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French Disconnection - August 30, 2007

Yesterday's announcement by NBC/Universal and Studio Canal that they will combine their home entertainment units in France will create a dominant DVD distributor in that market. But it could also significantly impact the high-def DVD battle in Europe as well.

Studio Canal owns the largest film library in Europe, with roughly 5,000 titles; NBC/Uni, already the second largest distributor in France, packs about 3,000. Both studios release their films exclusively on HD DVD. No Blu-ray.

Assuming that policy remains in place after the two combine their operations into Universal Studio Canal Video in January, it could be a very big thumb on the HD DVD side of the scales in the middle of Western Europe (illustrating once again that the obsessive focus on studio loyalties and exclusive content in the U.S. misses part of the picture). HD DVD player sales already outpace Blu-ray sales in Europe, largely due to their lower prices and a delay in launching Sony's PlayStation 3 game consoles there. Independent (i.e. non-U.S.) studios, which make up as much as 40% of the home entertainment market in Europe, have also embraced HD DVD, largely due to its lower manufacturing costs.

Of course, given the French propensity for going their own way, an HD DVD victory there could be good news for Blu-ray in the rest of the world. But what happens if the world fragments and HD DVD becomes dominant in some territories and Blu-ray in others?

From the studios' point of view, that would probably be the worst of all possible outcomes, likely resulting in duplication of efforts, the loss of economies of scale and a lively market in gray goods.

Let's blame France.
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