese success. “It's probably a combination of hardware and software brand strength and the perception that Blu-ray's technology is more advanced.”

Still, the battle is just getting started in much of the rest of Asia.

In China, despite swearing a couple of years ago that it would try starting its own high-def format, the Enhanced Versatile Disc, China has been working with both Blu-ray and HD DVD. The DVD Forum announced last summer that it had reached an agreement with China to create an HD DVD format for the country, and in September, China High Definition was unveiled. The Chinese-exclusive players are expected later this year.

The Blu-ray Disc Association confirmed in October that it was working with Chinese manufacturers to determine if Chinese-specific audio and video codecs could be included in Blu-ray players for the country.

It's still too early to tell if either HD DVD or Blu-ray has won in Australia, mostly because high-def is just too small an industry there, according to Simon Bush, CEO of the Australian Visual Software Distributors Association.

According to sales data from GfK Australia, more than 100,000 PS3s are in Australian households, with about 3,000 standalone Blu-ray players sold. Including the Xbox 360 HD DVD add-on, just more than 3,000 HD DVD players have left stores, the research firm reported. That's caused most of the 870 stores run by Video Ezy — which also runs Blockbuster Australia and is the largest chain in the nation — to go Blu-ray exclusive.

According to software figures from GfK, more than 100,000 Blu-ray movies had been sold, while HD DVD had sold less than 20,000.

HD DVD and Blu-ray have been mostly silent in poorer countries, giving U.K. start-up New Media Enterprises Inc. an opportunity to launch its HD VMD format first in China and India, and then Eastern Europe.

“2008 should see improvement due to clarification of the U.S. position,” Bottoms said.

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