Warner: DVD format war hurt movie sales
LAS VEGAS – Why did Warner Bros. choose last week to exclusively back the Blu-ray format for high-definition DVDs and ditch HD DVD, a move that could end the bitterest battle in the electronics industry?
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| Warner Bros. Home Entertainment President Kevin Tsujihara said there's evidence that holiday DVD sales were a casualty of the format war between Blu-ray and HD DVD. Image: Warner Bros. |
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Partly because the studio's research turned up an alarming trend: the next-generation format fight hurt overall DVD sales this holiday season.
DVDs have become an important piece of Hollywood’s revenue pie, and an unexpected dip in sales can be painful. And that's exactly what happened in the fourth quarter, according to Warner, when DVD sales fell from the previous year.
And you can't just blame the economy, or the popularity of video games. Here at the annual Consumer Electronics Show, Kevin Tsujihara, president of Warner's Home Entertainment Group, told Fortune that with high-definition TVs selling briskly and a strong summer at the domestic box office that topped $4 billion for the first time, Hollywood executives expected a merrier Christmas than the one they got.
"We saw evidence that the format war was actually hurting standard definition," Tsujihara said. "The industry had very high expectations for the fourth quarter. The summer was the highest box office quarter in history. We ended up the year somewhere down 2 percent or a little bit more than 2 percent. That was a little disappointing, given the summer we had." Warner Bros. and Fortune are both owned by Time Warner (TWX).
Market research showed it wasn't just NetFlix (NFLX) or Apple’s (AAPL) iTunes hurting traditional DVD sales, either. Consumers who bought HDTVs were so afraid of backing the wrong high-definition movie format that they decided not to buy movies at all.
"Consumers were confused by the format war, and they were saying they weren't going to make a decision on either for a while, until they could figure out which one to buy," Tsujihara said. "Salespeople were having a hard time telling people why they should convert to HD."
So Warner Bros. made a call. Based on consumer trends, which have shown Blu-ray movies outselling HD DVD 2 to 1, Blu-ray was the obvious choice.
Still, Hollywood's not out of the woods yet. Though Warner's move gives Blu-ray a clear advantage over HD DVD, there's no guarantee the masses will embrace either disk format. It's up to industry marketers to devise a way to convince consumers that it's a good idea to keep buying movies on discs, rather than rent or download them.
Those strategy sessions are increasingly at the heart of CES, a show that used to focus on the nuts and bolts of electronics. Hollywood dealmakers descended on Las Vegas in force this week to hobnob with technology and retail executives in the hotels along the Strip and, they hope, hit upon a formula that will reinvent the business of entertainment.
"It’s become more important to us, especially as it relates to digital distribution,” Tsujihara said. "Longer term we believe that the growth for our industry is going to come from transitioning that standard definition player base to higher definition, and transitioning some of that to digital distribution as well."
"My research at the very beginning of the battle showed HDdvd had a better picture and more usable space when recording data on your computer compared to Blu-Ray. I readily admit this may have changed or may have even be inaccurate. But I also remember that six months ago reading that more people bought HDdvd sets than Blu-Ray players, but ONLY due to the new Sony game systems were there more Blu-Ray capable players out there. It seems to me that the people have spoken and prefer HDdvd but are being manipulated again by big business instead of being provided a TRUE choice."
HD-DVD and BluRay movies look identical when played side by side on the same HD set. The difference is the storage capacity on the BluRay disk which is more than double the HD-DVD disk. And if you going by purchasing statistics from a few months ago you need to update yourself on trends. The only reason people were buying HD-DVD players over BluRay was cost, they were cheaper off the start than BluRay. Pricing is now much closer between the two. This has nothing to do with big business pushing consumers, it's what the consumers want. "Big Business" HD-DVD supporters dumped $150 million off the start to offer promotions and help companies advertise their players and HD-DVDs and it obviously didn't get them anywhere.
"Please tell me you’re kidding! Dude seriously – Wal-Mart is selling HDTV’s and home theater; the % of owners left “small” years ago."
Mike, even though you yourself may be affluent, don't be naive enough to believe that everyone has an HDTV and home theater. Even though they are sold in Wal-Mart, a large HDTV, for most people shopping at a Wal-Mart, represents a decision that spending several hundred or even thousand dollars on a television is right up there with clothing and housing your family. There are many more folks than you would believe still getting their television from a 19-inch CRT. I received a Sony home theatre for a birthday gift a few years back, and my wife is still giving me hell about letting the kids talk her into spending that much money. And we still watch it on a 32-inch Sharp CRT we spent $300.00 on. Why? Because spending a thousand dollars on a television isn't real high on my list of priorities right now. And don’t forget, getting true HD television programming from your cable or satellite company costs extra. Yours is the kind of thinking which led the NFL to move Monday Night Football to cable.
Mike, despite what may be true in your circle of friends, the percentage of people with HDTV/home theatre setups is still “small.”
Maybe neither format will "hit-it-off" and win-over the general public … remember what happened to Super VHS? (yes, I bought one of those recorder/players!)
My research at the very beginning of the battle showed HDdvd had a better picture and more usable space when recording data on your computer compared to Blu-Ray. I readily admit this may have changed or may have even be inaccurate. But I also remember that six months ago reading that more people bought HDdvd sets than Blu-Ray players, but ONLY due to the new Sony game systems were there more Blu-Ray capable players out there. It seems to me that the people have spoken and prefer HDdvd but are being manipulated again by big business instead of being provided a TRUE choice.
Lets put the library aside for a minute and compare the hardware itself.
The only real advantage Blu-Ray had over HD-DVD was that it was 1080p capable. Up until recently HD-DVD would only reach 1080i. However, Toshiba's format (Not Microsoft's format as someone posted earlier) now matches Blu-Ray. The human eye can't even distinguish the difference between 1080p and 1080i until matched with a 55+ inch HD-TV. With that said, you're now looking at two formats that are pretty much identical, except for one thing.. PRICE.
Your comparing $400 for a Blu-Ray player to $200 for a HD-DVD player. Price is usually the winning factor.
I was planning on waiting a few years before even considering a HD format, but when I found a Toshiba HD-DVD player for only $100, I found my winner. On top of that, 5 free HD-DVDs. Granted, the selection isn't great but it isn't horrible either. Lets aim low and say each of those HD-DVD's you get for free cost $15 a piece. $15 x 5 = $75, that leaves $25 for the player itself. Who can argue with that?
Chew on this… History repeats itself. The last format war was resolved with the support of a few genres. What was was one major reason Betamax lost the format war? Disney chose VCR, the adult video industry chose VCR. Fast-forward to the present day, Disney and adult video are both backing Blu-ray. Its trending towards Blu-ray.
this format war issue is becoming irrelevant now that combo players are starting to show up. Just buy any format you like.
"the % of people with HDTV and a home theater setup is still small."
Please tell me you're kidding! Dude seriously – Wal-Mart is selling HDTV's and home theater; the % of owners left "small" years ago.
I have to agree that there is confusion in the marketplace which is hurting sales, not only about formats but for DVDs in general. My personal example – I've been waiting for what seems like forever to buy Battlestar Galactica Season 3 on DVD, but now I see season 1 also available in HD, so maybe I should wait. Also, Seinfield just came out in a complete box set, so people may be putting off buying seasons until the entire series comes out cheaper (I but 7 seasons of Buffy for my wife in 1 box for much less the cost than separate seasons.) And yes, people are renting more from Netflix, Blockbuster and online, buying less, and the economy is bad. How could DVD sales NOT go down?
I can't believe this. I'm being told by WB that I'm confused. Listen up WB, you're confused. Starting off backing up HD DVD, then supporting both only to change your mind a third time and go Blu Ray exclusive is your confusion, not ours. I can't believe how badly you just screwed the consumer who opted to puirchase the whole HD DVD Harry Potter set last month only to tell them fat chance of getting the next two movies ever. This is absolutely ridiculous and I promise this year I will be downloading movies and not buying disks.
"So Warner Bros. made a call. Based on consumer trends, which have shown Blu-ray movies outselling HD DVD 2 to 1, Blu-ray was the obvious choice."
Untrue. Sony, which had far more to lose than anyone else in this game, agreed to give about $500 million in payments and/or incentives to Warner to go Blu Ray exclusive, and to Fox to remain so.
I think another factor in the decline is that the movies out this year kinda sucked… Also why would I give the entertainment industry my money for a bunch of overpaid executives as well as actresses and actors that can't stay out of trouble.
Mark, you are certainly the exception. Not many people own all three formats, nor would they want to. I won't buy a standard definition DVDs anymore because I like HD. But I am not even thinking about buying a HD DVD player until the format wars clear up. In the meantime, I'll just rent HD movies on on-demand or through Xbox live. Not all of us have that much free cash to buy every format out there.
How are online downloads safer?? In most cases they limit you to watching on a computer. Hardly a better option than blu-ray or a DVD disc.
If you really want to be safe than rent a DVD from a redbox or netflix; but then this gets into a philisophical discussion on own vs. rent. I like to own my favorite movies so I buy them.
That idea of using an upconvert player may work well for TVs that are less than 50", but most HDTVs are larger and can really see the difference in HD.
Didn't this industry learn ANYTHING from the Beta vs. VHS format fiasco? Apparently not because there they go again… right down the same old pot-holed road. I will not buy a HD DVD player of any kind until they quit this ridiculous "our incompatible format can whip your incompatible format" nonsense. BAH! on BOTH of their formats! Grrr…
To #1 : $75 for the player, but if you paid any more than $10 for an HDMI cable you are not as saavy as you think.
"Upconvert" isn't even close. True HD from Blu-Ray (or even a 1080P HD-DVD) cannot be compared. It is vibrant, crisp, clear, and contains much more detailed content than a standard DVD can provide.
98% of people are fine with regular DVD, the % of people with HDTV and a home theater setup is still small. So why would they have incentive to buy a new format and buy yet new "better" versions of films?
A large % of people are perfectly fine renting movies and do not buy dvd. I bought less DVD's in 2007 due to my collection is over 300+, the dollar is tighter and with costs rising and xbox360, wii, going to cinema etc I have to decide if yet another DVD I might watch twice is worth it vs. renting.
Neither format will gain much traction until the hit the $150 and under range .. you can buy a decent DVD player for less then $50 so what incentive does the average person have?
I bought a Samsung BD-UP5000 which plays BOTH Blu-Ray AND HD-DVDs. I was lucky enough to get one of the first such players to arrive in Southern California. Here's my entire setup …
Who can afford, or who even WANTS, to have 2 hd players? And why buy standard DVD's when you know that in a very short time period you will kick yourself for not getting the HD version? So millions of consumers (like me) wait it out and don't buy DVD's.
Upconverting standard definition really is poor quality compared to Blu-Ray, if viewed on a high quality large flat-panel screen.
Here is a smart thing to do… You could buy a PS3 for little more than a straight-up player and go down the Blu-Ray path for now. If HD DVD somehow pulls out a miracle, you have a great game console to hedge your bet.
One thing that I think people are forgetting is that the basis for this format war is essentially Microsoft vs. Sony, or Xbox vs. Playstation.
The astounding number of quality games that have graced the Xbox this year have meant that people with the system are busy using it for games. Couple that with the fact that the HD-DVD player must be purchased seperately from the console and you have a recipie for failure.
Just as astounding has been the truly awful offerings from Playstation publishers, which has caused Folding@Home to be the most popular "game" on Sony's console (it's an application that uses idle time to create virtual protein chains).
The lack of gaming options means Playstation 3 owners are being forced to buy movies if they want to use their fancy machine for anything at all.
2%? They made a call over 2%?
I call BS.
They got paid..plain and simple.
2% is a margin of error, not a reason to limit your sales. WB will loose $$ now by not remaining neutral. They will have to sell a DVD to someone rather than an HDDVD. The way I see it, not all HDDVD owners will rush out to buy Blu-ray.
Last time I did the math, a $25-$30 disc sale was more profitable than a $12-$16 disc sale. The latter is what they chose.
Feed us another line Warner.
I partly agree with Mark.. I have a Blu-Ray player and love the picture but the future is E-Delivery.. Send the file to me and forget the plastic. Think music jukebox like http://www.kaleidescape.com!!
I agree with what Warner is saying. I used to buy DVD's 3 and 4 at a time, but I stopped last year after the new HD formats came out.
I couldn't see buying a movie in the old DVD format when a better one existed. On the other hand, I wasn't about to risk buying a player for a format that could lose in the format war and become obsolete. So I went from buying 10 movies a month to none.
Now that Blu-ray is the clear winner, I will buy a pair of players and start buying movies again.
Eric from Tyler is right — you can get a very good upconverting DVD player for less than $100. But if you pay $50 for an HDMI cable, you're getting ripped off. They can be had for $10 or less online, and there is no difference between the cheapest and most expensive HDMI cables as they both carry the exact same digital signal. They either work or they don't.
Blue-ray all the way. There is nothing better then true 1080p. DO NOT BY UP CONVERTERS near HD- is not enough
Haha, that's funny. I had no idea there was a significant group of people like me. After I got an HDTV, it seemed stupid to continue buying normal DVDs when getting it in hi-def was usually just a $5 premium, but since I wasn't sure which hi-def format would win, I just stopped buying movies. Just recently, I caved and said I'd go ahead and get a couple on Blu-ray, and it appears I made the right choice.
Here's an idea: Avoid purchasing either a blu-ray player or an HD DVD player and buy a dvd player that "upconverts" to near HD quality. That is what I did with the Philips version and it costs just $75 plus $50 for an HDMI cable.
That is so untrue. All three formats are hurting because of the economy. I am not confused. I own all three. If I want a Blu-Ray Disc I will buy that. Same goes for my HD-DVD and DVD. What is happening is not confusion. It is quality that each movie studio has produced. To be honest, movies and music are not the same. As far as I am concerned, iTunes and online media will prevail. It does not matter how many formats are out there. There is room for every format to grow and they all should be supported. I am taken back by Warner's decision. Once an industry leader now a company blaming Blu-Ray and HD DVD for the horrible DVD sales. They have let a lot of people down. Thank God I own all the different players. Some of us are now stuck in the middle. My advice to not to buy anything HD DVD or Blu-Ray. Keep the DVD library intact or buy online downloads. At least you will be safer.
Would like to see a follow up story to this. Like how Tsujihara is now gone, and how Warner backing HD DVD may have turned out differently.
I have both HD DVD and BD and almost never buy or use my BD. Its truly not as good, engineering-wise, and consumer friendly, and price-wise.
I buy only SD and HD titles. $30+ BD titles are not that great when I stick them in and watch them.
I get better quality from my $50 Philips HDMI upconvert player from costco.