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HD Discs to Grow Packaged Media Market, IRMA Speakers Say

14 Mar, 2007 By: Jessica Wolf

INDIAN WELLS, California — Two emerging industries, digital downloading and high-definition discs, are viewed as heirs to the flattening DVD market.

But it's the next generation of high-definition physical media that will inspire new growth in the physical goods sellthrough market, though not the kind of growth DVD wrought, presenters said here at the 37th Annual International Recording Media Association (IRMA) Forum.

“We do see a great opportunity for high-def to grow the market in about 15% to 20% overall volume,” said Jim Bottoms, analyst at research company Understanding & Solutions.

Buy rates are decidedly soft as consumers' libraries are full, he said, adding they will not replace their entire DVD collections with either high-def format.

“We won't see another doubling of the market like we did with DVD,” Bottoms said.

The early adoption curve of high-definition hardware is very similar to DVD adoption patterns in the beginning, said Tom Adams, president of Adams Media Research.

Still the confusion created by two competing formats has stymied the whole process, in part because of the pressure at retail, presenters said.

“The retailer is not your friend,” said Bob Alexander, president of research firm Alexander & Associates. “The entire market is up against a shelf-space issue.”

And that shelf space is supremely valuable to the sale, he said, citing a survey that found 75% of DVD purchasers said they bought a title because they saw it in the store and no other advertising helped the decision.

Both Warner Home Video and manufacturer LG Electronics proposed solutions at this year's Consumer Electronics Show to alleviate the two-format conundrum.

Warner's Total HD, a combined HD DVD and Blu-ray disc, will be ready for the market by June, said Dominick DallaVerde, senior director of HD operations, new technology and applications for Cinram. That will be a disc with a 15GB HD DVD on one side and a 25GB Blu-ray disc on the other. A higher capacity HD DVD 30GB/Blu-ray 25GB will be ready to ship by August, he said.

LG Electronics corporate VP of public affairs John Taylor appeared at the show to describe how his company's dual-format player works. The “Super Blu Multi Player” uses one blue laser, just like both high-def formats. The laser simply reads deeper into the layers of the HD DVD side of the disc, as data is stored deeper on the disc in that format. Since the box started out as a Blu-ray player, it supports Java software and doesn't support all the features of HD DVD interactivity, Taylor said.

At $1,200, he agreed it's a pricey item, but “we're not able to keep up with demand at the moment, so it's not a bad problem to have,” he said.

LG shipped its dual player as promised in February and has gotten positive response from retailers such as Best Buy and Circuit City, Taylor said.

“There were a lot of naysayers when we announced this product at CES, a lot of skepticism,” he said. “There's a lot of vaporware in our industry.”

In the second quarter, LG will release another new dual-format player that also includes a Blu-ray recordable drive, Taylor said.

The high-def market is still a very high-end one, but pricing won't be an impediment forever, conference presenters said.

In fact, having two formats on the market probably has helped on the pricing front, Adams said.

“The odds of Sony cutting the price of a Blu-ray player to $699 this early if it were alone in the market were zero,” he said.

Flat-panel television sales will continue to drive consumers into high-def, especially since those prices are falling 20% to 25% annually, Bottoms said.

High-def player hardware is 12 to 18 months away from mass market pricing, he said.

“We will see HD DVD players below $400 by the end of this year, and within three to four years, it will be less than $100,” Bottoms said.

20th Century Fox Home Entertainment EVP of research and technology Danny Kaye presented BD Live — an upcoming Blu-ray interactive feature at the confab, demoing an interactive trivia game for X-Men: The Last Stand, that will allow two Blu-ray owners to simultaneously watch the movie and compete in an on-screen trivia competition via the set-top player's Internet connection. Fox has not yet set a time frame for the release of such discs.

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