OPINION: Price war
By Paul Sweeting -- Video Business, 3/9/2007
MARCH 9 | THERE ARE AT at least a few influential people in the industry who will tell you that the Blu-ray vs. HD DVD format war has been, on balance, a good thing, because the competition is driving down prices faster than either format would have achieved on its own.
Paul Sweeting is editor of Content Agenda
It’s an interesting, albeit minority point of view, with some precedent in the old VHS vs. Beta competition, when prices also came down and features came in faster than likely would have happened with only one format.
And it’s likely to accrue further supporting evidence over the second half of 2007 and throughout 2008.
Sony Electronics recently announced that it will lower the price of its set-top Blu-ray player in June, from $999 to $599.
Companies don’t typically announce price cuts so far in advance, because it signals consumers to stop buying until the price cut takes effect.
The logical inference is that Sony wasn’t selling many $999 players anyway and is feeling pressure to narrow the price gap with HD DVD.
Some commentators have even speculated that the $599 price point is a feint and that deeper price cuts are in the works, perhaps to as low as $399 by the end of the year.
Sony certainly has reason to be concerned about price pressure.
The price cut announcement came in the same week that the Steering Committee of the DVD Forum, on which Sony sits, gave formal approval to specifications for a “China-only” version of the HD DVD format.
It also approved the licensing of the basic DVD specs for incorporation into the China-only HD DVD formats, pending the formation of an appropriate licensing entity.
THE ONLY SIGNIFICANT difference between the China-only HD DVD and the version used in the rest of the world is the codec used to encode content.
In the rest of the world, HD DVD supports VC-1, H.264 and MPEG2. The China-only version supports only the Chinese-developed Advanced Video System (AVS).
In nearly every other respect, including the physical specifications of the disc, the interactive layer and the optics, the two versions are identical.
The purpose of the China-only version is to spare Chinese manufacturers the licensing fees associated with the global codecs on decks sold in China and to help propel China into the ranks of technology developers, rather than simply manufacturers.
But manufacturing HD DVD players they will be. And once those production lines are up and running, swapping out the codecs for their outside OEM clients is no big deal.
In other words, HD DVD just secured the inside track on a potentially vast new market. The economies of scale that could result from China’s embrace of HD DVD is likely to have significant impact on retail prices in every market that sources its electronics from China—that is, the rest of the world.
WITH LOW-COST Chinese HD DVD players on the way, Sony has reason to be concerned about Blu-ray prices. Whether that cinches the argument in favor of a format war, however, is a separate question.
There are at least two serious flaws with the argument.
First, it underestimates the impact of the Blu-ray camp’s internal contradictions on price points. One reason Sony isn’t selling many high-end set-top Blu-ray players is that it’s selling $499 and $599 PlayStation 3 consoles equipped with Blu-ray drives.
The PS3 price points, moreover, are under pressure themselves for reasons that have nothing to do with the high-def format war. But as Sony looks to drive down the cost of its game system, it will inevitably put pressure on other Blu-ray manufacturers to lower the price of their set-tops.
Another problem with the format-wars-are-good-for argument is that it only makes sense if content is not exclusive to one format or the other.
In the case of VHS vs. Beta, the major studios quickly adopted a strategy of releasing titles in both formats.
That added cost for the studios and was a burden on retailers, but it spared consumers the cost of making the wrong format choice. They got access to essentially all content and enjoyed lower prices and better features.
Not so with Blu-ray and HD DVD, at least not to date. If you can’t watch the movies you want, it doesn’t really matter how cheap your machine is.
