Summit Speakers Say Media Trends Will Lead HD Disc Acceptance18 Jun, 2007 By: Chris Tribbey
High-def will likely succeed, but maybe not for the reasons you're thinking of, according to research presented June 18 at the sixth annual Home Entertainment Summit, DVD & Beyond, in Century City, Calif.
Blu-ray or HD DVD — or both — will likely have a long life, not because either side is willing to keep throwing money on the table, but because every other corner of home media is going high definition as well.
“We're migrating the consumer to accept high definition, and only high-def,” said Jim Bottoms with the research firm Understanding & Solutions. “It's as important a migration as black and white to color.”
TV manufacturers are making and promoting high-def sets and “they're flying off the shelves,” Bottoms said. “The limitations of standard definition become more apparent with the larger screens.”
The 16X9 screens are “key to the consumer's acceptance of HD,” he said. More and more high-def offerings are popping up online every day, and gaming consoles are high-def as well. User-generated content has gone high-def with HD camcorders, and while there are less than 60 committed HD channels available on your cable box today, Comcast and DirecTV have promised hundreds more by year's end.
America is the test kitchen for mainstream, mass market high-def, Bottoms said, and it will live or die worldwide based on what happens here.
“The USA is the critical market for high-def,” Bottoms said. “If they don't succeed here, packaged high-def likely won't succeed in Europe or Japan or Asia.”
He jokingly compared the move to high-def to a drug dealer and his addict: “We're hooking this consumer on to this product.” His firm predicts that by the end of 2008, half of U.S. households will have an HD screen.
According to Digital Entertainment Group research, there are currently about 300,000 HD DVD players in the U.S. market, split in half between set-top boxes and Xbox 360s. There are 1.5 million Blu-ray players, with only 100,000 set-top boxes being counted among those. The rest are PlayStation 3s.
Also, according to DEG research, consumers have spent $35 million on Blu-ray software thus far in 2007, as opposed to $19 million on HD DVD product.
“This year is preparation for future consumer uptake of the high-def formats,” said Steve Nickerson, SVP of Warner Home Video.
But that uptake may take longer than the industry would like, according to Russ Crupnick with the NPD Group.
“There's just a ton of confusion,” he said, noting that a survey showed nearly half of current HDTV owners said they weren't getting on board with high definition media just yet, mostly due because they didn't see the benefits. “We need to better express the benefits to customers.”
“We're trying to get the retailer to understand, it's not competition between (HD DVD and Blu-ray,” Nickerson said. “The competition is what the consumer already owns (DVD).”
Price points also are a problem, Crupnick said. “They're looking at the price points we're selling the HD at, and they're saying this is a problem,” he said. “We're about 10 to 20% out of whack.” But more HDTV sets, and more recognition of the product, will help the consumer catch up, he said.
“There certainly is a very large target audience we can reach out to in the next 12 to 24 months,” he said.
The high price for hardware is also keeping people away, said Steve Nickerson, SVP of market management for Warner Home Video.“Given where price points are for hardware … the adoption curve shouldn't be surprising,” he said, but added, “we weren't this far along with DVD at this point.”
Even without Hi-Def, the home entertainment industry has experienced “the kind of growth rate any industry would kill for,” said Helen Davis Jayalath, senior analyst for the video industry for Screen Digest. But if anyone is hoping High-def will mirror DVD's entrance in the market, they are mistaken, she said.
“No high-def format can recreate the DVD boon,” Jayalath said, adding that in the upcoming years DVD will still have relevance among the high-def selections.
“This is not another revolution,” Jayalath said. “It is an evolution ... It won't happen overnight.
“Many consumers who opt for Blu-ray will get a PS3,” Jayalath added. “Plus we think the HD DVD product will continue to have a price advantage.”
She also said more companies will adopt a “format agnostic” stance as the high-def format battle rages on, and the price for software will plummet too.
“We'll have price pressure from retailers who've come to expect the price of DVD to come down and down,” Jayalath said.
On the non high-def front, the future is still bright, Jayalath said, with DVD set for a small rebound, while forms of digital delivery are set for large gains in the coming years.
“[Digital delivery] will have an important part to play,” Bottoms said. “But packaged media in the short- and medium-term [will reign].”
Worldwide, the global entertainment and packaged media industry was a $1.4 trillion business in 2006, according to research from PricewaterhouseCoopers, LLP. That's expected to grow to $2 trillion in 2011, with both China and India accounting for much of the growth.
Over the next five years, wireless subscribers worldwide will increase to more than 1 billion, according to Terrence Davison with PricewaterhouseCoopers.
Davison shared research that also showed losses to theft are slowing in much of the world. However, Asia and Latin America are still hotbeds for piracy.
“Latin America is the only region where the home video market is smaller than the box office, largely due to high piracy rates,” Davison said. “Every country in Latin America is affected by piracy.”
Household penetration of standard DVD players in the United States has peaked, Warner Home Video's Nickerson said.
“In the U.S. we achieved that level [of DVD player saturation] in 2005,” he said. “More than half [of households in the United States] have two or more. While it's a flat business, it's still a very strong business.”
Bottoms said he saw a DVD player going for less than the cost of a new theatrical title on DVD in Europe.
“One of the obstacles to mass market consumer adoption [of a new format] is the price issue,” he said, predicting that HD DVD and Blu-ray player price points have nowhere to go but down.
“If you thought the last 10 years were wild, I suggest you hold on,” said Bob Chapek, worldwide president of Buena Vista Home Video.