Many retailers have been piling on what has been a long string of bad news for the HD DVD camp and announced they were going to stop selling HD DVD players. Most recently, Best Buy and Netflix indicated they would be dropping HD DVD. Then, one Blu-Ray customer figured out he had been screwed by the Blu-Ray side and started a class action suit against one of the major Blu-Ray companies, something that is likely to accelerate.
As we went into the 4th quarter of 07, Toshiba and the HD DVD camp was certain they had this wrapped up. Their player prices were well below the Blu-Ray offerings, they had picked up several new studios and Sony’s PS3 was looking more like an anchor on Sony’s future than a help to Blu-Ray. In addition, they seemed to believe that Time Warner was going to go exclusively HD DVD shortly after the end of the year and had planned a massive announcement with Microsoft for CES.
The word “surprised” seems to be an inadequate term to describe what happened to them in January while their executives were in route to CES and Warner came out in favor of Blu-Ray, turning what was expected to be a victory for HD DVD to a route. Let’s chat about overconfidence and what happened.
Nintendo
With numbers showcasing that the PS3’s world wide sales went up sharply in the 3rd quarter there should be little doubt that much of this gain was due to extreme shortages of Nintendo’s Wii. The Wii had been on constraint for much of the year and Nintendo failed to bring on-line adequate manufacturing resources to meet demand, and the end result was that parents who wanted something for their kids were left with the Xbox 360 or the PS3. While both the Xbox and the PS3 seemed to benefit in the US, in Japan the Xbox underperforms Japanese sourced products sharply and it appears almost all of this demand went to the PS3 which turned in massive numbers according to Sony.
It was unlikely that parents in North America or Japan were going to buy their children two game systems and due to price advantages alone the Wii should have had much of this business, but you can’t buy what the stores didn’t have and premiums being paid for the few Wiis that did exist took the systems close to Sony prices which favored Sony.
The PS3 Advantage
Currently, Sony is feeling its oats and claiming they will bypass the Xbox 360 in Europe and, according to them, they are now outselling the Xbox 360 there 3 to 1. Given this is a 4th quarter market and we are likely in the slowest period for Game system sales I’m not sure I would connect those dots yet myself, but there is no doubt that Sony’s product is doing much better.
With the war all but decided it appears the Blu-Ray drive in the Sony is starting to become an advantage particularly given that the PS3 is currently the only affordable Blu-Ray offering that is likely to support the coming Blu-Ray 2.0 specification coming out early next year. So if you want a Blu-Ray product that won’t soon be obsolete you have to get an updatable product and that leaves you with the PS3 for the closest thing to a set-top box solution right now.
But, overall, you can’t deny that PS3 sales were a huge advantage for the Sony camp as the year closed.
Toshiba: Overconfidence Helped Defeat
Sony was between a rock and a hard place, if they lost the Blu-Ray fight the PS3 would have been collateral damage and the impact on Sony financially might have been terminal. This means that Sony, much like anyone fighting for their life, was willing to do almost anything to ensure they didn’t fail.
Toshiba, on the other hand, was so confident they were winning they felt no need to really push hard in the 4th quarter and let prices actually drift up for their HD DVD players which started the quarter with sub-$100 sales for older products and sub $200 prices for newer products but ended the quarter with prices drifting well above $200.
One thing you learn about pricing is that it is easy to go down but the market will probably not move with you if you go up and this was a significant tactical mistake. Now, given how strongly the PS3 ramped I’m not sure that keeping the prices low would have changed this outcome but letting them drift up did make the Blu-Ray win more certain.
Why Time Warner Called the Fight
Supporting two formats wasn’t doing anyone any good and the market was clearly signaling it was going to move to downloads long term and, particularly with the writer’s strike, Time Warner couldn’t wait 5 years. Blu-Ray movie sales stayed marginally ahead of HD DVD sales throughout most of the 4th quarter and the PS3 numbers clearly indicated there was a massively larger potential future opportunity for Blu-Ray. Add to this that Sony was likely willing to give Time Warner almost anything they wanted while Toshiba didn’t think they had to, and you get the recipe for the decision that Time Warner made. Though, I think it came too late.
Should You Buy a Blu-Ray Player?
With Blu-Ray 2.0 on the horizon you are still better picking up a PS3 if you will use it for games and can live with the Blu-Ray library. If you can use a PC solution and because there are still a lot of HD DVD movies, I’d suggest one of the new super hybrid-drives. Gateway just brought out a PC with one and Addonics has one that I’ve been using and like (and it works with a laptop but not on an airplane). This is because there are still a lot of movies both out and coming which will be HD DVD only for awhile.
Of course with the market moving towards downloads, if you have a high speed connection you may want to wait a bit and see what your cable , DSL or PC company is going to bring to market.
In the end the lesson here is don’t back a company up against the corner unless you are willing to do what it takes to deliver the killing blow and overconfidence isn’t the path to victory. Toshiba is clearly learning both lessons the hard way this year.
The End for Both
With the early adopters of both HD DVD and Blu-Ray (at least those that don’t have a PS3) likely really upset about their choices right now. Both (except for PS3) are looking at premature obsolescence which, as I mentioned in the opening, is likely to lead to more legal action before we are done. And with Microsoft, Apple, Cisco, and virtually all of the movie studios now moving to downloads (along with folks like Netflix) it just seems like the market is going to move on to me. Right now, if you want to watch movies on a plane or in a car, you really can’t easily use Blu-Ray anyway (few laptops, none of them Apple laptops, have it as an option) and buying several copies of the same movie, on top of the Blu-Ray premium, just seems excessive to me. Now there is an alternative HD format entering the segment that addresses the portability issue and, clearly another format isn’t going to help folks choose.
The real question in my mind is whether the folks like Apple will get this right first (the libraries are very limited) or the Cable companies will simply own this segment. Cable companies move slower but they subsidize the hardware which cuts down dramatically on the cost. I simply don’t see anything to suggest, including the PS3 sales numbers, that we are going to have enough Blu-Ray players in the market before downloads go mainstream and Blu-Ray will go the way of the Laser Disk as a result. Of course Blu-Ray could live on as a kind of wicked mini-lightsaber.
Seriously, if you look at this in-depth review of HD downloads, if the download side can get the content and people have the bandwidth, it truly is now good enough and far more convenient.
