The Tide May Be Turning for Blu-ray

After a steady drumbeat from the consumer press on the failings of Blu-ray Disc, the news was decidedly upbeat in recent weeks.

Wal-Mart finally joined the Blu-ray bandwagon in earnest, bringing its low-price power to the market. Then, after launching a $298 player (albeit a lower-profile one), the retailer announced that from June 8 through June 14 it will include a $100 gift card with the purchase of any Blu-ray player in its stores. That means a less-than-$200 Blu-ray player for the lucky shopper who takes advantage of the sale. The promotion, which coincides with the completion of a major renovation of the Wal-Mart's consumer electronics department in 1,200 stores nationwide, also includes select Blu-ray movies for $15 while supplies last.

Meanwhile, it seems consumers aren't as dismissive of the Blu-ray format as previously thought.

A new NPD Group consumer study said 45% of HDTV owners claim to be familiar with next-generation packaged-media Blu-ray, up from 35% in June 2007. The study also said 6% of consumers surveyed intend to purchase a Blu-ray player.

“With HDTV now in approximately 40 million U.S. households, that percentage translates to a pool of almost 4 million potential BD player buyers,” said Russ Crupnick, entertainment industry analyst for NPD (see story, cover).

“The door is open for studios to feed the consumer's appetite for Blu-ray content, and we expect sales to increase, as prices for hardware and software moderate in the coming months,” Crupnick said.

I'll leave it to our publisher Thomas K. Arnold to say “I told you so” in his next column, as he has been critical of the treatment of Blu-ray in the media, but I can note that Blu-ray software sales look ready to pop as well. The slate hasn't been great in the past few months, but the revenue has been climbing in recent weeks, albeit in fits and starts.

I think once consumers see Blu-ray Disc, they'll be hooked, just as seeing high-definition television programming makes one realize how blurry and inferior non-high-definition programming is.

Blu-ray is a step forward, and I think consumers will soon come to realize it.

Blu-ray Pulls Up a Seat at the HD Table

Why is there so much negativity about Blu-ray Disc?

Skeptical analysts say player prices are too high for the format to gain mass acceptance, failing to note that hardware prices have dropped a lot faster than anyone anticipated. They're also overlooking the fact that CE manufacturers have invested millions of dollars in Blu-ray technology and can't be expected to give away the farm this early in the game.

Other so-called experts say it's all in vain anyway and the future lies with digital downloading, even though electronic sellthrough movie sales remain miniscule and, if anything, are trending downward (average movie sales through Apple's iTunes fell sharply last year, despite escalating hype).

And then there are letters from consumers such as the one I received last week, blasting the studios for “forcing” consumers to transition, yet again, from one format to another, and calling me the “enemy of humanity” for talking up Blu-ray Disc.

Whoa, everyone. Have we all forgotten that the root of Blu-ray Disc, and high-definition packaged media in general, is nothing more sinister than the realization that consumers are buying HDTVs, that broadcasters and cablers are switching to high-def programming, and standard DVD is not high-definition?

The only thing the studios are doing is taking their rightful seat at the HD table, and giving consumers the opportunity to purchase movies in true high-definition. No one's forcing anyone to buy Blu-ray — it's merely a choice that owners of HDTVs may want to make if they want the highest possible picture quality around.

Don't see the difference? Then don't buy it. No one's taking standard DVD away — in fact, there are still far more catalog titles being reissued on DVD as special editions, or debuting on DVD, than there are on Blu-ray. DVD is still the lifeblood of home entertainment, and most likely it will be for years to come.

Blu-ray is a choice, an option, for consumers who want it. It's a choice I made as soon as I got a HDTV just before Christmas, and I'm glad I did. I've become a diehard Blu-ray fan to the point where I wouldn't even watch the DVD of Cloverfield because I want my first taste of the film to be Blu-ray, and the Blu-ray version isn't out yet.

It's important to note that Blu-ray isn't a replacement technology. It's a superior product to standard DVD, custom made for HDTVs.

Can Blu-ray Capitalize on Catalog Upgrades?

As Blu-ray player penetration grows beyond the early adopter stage, the willingness of consumers to convert their catalog titles will be an important test in determining how well Blu-ray catches on.

One reason for the boom of DVD over the past decade was the enthusiasm with which collectors upgraded their VHS collections. I fear Blu-ray Disc may fall short of DVD when it comes to this conversion factor.

Regular readers of this magazine may have noticed our new Blu-ray Market Share chart, which tracks Blu-ray sales as a percentage of total home video sales for a particular title. For example, of all copies of Independence Day sold the week of May 5-11, 55.85% were the Blu-ray version, putting it third for the week.

At first glance, this makes it seem that picking up a Blu-ray copy is a top priority for ID4 fans, but further examination of Nielsen VideoScan data tells another story.

Total sales of ID4 that week amounted to about one-tenth of 1% of all ID4 copies ever sold in any format. So most people looking to own ID4 probably already have it.

Most titles with a high all-time BD share are new titles (or definitive releases of catalog titles, such as Blade Runner) released day-and-date on both formats, so consumers who don't have the title would just buy the Blu-ray without double dipping. The top 20 in this category ranges from 19% to 5% BD share.

As far as catalog goes, DVD quality is probably sufficient for most titles. The range of films actually improved in HD is probably limited to special-effects blockbusters such as ID4.

Factoring out VHS, Blu-ray amounts to only 1.2% of all-time ID4 disc sales, which means the BD has undersold the DVD by nearly 8,000%. By comparison, ID4 DVDs have outsold the VHS version by 461%. Comparing those conversion factors reveals Blu-ray has a way to go.

Rental Biz Pins Hopes on Dynamic Duo

It's not very often the industry experiences the kind of upheaval we've seen recently in the top two brick-and-mortar rental chains. In the past year, we've seen new CEOs appointed at both No. 1 chain Blockbuster Inc. and (just last week) Movie Gallery. Both CEOs have a solid foundation in brick-and mortar retail, one at 7 Eleven, another at Albertsons.

Blockbuster CEO Jim Keyes, in place for less than a year, came from 7 Eleven and has been able to turn around the chain, according to recent financials. The company reported first-quarter (ended April 6) profit of $45.4 million, compared to a loss of $49 million during the same period last year.

Keyes came into the business at a rather auspicious point. Movie Gallery had just declared bankruptcy and was closing stores. Also, the time seemed to have come for the kind of all-access entertainment emporium he proposed, which ironically was similar to what former Blockbuster CEO Bill Fields tried to do in the 1990s. Keyes is looking into offering downloads to portable devices in the stores as well as expanding games. Retailer Hastings recent success with a broad slate of entertainment (see story page 8) seems to support his vision.

At No. 2 Movie Gallery, C.J. Gabriel Jr. (Gabe), formerly EVP at Albertsons, faces a somewhat bigger challenge as the chain exits bankruptcy. Gallery has been in more than just financial trouble; it has had trouble changing with the times. In addition to biting off more than it could chew with the acquisition of Hollywood Entertainment Corp. in 2005, Gallery clung to the old in-store rental model. The chain made tentative moves into video-on-demand with the acquisition of MovieBeam (which it recently put up for sale) and into kiosk rentals. But management seemed too preoccupied with whether or not the next quarter's slate of titles would pull them out of a slump to look ahead. They were thinking short-term, under pressure from a giant debt load.

Hard times have brought new blood to the executive suites of the two top brick-and-mortar rental chains. Their jobs require more vision than many top posts, and likely will offer less compensation than many. The onslaught of digital delivery, online rental/streaming pioneer Netflix and cable are difficult to navigate. Tough economic times present even more challenges.

Perhaps the dynamic new duo can pull off a comeback.

Media Skimming the Surface on Blu-ray

Rush Limbaugh and his fellow conservative talk-show hosts have long accused the media of having a liberal bias, and frequently fault what they call the “drive-by media” for being too quick to report the so-called news without properly investigating what is being put out there by liberal politicians and analysts.

I'm not sure how accurate these accusations of an anti-red-state bias are, but I'm beginning to think that the media does have a certain amount of anti-blue — or, rather, anti-Blu — bias when it comes to reporting home entertainment news.

Two months ago The NPD Group released a study that found global awareness of Blu-ray Disc is weak. The press release was picked up by numerous media outlets as further evidence that Blu-ray Disc is facing a long, uphill battle as it seeks to replace standard DVD. I received the same report but after digesting it thoroughly came up with a different interpretation: In the United States, which for our purposes is the key metric for home entertainment trends, 60% of those surveyed were, indeed, aware of what a Blu-ray Disc is. I focused on that statistic in my story, and thus put a legitimately positive spin on what on the surface appeared to be a negative press release.

More recently, another NPD Group study found Blu-ray Disc player sales have slowed to a trickle. Again, the media jumped on this to reinforce what they've already been saying, all along, that Blu-ray player prices are still way too high for mass adoption, particularly since to the average consumer, the difference between standard DVD and Blu-ray Disc isn't all that pronounced.

But again, once you got beneath the surface of the NPD report and actually talked to consumer electronics company executives for their take, another picture emerges: The first quarter is traditionally a low point for CE hardware sales — the study even showed a significant dip in standard-DVD player sales — and the slowdown in Blu-ray player sales is due in large part to a shortage of new players, since everyone's gearing up for BD Live-capable machines and those won't begin rolling out until the summer. Among major consumer media outlets, only The Los Angeles Times properly reported the story, according to one top executive with a leading CE manufacturer. “No one else even bothered to call,” he told me.

If there is an anti-Blu bias among the mainstream media, it's easy to understand. For two years, the media spotlight was focused not on the many benefits of high-definition media, but on the bruising format war between Blu-ray Disc and HD DVD. While this war was raging, the mantra among industry analysts — duly reported by the press — was that if Hollywood and the CE companies couldn't get their act together and agree on a single format, then HD media was doomed and disgusted consumers would stick with standard DVD in the short term and ultimately migrate to the Internet to get their movies through digital downloading.

This faulty train of reasoning has always stumped me. Consumers are investing thousands of dollars on creating elaborate home theater systems that practically beg for high-definition programming. So why would they snub packaged media and turn to the Internet, where the quality of downloadable movies isn't even up to par with standard DVD? Sure, HD movies are slowly becoming available on the Internet, but even on the best computers it takes hours to download a high-def movie — and then there's still the problem of getting that downloaded movie to the living room. The studios have little motive for hastening this transition, since the profit model is murky at best. And without Hollywood's support, digital downloading will remain an afterthought, as evidenced by the fact that the average number of movie downloads on Apple's vaunted iTunes Music Store actually went down in 2007 from 2006.

But you don't read much about that. Even after the format war was resolved in February, there was precious little in the mainstream media about the promise of Blu-ray. There was always a cynical analyst or two to quote about how the future is all about digital downloading.

Maybe the drive-by media should slow down a little and take a look at what's really happening. Either that, or clean their windshields.

Buzz on Blu Releases

To Blu or not to Blu? That is the question for many early adopters who are considering whether or not to buy more expensive Blu-ray Discs of new and catalog releases, or stick with cheaper standard-definition DVDs.

Forum posters on TheDigitalBits.com have been discussing which releases are worth double-dipping. Poster BJWanlund says every “James Bond” movie, “Star Wars” film, “Star Trek” movie, Disney and Pixar film, and TV show is worth rebuying on Blu-ray.

“As far as stuff I'll only purchase on Blu-ray, I'd probably only purchase some of the newer films, such as Indiana Jones and the Kingdom of the Crystal Skull (when that comes), Meet the Robinsons, the upcoming Sleeping Beauty: Platinum Edition (first on Blu-ray), etc. I'm not gonna go overboard here,” BJWalund wrote.

On the same site, Obiwan176 wrote: “Blade Runner on BD is absolutely stunning and utterly amazing. The DVD, any version, is complete sh*t compared to what they did for it on the BD release.”

Obiwan176 also added the “Lord of the Rings” films and those written and directed by M. Night Shyamalan to the mix of Blu-rays worth picking up. Meanwhile, poster AKmaro1 adds the “Matrix” trilogy and Apocalypse Now.

Internet forum users seem to agree that it's worth shelling out the extra cash to get old and modern classics on Blu-ray Disc — when they're available. On DVDTalk.com, user Skiblet wrote: “Where are all the good movies? The Aliens, the Star Wars, the LOTRs, the Saving Private Ryans, etc. The BIG ones, you know what I mean. (Jaws, The Thing, Braveheart, Goonies, Ferris Bueller, etc.).

“What's taking so long? How long do we have to wait for these? Years? One year? Two years? What is the specific reason for why things are released when they are onto Blu-ray?”

In response, user Grubert wrote that in DVD's infancy, films such as The Goonies, Braveheart, Ferris Bueller's Day Off, Jaws and Saving Private Ryan took years to release.Forum users also seem to agree that not all Blu-ray Discs are equal. DVDTalk's Mr. Cinema lauded of Disney's No Country for Old Men, recently released on DVD and Blu-ray Disc.

“No Country for Old Men may now be the best transfer I've seen so far,” Mr. Cinema wrote. “It is flawless.”

Poster applesandrice was down on Fox's Butch Cassidy and the Sundance Kid, citing a review of a poor transfer.

On the other hand, Mr. Cinema pointed to a recent spate of strong Blu-ray releases from Fox: “I popped in The Day After Tomorrow last night, and it's another fantastic transfer by Fox. The opening shot is simply gorgeous. I was pissed at them as much as anyone for not releasing anything since April, but they are certainly making up for it with some very high quality titles.”

On HomeTheaterForum.com, users are buzzing about recently announced Blu-ray titles such as Warner's Justice League: Season One, as well as Warner titles How the West Was Won and Risky Business; Fox's Independence Day; and Sony Pictures' Persepolis.

“I'm looking forward to seeing [How the West Was Won] without those distracting join lines (guess that makes me a non-purist),” wrote user Jim_K, of Warner's efforts to remove the join lines left over from the three-screen Cinerama process originally used for the film.

Whether or not these titles will measure up in the minds of Blu-ray buyers remains to be seen.

A Disturbing Lull for Blu-ray

Blu-ray Disc format backers may be blowing an opportunity.

We've hit a lull in the Blu-ray push. It's almost enough to make you wish for the old days of competition with HD DVD. At least that would give the Blu-ray format backers some reason to make some definitive moves.

Right now, things are in limbo, with retailers waiting for the updated Blu-ray players from manufacturers to hit.

“BD player prices remain high and supplies are limited,” said Applied Business Intelligence analyst Steve Wilson in a recent report. “This is good for the market because most current players do not support all [disc] functions.”

Good? I beg to differ. I see it as a potentially damaging loss of momentum.

Indeed, a recent NPD report found sales of standalone (non PlayStation 3) Blu-ray players fell 40% from January to February in the United States and only saw a 2% increase from February to March.

Along with high player prices — which Walt Disney Co. chief Robert Iger noted need to drop to $300 — the lack of upgraded, fully functional Blu-ray Players (with picture-in-picture and other capabilities) has kept format growth subdued. In last week's financial call, Fox chief Peter Chernin said many retailers carry just one or two Blu-ray players, waiting for a manufacturing push for third-generation players. He expects the new players to reach the market by summer and contribute to an upswing of both player and movie sales through the fourth quarter.

The third-generation players do seem to be on the way. Last week Panasonic and Pioneer Electronics announced pending launches of new third-generation Blu-ray Disc players with Bonus View (picture-in-picture) and BD-Live (Web-enabled interactivity), among other features. Panasonic's DMP-BD50 player — available this spring — retails for $699.95. Pioneer's BDP-51FD and BDP-05FD models — available this summer — carry suggested prices of $599 and $799, respectively. Those prices aren't exactly cheap, and not even close to Iger's $300 tipping point.

Here's hoping it's not too little, too late.

After beating rival HD DVD, the Blu-ray format seems to have lost its drive. Blu-ray backers better find that drive again quickly — or they will find consumers are going to stick with DVD.

P2P Upgrades: A Danger for Content Owners?

It seems like everyone at Digital Hollywood, the premiere forum for the digital entertainment world, knows what P4P means. Chat with almost anyone at the event, and he'll easily throw you a definition: It's a means for Internet service providers (ISPs) to optimize peer-to-peer traffic.

But what does it do?

“It makes P2P (peer-to-peer) faster,” said a representative of one software company. “It funnels network traffic by using local routers. When you download something on P2P without P4P, it can take hours sometimes. This speeds it all up.”

Another way of saying it: It's becoming easier than ever for people to download what they want, when they want.

For ISPs and P2P networks, P4P is a great thing. It looks locally first for what you want to download, while traditional P2P downloading will grab downloads without discriminating about the location. It's especially attractive to the ISPs because it lessens the strain on their bandwidth. (A recent study by CacheLogic estimates that as much as 70% of all ISP bandwidth is used by P2P traffic.)

For content owners, P4P is another reminder that technology continues to outpace the ideas to monetize their property.

Studios are doing everything they can to live in this digital world. They are releasing titles day-and-date with VOD and are including digital copies with DVD and Blu-ray Disc releases. They also have deals with premier downloading services, such as Apple's iTunes, and exclusive content for those who pay for their media.

But the advancement of P2P software has to give pause to content owners. One of the reasons physical media still reigns is convenience. And when even the least tech savvy consumer doesn't have to leave his seat to steal a movie from his neighbor down the street, physical product loses that value of convenience.

Surveys say consumers will pay a reasonable price for content they can get reasonably easy. But when it becomes too easy to get anything you want, why pay anything at all?

Blu-ray Pricing Is a Point of Contention

Will we see another race to the bottom? One reason studios preferred Blu-ray Disc over HD DVD is that there was more opportunity to justify a higher price tag. Blu-ray, after all, was hailed as a revolutionary new technology, while HD DVD, even after it went from using a red laser to a blue laser, was seen chiefly as a souped-up DVD.

But now that Blu-ray Disc has prevailed, studio insistence that Blu-ray Disc prices be kept significantly higher than DVD prices appears to be waning. On the one hand you have studios such as Sony Pictures Home Entertainment, which typically charges a premium of about $15 over the standard-DVD version; on the other you have 20th Century Fox, which recently released Juno on a Blu-ray Disc at a list price just $5 more than the DVD.

The discrepancy comes at a time when retailers are reporting that some of their customers are reluctant to shell out significantly more money for a Blu-ray Disc — particularly on the catalog end, where DVD prices are routinely less than $10. Blu-ray Disc releases of library titles typically come to market at prices twice as high, if not more, than the DVD, and some retailers fear if that practice continues, format growth will be stymied.

I've long held that DVDs are a great value for the dollar, even before the proliferation of Wal-Mart's notorious dump bins sent the actual street price of catalog DVDs to the $5 level.

Blu-ray Disc takes the DVD experience to a whole new level, with a picture six times clearer (at least, when viewed on a high-definition TV set) and special features that make DVD extras look tired and boring — particularly when the hot new BD Live technology is utilized.

So why not charge more?

Studios agree Blu-ray Discs should sell for more than DVDs. But how much more? That, dear reader, is the question with which they're all grappling right now.

Lowering the price too soon, too fast, could lead to the same freefall DVD experienced in the late 1990s. As studios continue to search for a middle ground, they just might find themselves making a startling, and disheartening, discovery: Maybe there is none. Perhaps the only options are to either stick by your guns and hope the consumer ultimately realizes the value, or drop your prices and send profits to the dump bin.

Blu-ray Has a Hard Act to Follow

Now that the format war is over, all eyes have turned to Blu-ray Disc as the savior of a waning DVD business.

First of all, let's talk about the waning DVD business. It's not the fault of the format or even the fault of the content on DVD that the business is waning. It is predictable. Most of the great content, past and present, that could be released on DVD has been released. The great growth curve of the last decade was in part built on the movies of the past. Catalog boosted DVD sales, not current releases. It was the DVD release of much-anticipated titles such as the original “Star Wars” trilogy, the “Godfather” films and the “Indiana Jones” films that goosed DVD sales. Those films are now out on DVD. The only hope for growth in that market now is new releases (a much smaller pot) and repackaged releases, which have a much smaller appeal than first-time catalog releases of beloved films.

Another big driver for DVD was the TV DVD business, which held sales aloft for some time, but ultimately ran out as a driver as well, when those who wanted past seasons of TV shows already had them and didn't need to buy them again. TV DVD now too is a business of new releases, for the most part. The catalog has run its course.

Now all hopes are pinned on Blu-ray Disc to create the same kind of frenzy that DVD did almost a decade ago.

Certainly, Blu-ray has its pluses — it's got a great picture, increased extras, better menus — but like a sibling trying to live up to an award-winning older brother or sister, Blu-ray may not be met with the same circumstances.

The older sibling, DVD, may continue to appeal. Newfangled competitors, such as electronic delivery, may offer more competition than they did during DVD's heyday.

For my part, I think Blu-ray Disc has done a pretty good job of maintaining the business in the first quarter. Whatever DVD lost, Blu-ray made up in sales, according to Nielsen data.

Most analysts are betting against Blu-ray keeping the business level or growing over last year, but I recall the same thing was said of DVD in its early days. Many thought the tiny little disc couldn't possibly revive the video industry, which was waning. DVD's success came as a surprise, and Blu-ray Disc may surprise us as well. Don't count it out just yet.