High-def player price cuts follow DVD

Market researcher projects hardware costs halved by December

By Susanne Ault -- Video Business, 3/30/2007

MARCH 30 | Prices for both Blu-ray Disc and HD DVD hardware are falling faster than expected, at about the same rate of decline as standard-definition DVD players.

By December, player prices could be roughly half what they were last December, projects market researcher Understanding & Solutions.

By 2009, when the formats will have been in the market for three years each, stand-alone Blu-ray and HD DVD players and the PlayStation 3 should carry average prices of $200 to $300, according to Understanding & Solutions’ projections.

At the comparable three-year mark, DVD pricing was about $100 for entry-level players, but the players launched at a lower $550 average price in 1997.

“I think the rapid reduction of regular DVD pricing took many by surprise, and they felt this curve couldn’t be re-created with high-def, but at the moment, all evidence suggests that the price curve for the high-def formats is mirroring that of the DVD player,” said Jim Bottoms, director at Understanding & Solutions.

“Amazon.com is already quoting $350 for a [Toshiba] HD DVD player, and it has the Samsung Blu-ray player at $470. By fourth quarter, we will see sub-$300 for HD and sub-$400 for Blu-ray,” he said.

Bottoms spoke in the wake of Toshiba chopping prices on its second-generation units, including shaving $100 off its entry level HD-A2 model, which now starts at $399.

Sony also has announced it will roll out $599 Blu-ray players by this summer.

Retailer opinion varies on the high-def price slides.

Protect profits

Frank Roshinski, Tweeter VP and general merchandising manager for video, appreciates the drops for their potential to boost business outside of the fourth quarter. Yet ideally, Roshinski wants to win adopters by pushing the concept of advanced technology, rather than just price. Tweeter has been profit-squeezed in the high-def TV price wars, announcing last month it would close 49 of its outlets.

“I think we’ll see a 10% sales bump on these lower-priced high-def players,” compared to sales in recent weeks, said Roshinski. However, he said “rather than just fry the price, I’d rather have the transaction be more about feature-rich product.”

During the Future of Film conference in Los Angeles last month, Warner Home Video senior VP of market management Steve Nickerson contended that hardware price declines represent a positive consequence of two formats battling for dominance.

Also, HD DVD suppliers recently noted that hardware price slashing bodes well for their release of more than 70 new titles through July.

“As hardware prices continue to fall, this is a great time to experience HD DVD,” said Chris Saito, VP of marketing at Paramount Home Entertainment. “Our HD DVD lineup for spring and summer 2007 has something for every audience, with hits ranging from DreamGirls [May 1] to Flags of Our Fathers [May 22].”

“I think overall, the price moves by the manufacturers are a silver lining” to the format war, said Matt Duda, director of merchandising for video at Ultimate Electronics. “It will generate more sales volume, so we’re definitely looking forward to that.”

Yet Duda does hope that Blu-ray and HD DVD manufacturers hold these price points for some time in order to protect profit margins.

“We want to remain competitive with the marketplace,” Duda said. “Let’s find out where the sweet spot is for the technology. We can work to determine that in the summer.”

Consumers still confused

But Best Buy and electronics buying organization Progressive Retailers Assn. (PRO Group), among others, believe that lower pricing still doesn’t solve the problem of two formats creating consumer confusion.

“I don’t think a format war is ever good for the consumer,” PRO director David Workman said. “It has forced prices down faster than they’d go otherwise. But you still have the format war. Price points only will take you so far [in convincing] consumers to buy.”

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