OPINION: Blu stock

With global stock markets cratering and credit markets freezing, the U.S. and much of the rest of the world appears on the brink—if not already in the midst—of a serious economic recession.

More than $10 trillion in wealth has been wiped out in the past month in the U.S. alone, as housing values plummet, along with the value of equities in retirement investment accounts.

Consumer spending has already fallen off sharply, according to some major retailers.

Given the bleak outlook, what is it reasonable to expect for the Blu-ray Disc format this holiday season, given its relatively high sticker price and continued high consumer satisfaction with DVD, the format it seeks to replace?

Surprisingly, analysts remain relatively bullish on the format, although many of their forecasts were probably developed months ago, when consumer spending looked more robust.

The latest forecast comes from Parks Associates, which sees an eightfold jump in set-top Blu-ray player sales by 2012.

Last month, DisplaySearch forecast sales of 2.4 million set-top Blu-ray players worldwide this year, up from 700,000 last year and growing to 5.3 million in 2009.

Some anecdotal evidence also points to growing consumer adoption of the format, such as the 500,000 Blu-ray copies of Paramount’s Iron Man sold in the first two weeks, representing 20% of the movie's total disc sales.

Retailers are expecting additional hardware price cuts in the next few weeks as manufacturers try to boost holiday sales.

In a presentation last week on the current financial turmoil, Consumer Electronics Assn. economist Shawn DuBravac expressed cautious optimism that consumer electronics sales would hold their own this fourth quarter despite the risk of recession.

Sales of consumer electronics equipment are running about 4% ahead of last year, according to DuBravac, while overall spending on technology is still growing as a percentage of total consumer spending, running about 16% so far this year.

CEA projects that sales of gaming hardware will be up 3.5% this year compared to last year, to 17.1 million units.

Audio and video hardware shipment revenue—a category that includes Blu-ray players—is projected to grow 4.7% this year, DuBravac said.

Not all of the news in the CEA presentation was good, however.

Aggregate consumer spending has been extremely weak through the second half of 2008, falling 2.7% in the third quarter and off 2.5% so far in the fourth, according to CEA data.

Year-over-year, discretionary spending has been falling since the beginning of the year.

More ominously, employment is in a “recession-like decline,” DuBravac said, and the decline is accelerating.

According to DuBravac, consumer spending is likely to fall by $400 billion this year compared with 2007, or roughly 4% of total consumer spending.

DuBravac also said the credit squeeze posed a risk to retailers needing to buy inventory, further depressing consumer sales, but that so far, the worst has yet to happen.

“From what we see, retailers are still able to access the credit they need for themselves and to be able to extend it to their customers, but it's something we're watching very closely,” DuBravac said.

Overall, a very mixed picture for Blu-ray this holiday season. The analysts’ forecasts are probably too bullish, in that they’re likely based on assumptions about near-term consumer spending that no longer apply.

On the other hand, electronics sales seem to be holding up better than other sectors, such as auto sales.

Then again, given the extreme volatility in the stock and credit markets lately, making predictions is probably a fool’s game anyway.

Have a Merry Blu Christmas.