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High-Def Disc at Street Level

21 Mar, 2005 By: Erik Gruenwedel

Editor's Note: This week, Home Media Retailing begins a multipart series examining in-depth the many technical and marketing issues surrounding the introduction of next-generation high-definition discs. HD-DVD and Blu-ray Disc are headed for a format battle beginning late this year. To begin the series, we look at retail reaction, including comments from HMR's Editorial Advisory Board members, to a dual-format launch scenario.

Retailers seem grudgingly ready to support both HD-DVD and Blue-ray Disc should both formats come to market, but warn that the outcome could be damaging to the success of the next generation of packaged media.

HD-DVD is slated to begin hitting retail as early as the fourth quarter of 2005, while Blu-ray is likely to appear in the early part of 2006.

Many video retailers welcome the advent of high-def discs as standard DVDs have become commodity items and next-generation product could command premium pricing in the short term.

“We are excited about the idea of some sort of high-definition DVD because we think it is a noticeably better product when you compare it to traditional DVD,” said Duncan Browne, COO of Boston-based retail chain Newbury Comics.

But the prospect of a format war is leaving retailers apprehensive that two formats will turn off consumers.

In fact, about 24 percent of rentailers don't plan to carry either format at launch, according to a study conducted by Home Media Research; 42 percent said they lacked the requisite technological information to make an informed purchase decision.

“I think that a dual format launch will further delay consumer adoption and increase consumer confusion for a product they may or may not be interested in,” said Ted Sarandos, CCO with Netflix. “Our focus group information leads me to believe that most consumers with a DVD player and an HDTV think they already have HD-DVD. Only the earliest of the early adopters clearly articulates a desire for a better format.”

Todd Zaganiacz, president of the National Entertainment Buying Group of rentailers, said consumers faced with two formats will quickly become alinated if their desired movie only plays on a particular player.

“The consumer isn't going to know or care what studio a movie [comes from],” he said. “Until that gets resolved you are going to limit demand.”

Retail analyst Dennis McAlpine with McAlpine Associates in Scarsdale, N.Y., said retailers would ideally like one — not two — new formats. Meanwhile, others remain skeptical of any switch at all because they don't think it will be the same as the market shifting from VHS to DVD.

“Nobody has seen them,” McAlpine said, referring to the new format discs. “That's the problem. Nobody is sure about what they are, what the differences are and who is going to win. The last thing they want is to have VHS, DVD and two HD formats in stock for the same thing.”

Still, Steve Hicks, VP of product with Hastings Entertainment, said retailers have little choice but to support both formats at launch.

With HD-DVD earmarked to reach consumers first in late 2005, Hicks said the format has the best chance of succeeding due to early market penetration.

Rick Timmermans, director of video merchandising for Tower Records and Video, cautions that the lack of a universal format will dampen consumer excitement, initially.

“My guess is that most [retailers] will refrain from jumping in to the degree they would if there was a universally agreed upon format,” Timmermans said.

Representatives from Hollywood Video and Movie Gallery said the chains plan on stocking both formats if necessary, with the market dictating which format survives. A Blockbuster representative was unavailable for comment.

“I believe retailers will do their best to provide the consumer with what they want,” said Bo Loyd, EVP at Movie Gallkery. “But I think the real question is, will the customer know what they want'? It will be important for the retailers to provide the consumer with enough information to allow them to make the best decision for themselves.”

Loyd said he expects retailers will put pressure on all parrties to come to a compromise, but in the event that doesn't happen...”I don't expect a format war to last long as the consumers will ultimately vote with their dollars and the eventual loser will ride off into the sunset.”

“Whatever makes our customer happy,” said a Gallery representative.

Retailers note that competing technological formats ultimately don't make consumers happy and do not sustain themselves over time in the marketplace. Technologies that fail at retail ultimately leave a sizable percentage of their consumers angry with the stores that sold them the obsolete hardware, said Gary Arnold, SVP of entertainment for Best Buy.

“At the end of the day some number of consumers will be buying technology that may not allow them to play movies that they are passionate about,” he said. “[That] scenario is terrible for the consumer…[and] is a real industry threat.”

Nevertheless, the titles are coming with no compromise in sight. At January's Consumer Electronics Show, HBO Video, New Line Home Entertainment, Paramount Home Entertainment, Universal Studios Home Entertainment and Warner Home Video announced upwards of 100 combined titles that they said would be ready for launch on HD-DVD in late 2005. Warner will field half of those releases, including Constantine, Ocean's Twelve, The Polar Express and the upcoming Charlie and the Chocolate Factory remake, in addition to franchises “Harry Potter” and “The Matrix.” Universal is scheduled to field The Chronicles of Riddick, Apollo 13, Backdraft and Van Helsing, among others, while Paramount will lead with Braveheart, Forrest Gump and Mission Impossible 2.

Principal Blu-ray supporters Sony Pictures Home Entertainment, with imminent access to MGM's large catalog, and Buena Vista Home Entertainment are said to be releasing product in 2006.

Additional reporting by Kurt Indvik and Melinda Saccone.

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