TALKBACK

HD DVD plugs into Circuit City

By Susanne Ault -- Video Business,02/23/2007

FEB. 23 | With Blu-ray Disc title sales overtaking HD DVD movies, BD backers are declaring the high-definition DVD format war over. There are new signs, however, that HD DVD shouldn’t be counted out yet.

Among them: stepped up support for the format from Circuit City, a new Microsoft business-to-business Web site (www.thisishddvd.com) aimed at bringing independent program suppliers into the HD DVD fold and retailers’ belief that Toshiba player prices will soon drop, increasing their penetration.

At the start of the year, Circuit City stores, which traditionally have not carried Toshiba consumer electronics products, began stocking Toshiba’s second-generation set-top HD DVD players. The chain has carried BD players since last spring.

Circuit City officials declined to discuss their merchandising strategy for HD DVD software now that the chain is also carrying players, but it’s believed the titles, which were previously mixed in with standard DVDs, are getting prominence on par with BD releases.

“Circuit City has become a very strong partner,” said Jodi Sally, VP of marketing for Toshiba America Consumer Products Digital A/V group. “We’ve already done over 200 demos at Circuit City, which we started at the end of January. It was always our intention to expand our retail distribution.”

Sally reported that through Feb. 13, sales of Toshiba’s second HD-A2 ($499) and HD-XA2 ($999), which went on sale in late December, have eclipsed the lifetime sales of the company’s first-generation players. She declined to further detail sales results.

BD software looks to be gaining ground, with two BD discs sold for every one HD DVD title sold during January, according to studio sources. But lifetime sales of HD DVD and BD titles are running fairly even—at about 700,000 discs sold for each format through Feb. 10, according to one studio.

“Let’s say the software sales are about even, and you’ve got five times as much hardware on the Blu-ray side as you have on the HD DVD side,” said one executive. “That means your attach rates for HD DVD are higher than your attach rates for Blu-ray,” he said, pointing to 1 million PlayStation 3 and stand-alone BD devices combined in homes, versus about 200,000 HD DVD players that have sold, including stand-alones and Xbox 360 add-on drives.

Retailers remain upbeat about HD DVD, and some say they are anticipating a $100 price cut from Toshiba on its second-generation players. That would bring the manufacturer’s basic model down to as low as $399.

“You’ll see the lower pricing in 30 to 60 days,” said one retail source. “For Toshiba to hit the sell-through numbers that it wants, I expect to see a base level of $299 this fall.”

Toshiba’s Sally did not respond to questions about pricing by deadline.

But most retailers believe that current sales levels of HD DVD and BD are far too small to indicate real strength in either format.

“In the next 12 to 18 months, there will be 100 million high-definition TV sets out in the marketplace,” said David Workman, director of the Progressive Retailers Organization, an electronics buying group. “And if DVD is a popular source for [entertainment], then I’d like to see the [high-def player] numbers catch up. It should be 10% of that installed market,” or 10 million hardware units sold.

“It’s not like the consumer has spoken,” Best Buy spokesman Brian Lucas said. “The numbers are still really small, and it’s still early in the game.”

Meanwhile, Microsoft is hoping to garner further industry support for HD DVD with its www.thisishddvd.com. In contrast to the format’s consumer destination, www.thelookandsoundofperfect.com, Microsoft’s site is reaching out to suppliers and DVD authoring facilities in order to ramp up the production of HD DVD titles.

“We want to show the smaller guys—the second- and third-tier studios—how easy it is to make HD DVD movies,” said Kevin Collins, Microsoft’s director of HD DVD evangelism. Currently, the bulk of BD and HD DVD releases are coming from the major studios.

Separately, in good news for both formats, Borders started offering both HD DVD and BD titles in about 30 to 50 of its stores around the beginning of the year, according to studio sources. Borders declined comment.

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