Say Goodbye to HD DVD

It looks like Toshiba is about to wave the white flag in the DVD format war between Blu-ray and HD DVD. According to numerous media sources, the company is planning to drop the HD DVD format.

It looks like the first nail on the HD DVD coffin was the announced defection of Warner Brothers Studios to the exclusive use of the Blu-ray format. Warner made the announcement just prior to the Consumer Electronics Show in early January.

For the past two years the Blu-ray format, backed by Sony, and the HD DVD format, backed by Toshiba, have battled in the marketplace for dominance. At stake is the emergence of a single format standard. Each format is incompatible with the other, so the presence of two non-compatible formats tended to split the market and may be responsible for consumers’ reluctance to buy expensive high definition equipment until a winner is declared.

In terms of units of disks sold, the sales of Blu-ray and HD DVD movies were about the same last year–and neither were selling well. Sony did dominate the sales of players, primarily because their PlayStation 3 gaming console comes equipped with a Blu-ray player. This tactic worked well to help place Blu-ray players in millions of households.

While most market pundits blame consumer confusion due to the format war as the reason why sales of high definition disks have been slow, I see other factors that probably have at least the same level of impact on suppressing sales.

1. The technology is still new and the majority of consumers have not yet invested in a high definition television.
2. The price for high definition players has been too high. Blu-ray players entered the market at $1000 each, while HD DVD players were about half of that price. The current prices for Blu-ray players are from $300 to $700, which is still too expensive for many consumers.
3. The price for high definition disks is still too high. An average price of $30 is too expensive. At that price level, most consumers will prefer to rent disks rather than purchase them. Standard DVDs did not start to sell well until the prices came down below $20. I suspect that $20 is also the magic number for high definition disks.
4. Surveys indicate that most consumers are satisfied with the quality of standard DVDs.

The good news is that hot movie titles such as the Bourne series and Transformers–which have only been available in the HD DVD format–should soon be available on Blu-ray disks.