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Wal-Mart Names HD DVD the Winner

There is one retailer that has the power to call the winner of the protracted Blu-Ray vs. HD DVD fight and that vendor is Wal-Mart. Over the weekend they apparently leaked plans to bring in a massive number of low cost (possibly sub $200) HD DVD players for Christmas.

The manufacturing side of this has apparently been in the works for a few years but this is the first time we have had projected prices for the result.

Why Wal-Mart, Why Now?

Wal-Mart uses DVDs to build store traffic. They tend to subsidize the price for the movies they feature to get folks into the stores and once there, these folks tend to buy other things. DVDs have been so effective for the company they threw their body at movie downloads initially and delayed the related services by several years. However, they have now realized that this kind of thing is coming regardless and have brought out their own movie download service to compete. But that doesn’t address the store traffic benefit that will be evaporating as people move away from DVDs for standard definition downloadable movies.

Wal-Mart sees the new high definition formats as a way to bring in store traffic again but they realized that won’t happen unless the players are affordable and there is only one standard. They recognized their own power in being king maker previously and are now using that power to drive the format that works best for them. They could care less about the technology as this is all about making money and they (like every other retailer in this space) know that two formats won’t allow the market to move outside of the fringes and the dual-mode players are simply way too expensive.

So they need one standard and a lot of players in market before their DVD customers wander off to download land and stops coming to Wal-Mart for movies.

Why HD-DVD and not Blu-Ray?

For Wal-Mart the only real metric is cost. Wal-mart doesn’t really make money off of the movies and do not sell high-end home theater equipment. They are known for aggressive prices and, as mentioned above, they subsidize their DVD sales. They needed something that could sell for under $200 soon and they needed the lowest cost of the new formats. This is where HD DVD shines, not only had Toshiba agreed to license to low cost manufacturers early on, but HD DVDs are pressed on the same lines that regular DVDs are, they require no major equipment change out and the blanks, when compared to Blu-Ray are less expensive as well.

This made the decision simple, Blu-Ray was just too expensive to make this work and any technical advantages were insignificant against Wal-Mart’s need for the lowest cost offering. For them it is about price and that is where HD DVD clearly has the sustainable advantage.

What does this Mean?

It means that any studio wanting Wal-Mart’s support after year end had better be selling HD DVD movies. Wal-Mart won’t be promoting Blu-Ray and, after year end, will increasingly focus their marketing on getting people to buy into HD DVD players and the related HD DVD movie from them.

In short, the Blu-Ray aligned studios will now have to either support both formats or risk losing much of Wal-Mart’s business and given how material this business is to them, you have to think that an anti-Wall-Mart decision would have a material impact on their bonuses and career longevity. It certainly puts Columbia Pictures, which is owned by Sony, in a particularly uncomfortable position.

So, if this move by Wal-Mart is true , and it appears to be (but we won’t know for sure for a few months yet), the format war is likely over and Wal-Mart has declared the winner.

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