Blu-Ray Wins a Battle in the High-Def War
Blockbuster snubs a rival, boosting Sony's format
Neither side is close to conceding, but the death match over which format will dominate the next generation of movie disks is swinging in favor of Blu-ray, the technology backed by Sony and most of the studios that produce the flicks themselves. Blu-ray was outselling Toshiba-backed rival HD DVD by 2 to 1—though sales for both are still slight—before recent word that Blockbuster, the movie retailer, would not bother stocking HD DVDs.
The move gave weight to predictions by Blu-ray backers that stores would begin to have a say. "Retailers are ultimately going to weigh in, because they only have a limited amount of shelf space," Disney CEO Bob Iger told analysts in May.
That's what drove the decision at Blockbuster, which said it would stock only Blu-ray disks in its next 1,450 stores to get high-def movies. HD DVD will still be available online and at 250 locations that Blockbuster used in testing rentals of both formats. "We found that, at this point, Blu-ray is worth the shelf space, and HD DVD is not," says Blockbuster's Matthew Smith.
Next up. The stakes for retailers and studios alike are massive: Which technology will replace the DVD? The DVD is a profit engine with yearly sales of more than $16 billion, but it's beginning to sputter; growth has fallen to the low single digits from double digits a few years ago. Sony and partners, including most big studios, pushed Blu-ray, while Toshiba and Microsoft backed HD DVD.
HD DVD advocates say it's too early to suggest either format has the upper hand. For one, Blockbuster's business is primarily rentals—sales of disks at retailers like Wal-Mart are more important, says Kevin Collins, spokesman for a group promoting Toshiba's format. And so far, the new high-def disks account for less than 1 percent of today's DVD sales.
Sony last year boosted Blu-ray by including the drives in its PlayStation 3 game console. That resulted in a steep, $600 price that has hurt its gaming sales but put Blu-ray players in about 1.4 million U.S. homes. Sony gambled that sales of Blu-ray disks would more than offset a loss in games share, says Michael Pachter of Wedbush Morgan Securities. The advantage might widen as studios loyal to Blu-ray have potential big sellers in Spider-Man 3 and Pirates of the Caribbean: At World's End.
But the HD DVD camp notes it has sold about 150,000 stand-alone players, compared with Blu-ray's 90,000. Consumers with those players will eventually buy more movies than those with game consoles, Collins argues. Those Sony drives, the theory goes, will eventually get busy with PS3 games, which so far are lacking, and those consumers will rent fewer movies or buy a separate player.
Also, as sales volume picks up, the cheaper cost of producing HD DVD drives and disks could become more important. Already, Taiwanese manufacturers are racing to produce cheap HD DVD players under licensing deals with Toshiba. Toshiba now sells one for $300, versus $500 for the least-expensive Blu-ray. A $200 player would appeal to Wal-Mart shoppers, who also buy more than 40 percent of all DVDs. That would be a far bigger "get" than winning over Blockbuster. Then there is online movie rental giant Netflix, which has yet to pick sides.
The HD DVD folks have taken to suggesting the two formats can coexist, much as three game consoles share most of that industry's $12.5 billion in retail sales. They're talking less of vanquishing the competition. For now, at least, the smack is left to Blu-ray.
This story appears in the July 2, 2007 print edition of U.S. News & World Report.
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