High-def hiccups

By Paul Sweeting -- Video Business, 10/20/2006

OCT. 20 | WHAT IF YOU HAD a format war and no one came?

As VB’s Susanne Ault reported last week, the high-def DVD era in the U.S. has begun not quite with a whimper but with something far less than a bang.

Limited quantities of Toshiba’s first HD DVD players and delays in delivering Blu-ray Disc hardware—particularly Sony’s PlayStation 3 game console—have caused high-def software sales to fall short of studio projections and have led analysts to slash their short-term projections.

Warner Home Video has cut its fourth-quarter software sales estimates by more than half, for instance, to $150 million, compared to its earlier projection of $225 million to $500 million.

Financial analysts who follow the studios see trouble in the longer term.

In a report issued Oct. 6, Pali Capital analysts Richard Greenfield and Mark Smaldon said they no longer expect next-generation DVD sales to “materially impact studio revenues” in 2007.

“Next-gen DVD was supposed to be a catalyst to soften the pain of a standard-definition DVD slowdown,” the analysts wrote. “However, the failure of HD DVD to aggressively market itself … and the inability for Sony to bring PlayStation 3 to market anywhere near their original time frame … severely limits the benefit that a new DVD cycle will have on the movie business in 2007.”

They also note that the message consumers have received so far from the mass media has been that the benefits of the new formats are modest unless consumers have an HDTV display larger than 50 inches, potentially discouraging some would-be buyers.

“In addition,” they worry, “up-conversion standard-def DVD players with HDMI outputs are increasing in number at more attractive prices” and could pre-empt purchases of true high-def players.

Few at the studios or in the respective hardware camps would likely dispute at this point that the introduction of the new formats has been less spectacular than hoped.

Some, I suspect, would note wryly that the stuttering start to the market this year simply proves what many have said all along: that the focus of the launch efforts should have been on 2007 anyway, when the hardware would actually be ready and the process of authoring and encoding films in the new formats would be refined.

And they would have a point. But not one that is really going to help the industry at this juncture.

The formats have launched, for better or worse, and the industry has no choice now but to forge ahead aggressively if it wants ultimately to convince consumers that the investment in high-def will be worth the money.

The worst thing that could happen—worse even than a prolonged format war—would be for negative consumer impressions of the new formats, or of the industry’s commitment to them, to go unanswered.

THE OTHER REASON the industry has no choice but to forge ahead is that the battle between Blu-ray and HD DVD is not happening in a vacuum.

Outside the U.S., alternative, often less-expensive means of delivering high-def movies are proliferating, in many cases offering the same movies the major studios are hoping to sell here on Blu-ray or HD DVD.

If the blue-laser formats don’t soon start competing effectively with those alternative delivery systems, they ultimately will find the rest of the world has moved on without them.

In France, download service CanalPlay offers over 300 movies in Haute Resolution, including recent titles from Fox, Sony and Universal.

In Germany, Anixe HD offers about a dozen recent theatrical films for download, including House of Flying Daggers, while T-Online HD, an offshoot of T-Mobile, offers a growing list of movie titles, including Fox’s Fantastic Four and Universal’s Inside Deep Throat.

All three download services offer movies in the Windows Media Video HD format.

Germany also seems poised to become the first major-market opportunity for VMD-HD, a red-laser high-def disc format backed by U.K.-based New Medium Enterprises.

Last week NME announced what it called a “content distribution deal” with German distributor VCL, covering Germany, Austria and German-speaking Switzerland and including VCL’s entire 800-title catalog.

The catalog includes German-language rights to a large number of titles released by major studios in the U.S., including the three Terminator films, Dances With Wolves, Basic Instinct, The Sixth Sense, American Pie and Seven.

The announcement said “up to 10 titles” will be available by January.

It also said NME expects to announce “further content distribution deals in Europe and North America in the near future.”

VMD-HD players, by the way, carry a retail list price of $175.