After winning the war for the dominant high definition format against Toshiba’s HD DVD format in February of 2008, many pundits expected Blu-ray players to take off like a rocket. After all, many had said that the main reasons for poor high definition player sales were uncertainty regarding which format, HD DVD or Blu-ray, would dominate in the long term. Also, high definition player prices were too high. Player prices needed to come down before sales would take off. The “experts” were wrong on both of these claims.
While there is some merit to both of these claims, neither was the primary reason regarding sluggish sales for Blu-ray movies. We have said it before and we will say it again: The primary issue with consumers is the cost of the Blu-ray movies, not the cost of the players.
Format wars are not just a recent event. Sony’s Betamax was the first consumer video tape format that was introduced in 1975. Its launch was followed by JVC’s VHS format in 1976. The first videotape format war was launched and even though the Betamax format was superior in many ways, it lost and VHS became the dominant format.
For those of you who do not remember or were not yet a living member of planet, VHS player prices were over $500 per unit for many years. I paid $600 for my first Mitsubishi VHS player, and that was not a top-of-the-line model. The same situation prevailed for DVD players. It did take a few years for DVD sales to ramp up, but the largest driver for the sales of both players and movies was the cost of the movies. People were spending $500+ for players and the market began growing fairly rapidly after the price for VHS movies became reasonable.
When VHS movies were first introduced, the price for a VHS movie was about $75. That is what launched and drove the tape rental market for many years, because people were not willing to spend $75 for a movie. VHS movie sales never took off until the price per movie dropped to under $20. At that price point movies were considered to be affordable and sales of VHS movies skyrocketed.
When DVDs were introduced around 1997, the price per movie was in the $40 to $50 range. It took a few years for DVD sales to grow. It was once again primarily a rental market until the price per movie dropped below $20. $20 seems to be the proven magic number where consumers feel that movies are a bargain and worth the price.
So why don’t the movie studios understand this? Today there is significant competition working against Blu-ray sales other than rental options from brick-and-mortar stores and online rental companies, such as Netflix and Blockbuster.
- Thus far only 1% of USA households own a high definition player. People are not likely to buy more players until they feel they can afford movies.
- There is an emerging VOD (video on demand) market being driven by Apple, Netflix and Amazon.com, where movies can be downloaded or viewed as streaming media. This technology may ultimately dominate the market and may eliminate the need for the Blu-ray DVD format altogether. Some industry analysts are currently saying the the Blu-ray format may only survive for 2 to 5 years. Once enough consumers have reliable broadband Internet access and the licensing and royalty issues are resolved with the movie studios, it could become far cheaper and more convenient to order whatever movie you wish to see whenever you wish to watch it.
- Sony and the Blu-ray developers appear focused on adding pretty much useless “bells and whistles” type features to Blu-ray, rather than focusing on fixing the current issues with many Blu-ray players and disks. Blu-ray technology continues to evolve, which is why firmware is upgradeable on Blu-ray players. Nonetheless, numerous incompatibility problems are emerging with some players that have a difficult time playing the latest Blu-ray movies without a glitch. We see emerging features such as BD Live, which allows users to set up Internet chats and access additional movie information online while viewing a movie to be nothing more than fluff that adds cost. Hellooooo! Focus on fixing the problems rather than adding features to justify the high cost.
- Sony’s relatively inexpensive (~$400) PlayStation 3 game console already includes a Blu-ray player that does a pretty good job when connected to an HDTV. Sony expects to sell 10 million PlayStation 3 units in 2008. While the PlayStation 3 was a primary factor in Sony’s conquest in the HD format war with Toshiba, it should have also been a major factor in driving Blu-ray movie sales.
- Many surveys indicate that most consumers feel that the standard DVD format is “good enough”. Add that to the fact that all current Blu-ray players upconvert standard DVDs to near high definition quality and you have another reason for not paying a premium price for a Blu-ray movie.
- The current economic situation will stifle sales further. Most consumers will not pay a premium price for any technology that does not offer a significant advantage. If most consumers feel that standard DVDs are good enough, then it is hard to justify paying a premium price.
So where does this leave Sony and Blu-ray? Sony is already downgrading their sales forecasts for Blu-ray movies. This could easily be turned around if the price for Blu-ray movies is lowered blow the proven $20 threshold.
There is a little more to the price issue than simply Hollywood and Sony greed. Blu-ray manufacturing technology is significantly different that standard DVD technology, which required the building of new manufacturing facilities and a lot of additional up-front expense. Nonetheless, the street prices must come down before Blu-ray movie sales will take off. If Sony does not find a way to do this soon, the technology may be swept aside in favor of VOD or another technology yet to emerge.