Researcher Sees Blu-ray Victory

By : Jessica Wolf | Posted: 25 Jan 2007

Research firm Understanding & Solutions is keeping a close watch on the launches of both high-definition formats, HD DVD and Blu-ray Disc. While it's a little early to call a winner, Blu-ray has the strongest possibility to dominate the market quickly, thanks mostly to the PlayStation 3, according to the company. Home Media Magazine talked to co-founder Jim Bottoms about what his firm sees for the future of the high-definition formats.

HM: What kind of hardware adoption should we expect to see as the year progresses, now that there are several different hardware options for both formats, including the PS3?

Bottoms: Top line, we reckon something like a million players were shipped through into consumers' homes in 2006, including gaming formats. Of that 1 million, about 750,000 were PS3. It's been our contention all along that both formats would almost be neck and neck, with Blu-ray having stronger industry support on the hardware side and content side and HD DVD getting out first and having lower price points. Each group has got its advantages, but what really changes the picture is PS3. It is poised to be in virtually 25 million to 35 million homes in the next two to three years.

HM: So it could be an all Blu-ray high-def market in just a couple of years?

Bottoms: I would be absolutely amazed if the format war goes on much further than mid-2008. If you look at what happened in 2006, 80% of what has sold through is Blu-ray. In 2007, [Blu-ray] will be at least that percentage again, but it won't be a million players we're talking about. We're probably looking at something like 8 million units selling through this year across all product types and formats, so by the end of 2007, moving into 2008, it's possible that 5% or 6% of U.S. homes will be owning a high-definition playback device. And about 80% of those devices will be Blu-ray.

HM: Will Sony be able to keep up the manufacturing to hit that 25 million to 35 million PS3 target over the next couple of years?

Bottoms: Well, that's the question, isn't it? But if you look at PS2 and [the original PlayStation], that's the kind of volume those systems saw.

HM: The higher price of the PS3 compared to those previous players doesn't seem to be a stumbling block. Is that because it seems like a value to get the Blu-ray capability as well as the gaming system?

Bottoms: The thing is, at this early stage, we are selling to the enthusiast. The people who are driving high-definition, be it on players or PS3, are people who have been waiting for years, who have spent $5,000 or $6,000 bucks on a TV. It almost doesn't matter. It will matter in two or three years as it moves into a mass-market product. With standard-definition DVD, players were available for about two years before the PS2. The early adopter already had adopted their video player. Then along comes a gaming player that was also a video console, but it was a more expensive entry point. There was a penalty for it. This time around effectively PS3 is the first Blu-ray player available, and by the way, it comes in at $600, and —when to buy a Blu-ray video-only player was $1,000 or $800 — it actually became for someone who wants a Blu-ray player a very compelling purchase. And, by all accounts, PS3 is a much better Blu-ray player than the PS2 was a DVD player.

HM: Are software buy rates for Blu-ray movies bearing out the theory that people would see the PS3 as more than just a gaming device?

Bottoms: More than 70% of people buying a PS3 have a strong interest in acquiring movies for it. Until the PS3 was launched, software sales were probably three to one in HD DVD's favor, but once the PS3 came out, the pendulum swung dramatically. Volume per title grew something like 700%. By the end of the year, most of the top selling high-definition titles will be Blu-ray discs.

HM: Do you think high definition will reach mass market in two to three years, and do you mean that as in pricing or as in the kind of consumers who are buying high-def hardware and software?

Bottoms: Both. We believe that you will see Blu-ray players at around $400 by the end of this year and HD DVD about $300. In the United States, it has to be less than $200 for mass appeal and less than $100 for an impulse purchase, but that will happen quickly. Going into [2008], I will sit and eat one of our reports if we haven't seen an HD DVD player for less than $200. Crudely, it costs about $100 more to make, at volume, a high-definition player than it does to make a standard definition player. Of course, those numbers are at volume and [the electronics companies] are not at that manufacturing volume yet.

HM: Does that mean that both formats could possibly exist simultaneously for some years to come if HD DVD companies dig in their heels?

Bottoms: We believe by the end of the year, we will see one format start to dominate. At the moment all the cards are stacked in favor of Blu-ray coming out on top. In reality, the only companies holding on to HD DVD are Toshiba and Universal and, yes, it will be a difficult pill for them to swallow to switch to Blu-ray. But it was a difficult pill for Sony to swallow when they had to start making VHS machines [after Betamax failed]. It will probably be easier for Universal because they don't have any real financial incentive to keep HD DVD going. Toshiba has got a strong vested interest in prolonging the life of the DVD format, and that's what HD DVD is all about. It's basically extending the DVD format as long as you can take it.

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