The impact of PS3 in winning the HD Format War

[silhouette]

Well, I think anytime someone is discussing whether a format will "win", they're talking about the situation where one format loses almost all exclusivity.

(One studio isn't enough, IMO, because you can always fall back to upscaled DVD for 1/5th of your collection.)

If disc sales start swinging to, say, 80:20, and total HD sales improve to maybe 5% of DVD sales, then staying exclusive to the losing format has a significant impact on revenues, and the shit hits the fan. BR didn't achieve this in the past year, and I think it'll be tough for that to happen now.

Similarly, if total HD sales get even higher (say 10% of DVD sales) without being driven by the proliferation of dual-format players, then staying exclusive will cost the studio their bottom line even in 50:50 cases. Again, we see formats lose exclusivity, except this time it happens on both sides. Then consumers can forego one of the players.

Right now exclusivity is primarily driven by the low market share of HD formats. A $150m "bribe" wouldn't be enough if that wasn't the case.

Well currently, I guess there are 4 major studios supporting BLu-ray exclusively and 2 major studios supporting HD-DVD exclusively. If all of them sells equal amount, Bluray will overall outsell HD-DVD 2:1 (which is kind of the case now). This also means that none of these studios will make more money unless they go to multi format support.

This war will be over when the multi-format players price comes down to 300$ (maybe around next xmas). Then, neither the studios nor the consumers will care about the format war.

Ps: It is more possible that a lot of ppl buy PS3 just to watch Bluray movies, especially given the amount of games the platform is moving in NA.

 

[Zaphod]

This war will be over when the multi-format players price comes down to 300$ (maybe around next xmas). Then, neither the studios nor the consumers will care about the format war.

It might be over as far as the consumer is concerned, but it will be far from over for the studios and other interested parties. If we magically transformed all players into ones that could play both formats tomorrow, that doesn't mean that both formats would thrive. Royalty considerations (income for some and costs for others) would come into play weighed against production capacity, disc prices, content creation, and other factors. The market would converge towards the format allowing for the higher overall margins, with laggards (i.e. Sony/Warner having vested opposite interests) in either camp holding out holding out (until the scale of the majority would win them over by negating their preferred format's advantage).

 

[RobertR1]

For CE's, they're basically in a world of hurt. Due to the various Profiles in BR, the PS3 is the best option and now at $399 with performance and an upgrade path much better than any standalone players, it has no equals (yes yes, we know about the lack of DTS HD MA decoding on the PS3). The enthusiast market of today is much more alert of such details due to the internet. Once they realized the PS3 is the best option they flocked towards it, leaving the high priced stand alone players lagging far behind. So really, BR CE's, which happy to stand behind in press releases don't have much of a market when it actually come to selling product.

They certainly can't go over to the HD DVD side because Toshiba has already lowered things down to $199 (or less) so that market is gone also.

The only thing left of CE's is to stay out of it or produce Dual Format players at a reasonable rate. For people not interested in gaming and/or two devices, a $399 dual format player that does it all would be highly desireable. Once you saturate that market, move down to $349/$299/$249/$199 and so on.

While the above may sound logical you have to remember that this war has companies invovled emotionally so logic might have to wait while hardheaded decisions and arrogance take center stage. I'll never forget the story about Panasonic so convinced that VC-1 wouldn't make it into final specs that they produced their first player without it! Thus they had to delay, add VC-1 support and could not launch BR alongside Samsung.

If the dual format players become the norm and media sales actually start putting a good dent in DVD, the side with cheapest ROM media mass production would win out.

 

[Geo]

I'd think an independent CE would rather undercut PS3's price than Toshiba's. And there are still a lot of people who won't have a gaming console in their living room at any price; my wife the TV engineer is one of them.

Tho as I said around here somewhere, I do expect the dual-format market to perk up again now that HD DVD is starting to look very not dead. It's the logical course out of this mess if the prices can be made reasonable. If, for instance, you can make a profit on a dual-format player at the same retail price as PS3.

 

[Florin]

What's you're point?

A 10:1 ratio only got them a 2:1 ratio in movie sales. Now it's 6:1 for total sales, and in the last few weeks it could easily be just 2:1. Toshiba apparently sold over 90,000 from Nov. 2-4 at the $99 price a few weeks ago, and PS3 sold what, 121K in all of October? Disc sales always lag player sales a bit, so we'll soon see HD-DVD make some gains.

My point was that for you were making certain assumptions to come to your prediction. And that any of the factors I listed could have an effect on the outcome (like say, sales of PS3 tripling in November).

 

[Mize]

Someone better go tell the Ohio-area Target stores that recently quadrupled their BR whilst increasing HDDVD by 30%.

 

[Geo]

Which likely is not better than 5-1 (and might be as low as 3-1) for November; which would be about treading water at best, and more likely to be B-r losing ground a touch, depending on how many B-r standalones are going out the doors too.

Edit: Mize snuck in between what I meant to be replying to. . .

 

[nelg]

The only thing left of CE's is to stay out of it or produce Dual Format players at a reasonable rate. For people not interested in gaming and/or two devices, a $399 dual format player that does it all would be highly desireable. Once you saturate that market, move down to $349/$299/$249/$199 and so on.

I don't think that is necessarily the case. CE's still produce DVD players, even though most are just re-branded from third party producers. While your no name$40 DVD player and $150 Branded player might have come from the same factory, the fact they exist at different price points shows that there is money to be made. People are willing to pay for Brand Names, and what they may bring (interface etc.) to the table.

The race to commoditzation does not mean an end to participation from the Major CE's. It just changes the nature of their involvement.

 

[Mize]

Sorry to confuse you Geo
My point there is that 3 months ago these retailers had BR and HDDVD on the same footing but now have dramatically tilted toward BR. These are very experience profit-making retailers so they must have reasons.

 

[Geo]

Personally, if I had to handicap the situation I'd still have B-r in the lead. Thing is that's a downgrade from when it seemed they were on the verge of permenantly marginalizing HD DVD pre-Paramount. As a consumer, I really don't give a rats @ss which one of them wins, I just wanted one of them to do so early. That opportunity seems likely to have gone by the boards. So now I'm rooting for dual-format players to save consumers and let the big boys go back to fighting over the spoils with utter disinterest on my part.

 

[SPM]

I think the low attach ratio for the PS3 means that the seeds of a future boom in BD sales is being laid. Right now the small number of people buying HD standalone players are HD technophiles, and the majority of PS3 users are not buying movies. Even given this BD leads HD-DVD by 2 to 1 in movie sales. Think what will happen when sales of HDTVs reach the point where everybody has one and HD movies become mainstream. A large number of PS3 owners who don't buy HD movies now, will start doing so, boosting BD sales fairly rapidly.

 

[nutball]

A large number of PS3 owners who don't buy HD movies now, will start doing so, boosting BD sales fairly rapidly.

And the even larger number of people (who are lets say for arguments sake 40+ years old) who just bought a HDTV but don't own a PS3 or any other games console (and lets say for arguments sake outnumber those with PS3s by oh 10-to-1, just to be generous, but probably 100-to-1 in this Universe) will buy whatever standalone player is cheapest and plays the DVDs they've bought and have been told will last forever. So yeah BD may well surge, but if HD-DVD is cheaper at that time it'll get steam-rollered by the beige brigade.

 

[Geo]

Do we have statistics on how many PS3 buyers in the US have an HDTV?

We know that Nielsen said recently that only roughly 14% of US households have an HDTV. This could mean that right off the bat something like 86% of PS3 owners are out of the B-r movie running for the moment. Which would indeed go a long way towards explaining why it takes something close to 10 PS3 owners to make up 1 standalone owner as a HD movie buyer.

But I suspect PS3 owners are significantly higher than the general population's 14% HDTV penetration. Still, even if they were twice that it would still be a major factor in explaining the ratio's current impact (i.e. at twice the general pop, we'd still have 72% of current PS3 owners who aren't buying B-r movies because they don't have an HDTV).

 

[Mintmaster]

The list I made include cheap standalone players. So it cannot be small potatoes. Like you though, I am curious to see some movie sales numbers over the next few months.

My bad. I didn't see that in the list.

Some are already over committing. As long as Sony continues to produce PS3 as is, it will remain a major force in this war cummulatively.

If Sony devoted 1/4 of the PS3 subsidy money to BR standalones, it would have won the war in overwhelming fashion. I don't think including BR in PS3 had much to do Sony trying to win the format war, and Stringer's apathy to the "stalemate" supports this view.

IMO, most of the justification of including BR in PS3 was about improving its attractiveness as a gaming platform. Even if Sony knew beforehand that it would not affect the war one way or the other (say if HD-DVD didn't exist or if there was only one format), they would have made the same decision of including an HD format. Therefore I don't consider the PS3 as "over committing" an investment to win the war.

 

[Mintmaster]

I think the low attach ratio for the PS3 means that the seeds of a future boom in BD sales is being laid. Right now the small number of people buying HD standalone players are HD technophiles, and the majority of PS3 users are not buying movies. Even given this BD leads HD-DVD by 2 to 1 in movie sales.

That's rather ass-backwards logic. The BD sales lead is disappointing given the HW install base, and it happened because PS3 owners aren't buying many movies. You then flip this around and think because of this, 2 to 1 is suddenly good?

Think what will happen when sales of HDTVs reach the point where everybody has one and HD movies become mainstream. A large number of PS3 owners who don't buy HD movies now, will start doing so, boosting BD sales fairly rapidly.

Do you seriously think PS3 owners (currently 3M in the US) are going to buy HDTVs at even close to the rate that HDTV owners (currently 15M) are going to buy HD players?

The group you're talking about is 1/5th the size, has far less disposable income (PS3 owners without HDTV must be far poorer than HDTV owners), and would have to spend $500-$2000+ instead of ~$100-$400. It'll barely make a dent.

Just think about what you're implying. You're saying the percent of PS3 owners buying movies will grow substantially with time, despite the fact that it's alreadly lost the tag of cheapest BR player and that standalones will only become more appealing as alternatives to the PS3. Sony will be lucky if this figure doesn't shrink.

 

[SPM]

Do we have statistics on how many PS3 buyers in the US have an HDTV?

But I suspect PS3 owners are significantly higher than the general population's 14% HDTV penetration. Still, even if they were twice that it would still be a major factor in explaining the ratio's current impact (i.e. at twice the general pop, we'd still have 72% of current PS3 owners who aren't buying B-r movies because they don't have an HDTV).

What happens when HDTV becomes the standard TV, and the majority of PS3 owners have one? That 72% who aren't buying BD movies now will start buying them.

 

[Mintmaster]

What happens when HDTV becomes the standard TV, and the majority of PS3 owners have one? That 72% who aren't buying BD movies now will start buying them.

Using your logic, that's also 100M new households with an HDTV who need an HD player.

Read my last post. It's silly to think the specific demographic you're talking about (PS3 owners who don't have an HDTV now but will get one and then will buy BR movies) will be relevent.

 

[Mize]

What about when that anti-BD-radiation carrying meteor strikes the earth and all BD players start playing only SD as a result. Seriously guys...you're debating silly stuff. Sit back, watch a few and see how it unfolds.

 

[SPM]

That's rather ass-backwards logic. The BD sales lead is disappointing given the HW install base, and it happened because PS3 owners aren't buying many movies. You then flip this around and think because of this, 2 to 1 is suddenly good?

It is very disappointing for current sales, but even with those disappointing figures, BD is beating HD-DVD 2 to 1, and the only way for usage by those people who have a PS3 and don't use it for movies, is up.

Do you seriously think PS3 owners (currently 3M in the US) are going to buy HDTVs at even close to the rate that HDTV owners (currently 15M) are going to buy HD players?

The percentage of PS3 owners with HDTVs will grow as HDTVs become the standard TV in use. The number of HD player owners with HDTVs will stay the same (at approximately 100%). Logic dictates that that will boost BD sales.

(PS3 owners without HDTV must be far poorer than HDTV owners), and would have to spend $500-$2000+ instead of ~$100-$400. It'll barely make a dent.

You are saying that PS3 owners are poorer than the average TV owner? I can't see any logic behind that. When the average TV owner can afford an HDTV, then and only then will HD movie sales really take off. The HD enthusiast who accounts for current HD player sales is a small niche - very much smaller than PS3 owners as can be seen from the sales figures for HD-DVD vs BD media. When Joe Average can afford to buy HDTVs as his standard TV, that is when HD media sales will really take off. At that point PS3 owners will also be able to afford an HDTV.

Just think about what you're implying. You're saying the percent of PS3 owners buying movies will grow substantially with time, despite the fact that it's alreadly lost the tag of cheapest BR player and that standalones will only become more appealing as alternatives to the PS3. Sony will be lucky if this figure doesn't shrink.

Think carefully about what you are saying. If you already have a PS3, then the cost of buying an HD player is zip, whereas the cost of buying an HD player will perhaps be $150. Also the cost of the HD player isn't the main problem holding back HD movie sales, it is the cost and low penetration of HDTVs that are putting people (both PS3 owners and standalone HD players) off buying HD movies in large numbers. When that block is removed, there will be a large pool of PS3 owners instantly able to get into HD movie viewing at zero cost beyond the cost of purchasing the media.

As far as the price of standalone HD-DVD players being cheap, these are artificially cheap at the moment. Toshiba subsidises HD-DVD players and Sony subsidises the PS3 - nobody else is prepared to sell HD-DVD or BD players at their prices. Subsidies for HD players cannot not be maintained if sales volumes build up. Games consoles provide returns for a specific console from software sales, so they can be used as a loss leader to sell games software, which is the real revenue stream. However HD players can't be used as a loss leader in the same way to gain revenue from media sales, because HD media isn't tied to a manufacturer. Toshiba can make some money from royalties on HD player sales, but not the sort of royalties you can charge on games software sales. If Toshiba tries to charge too much in royalties for HD-DVD usage, then other manufacturers and film studios will simply not adopt HD-DVD.

 

[SPM]

Using your logic, that's also 100M new households with an HDTV who need an HD player.

Read my last post. It's silly to think the specific demographic you're talking about (PS3 owners who don't have an HDTV now but will get one and then will buy BR movies) will be relevent.

Well, it is clear from the BD vs HD-DVD media sales being 2:1 in spite of only a small proportion of PS3 users using their PS3s to play movies, that the demographic you are talking about isn't big enough to challenge even the "impoverished" owners of PS3s in the situation in which most don't have HDTVs.

It is silly to think PS3 owners won't go out and buy HDTVs when everyone else starts buying them. It is also silly to imagine that HDTVs won't drop in price, or that they won't replace SDTVs at some stage soon. Just go to any electrical retail store and look at how much space is taken up by HDTVs compared to SDTVs.