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HD DVD, Blu-ray Disc and the future of home entertainment: A strategic analysis by Screen Digest (21/8/2006)

A new report published by media researchers Screen Digest, "HD DVD, Blu-ray Disc and the future of home entertainment: a strategic analysis" is the first major study to look at the background to the current video format battle and to assess the potential outcomes. Broadly speaking, Screen Digest believes that there are 4 possible outcomes to the format battle:

1 The HD DVD format achieves a dominant market position and supporters of the Blu-ray Disc format switch their allegiance to that format.

2 The Blu-ray Disc format achieves a dominant market position and supporters of the HD DVD format switch their allegiance to that format.

3 Neither format achieves a 'knock-out' position of market dominance and both coexist until combi-format solutions become cost-effective and eventually dominate, mirroring the current market for recordable DVDs

4 Both formats 'lose' in the sense that neither is successful enough to achieve mass consumer adoption, resulting in a situation comparable to that of the battle between 'next generation' audio formats SACD and DVD Audio.

Ben Keen, Screen Digest Chief Analyst states: "Given the vested interests on either side, we believe that the most likely outcome at present is scenario 3, i.e. that the two formats will coexist until they give way to affordable dual-format solutions but none of the other three scenarios can be completely ruled out. Overall though, the net result of the format war and the publicity it has generated will be to dampen consumer appetite for the whole high definition disc category."

Graham Sharpless, author of the report comments: "The success of DVD was due to a single format that offered better quality and greater convenience than the VHS format that it replaced. This time both formats support similar features. Blu-ray discs offer capacities of up to 50 GB compared with HD DVD's 30 GB. But Blu-ray is a revolutionary format that is more difficult and expensive to produce than HD DVD discs, which can be produced using modified DVD equipment."

By 2010, Screen Digest believes that just under 1/3 of total spending on buying video discs in the three key regions of US, Japan and Europe will be generated by sales of high definition formats - $11bn out of a total spend of $39bn.

Screen Digest predicts that few households will opt to replace their existing DVD libraries. Instead, market value growth will come primarily from the premium prices charged for the new formats. This could mean that by 2010 total revenues from packaged media will be 15-20 per cent higher than would have been the case without hi-def.

Background:

With DVD prices in freefall and consumer spending on DVD plateauing, there is increasing industry pressure for a next generation video format to accompany TV's shift to high definition. Consumer electronic companies and content owners alike hope to restore their fortunes by offering better quality video and other features at a higher price point. But instead of a single system, supported by all relevant industries, there are two incompatible formats. One is HD DVD, developed and supported by the DVD Forum, which its supporters claim is the logical successor to DVD. The other is Blu-ray Disc (BD) a revolutionary rather than evolutionary format which is not backed by the DVD Forum.

Major supporters of Blu-ray Disc include the developers of the technology, Philips and Sony, as well as other consumer electronics manufacturers and IT companies such as Dell and Hewlett Packard (HP). All the major Hollywood studios except Universal have announced plans to release movies on BD and the first players and titles launched in the US in June 2006. Sony's involvement means that a BD drive will be also be included in the PlayStation 3 games console, scheduled for worldwide release in November 2006.

HD DVD has the support of its original technology developers, Toshiba and NEC plus three of the major Hollywood studios (Warner, Paramount and Universal) which are releasing movies for this format. Intel and Microsoft are strong supporters of HD DVD and Hewlett Packard now supports HD DVD as well as Blu-ray.

Microsoft has built support for HD DVD into its next generation PC operating system Windows Vista, although opinion is divided on how influential this might be in the format battle. The software giant has also agreed to launch an add-on optional HD DVD drive for its Xbox 360 games console, due to be launched in the US in time for the Christmas selling season.

www.screendigest.com