Media Wonk

High-def: The case for dual-format - April 19, 2007

Sony Pictures Home Entertainment released some data on Blu-ray and HD DVD sales the other day, courtesy of Nielsen/VideoScan, which collects point-of-sale data from retailers.

Studios are typically pretty secretive when it comes to this sort of data, so presumably Sony had some purpose in releasing it. And, presumably, that purpose was to demonstrate conclusively that Blu-ray discs are out-selling HD DVD discs by a large and growing margin.

That would fit with the Blu-ray camp’s number one talking point at the moment: The format war is over and Blu-ray has won.

Indeed, of the top 25 next-gen releases in 2007 through the middle of March, 23 were Blu-ray releases. The only straight-up HD DVD release to crack the top 25 was Warner’s Batman Begins.

Yet it’s the one other HD DVD release to appear in the top 25 that hints at the real story in the numbers, and it’s probably not the one Sony intended.

Warner’s The Departed was ranked No. 1 and No. 3, on Blu-ray and HD DVD respectively. Combined, the sales to date of The Departed more than doubled sales of Sony’s Casino Royale, the biggest selling Blu-ray-only title to date. And it did it with $30 million less in domestic box-office behind it than the James Bond flick racked up.

And The Departed isn’t the only dual-format release to easily beat the best-selling single-format releases. Warner’s Superman Returns, released in 2006 against a smaller hardware base, also outsold Casino Royale, according to sources familiar with the data. So did Happy Feet, released in March.

The point is not that two formats is better than one. Everyone unquestionably would be better off if either Blu-ray or HD DVD “won” the format war and there were only one high-def format.

But if I were a studio exec, I wouldn’t see victory for either side in the data released by Sony.

And if I were an executive at a studio that was releasing movies only in one format, I’d be reconsidering that policy.

IT’S NOT hard to understand why Sony is pushing the “Blu-ray has won” line. It stands to gain, more than any single company, from Blu-ray’s success.

But there’s no reason for a non-Sony affiliated studio to be influenced by Sony’s proprietary interests—or that of any technology provider.

And given the current marketplace posture of the two hardware formats, there is no victory for either side on the horizon.

Toshiba has already dropped the price of its entry level HD DVD player to $399 in anticipation of competition from low-priced players from China by the fourth quarter. Sony said last month it would slash the price of its standalone Blu-ray player from $999 to $599 later this year. Last week it confirmed it is eliminating the low-end PlayStation 3 model, which, among other things, will clear the field for standalone Blu-ray players from other manufacturers in the $500-$600 price range.

Clearly, both of the principal format backers are committed to fighting it out at least through the fourth quarter of this year. As a practical matter that means there will be product from both in the market through the end of the first quarter of 2008, no matter what happens over Christmas.

One of the world’s largest consumer electronics companies, Samsung, will begin shipping its dual-format player in the fourth quarter, when it will join its Korean-rival LG Electronics’ dual-format offering. It will take at least six months for Samsung to determine whether the product can succeed.

With Blu-ray embedded in PS3, the Blu-ray hardware base will continue to grow regardless of what happens in the standalone high-def player market.

Meanwhile, Microsoft’s HD DVD add-on for the Xbox 360 continues handily to outsell any standalone player in either format.

At a minimum, the hardware format war will be with us for the next 12 to 18 months. Even if one side or the other were to stumble badly this fourth quarter, neither will vanish from the market until the middle of next year at the earliest.

GIVEN THE realities of the hardware market, it’s hard to see on what grounds a studio without a direct financial stake in one or the other format can continue to justify releasing its movies only in one.

If it were ever true that sticking to a one format could force the other to fold, it is not true now. The course of that battle—for the next 12 to 18 months at least—has been set by the internal dynamics of the hardware market.

If it were ever true that a studio could affect that course by sticking to one format it is not true now.

The only measurable result of sticking to one format at this point is what can be found in the software sales data, such as that released by Sony Pictures: Single-format studios are simply leaving money on the table.

It’s true the numbers are small right now, so the amount of revenue at stake is barely more than a rounding error for a major studio. But it’s not as if the studios have a lot of growth markets at the moment.

Standard DVD sales remain flat, movie downloads remain stalled and piracy remains a threat to all distribution channels.

And it’s not as if you’re clearly buying anything by leaving that money on the table.

A major studio is likely to have 15 or 20 theatrical releases coming to video over a 12 to 18 month period, for which it has a fiduciary obligation to maximize revenue.

Given all that, I don’t know why you wouldn’t release your movies in every available format.

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