[CES] Why did Warner Switch to Blu-ray?

Jan 9, 2008
Naoki Asakawa, Nikkei Electronics
Following Warner's shift to BD supporters, DVD sales share of US movie companies belonging to the BD side expanded to about 70%.
Following Warner's shift to BD supporters, DVD sales share of US movie companies belonging to the BD side expanded to about 70%.
[Click to enlarge image]
BD accounted for 64%, while HD DVD provided 36% of overall packaged media sales in 2007.
BD accounted for 64%, while HD DVD provided 36% of overall packaged media sales in 2007.
[Click to enlarge image]

Warner Bros Entertainment Inc has decided to support Blu-ray. The next-generation DVD war that flared up in the spring of 2006 entered a new phase immediately after 2008 began.

Next-generation DVD formats emerged with the first compatible players in the spring of 2006 and entered into full-scale adoption in 2007, with unit sales of players and packaged media growing significantly compared with the previous year.

Greeting 2008, Nikkei Electronics summarizes the trends in the next-generation DVD war through the end of 2007, based on announcements from supporters of both formats. The graphic data in this article was shown by the Blu-ray Disc Association at the 2008 International CES.

With Toshiba Corp releasing the "HD-A2" low-priced player temporarily at US$99 in November 2007, for example, HD DVD players saw unit sales sharply grow through strategic pricing, which manufacturers apparently implemented being aware that they could end up with a loss. Cumulative HD DVD player sales in the US reportedly reached roughly 1 million units, including external players for the Xbox 360.

On the other hand, cumulative sales of BD players are only about 500,000 units. Combined with PlayStation 3 (PS3) sales of around 3.5 million units, however, total sales reach about 4 million units and overwhelm those of HD DVD on a simple calculation basis.

The BD player sales must, however, reflect the fact that many consumers purchased the PS3 for the purpose of playing videogames. Some say PS3 users that usually use the PS3 as a BD player are less than a 1/4 of all users. If it were a 1/4, BD players substantially penetrating today are about 1.4 million units. Hence, in the competition of hardware penetration, HD DVD is not at all inferior to BD.

How about the sales of packaged software then? As of January 2007, some forecast "Blu-ray media will leave HD DVD media far behind in sales " on the expectation that the PS3 will gain significant market share. In fact, however, there has been little variation in monthly sales with BD accounting for 60% and HD DVD constituting 40% of them, and both formats have never led the other by a large margin thus far.

Did antagonism between two formats cause Warner to take action?

Warner has provided its content in both Blu-ray and HD DVD formats thus far, taking an opportunistic stance. Why has the company decided to support Blu-ray while the two formats are still competing with each other? On the Internet, various rumors, including one about money changing hands, are swirling around.

However, it would have been a superficial issue even if a large amount of money had been transferred to Warner. I think the fundamental reason why Warner has decided to support BD lies exactly in the antagonism between BD and HD DVD, which is described above.

Currently, DVD sales in the US are slowly declining at an annual rate of 3 to 4%. To compensate for decreased DVD sales, the industry must establish the next-generation DVD market as soon as possible. To meet this goal, the industry should standardize a format and stop confusing consumers. Many of US movie companies including Warner must be considering in this way.

As explained above, however, supporters of Blu-ray and HD DVD are still in competition with each other, which is not likely to end soon. Warner must have wondered how it could help the industry standardize on a format.

The answer was simple. As long as most of the movie studios on the Blu-ray side wouldn't cross over to the HD DVD side, Warner could only become a Blu-ray supporter itself, changing the momentum.

Warner actually announced its support for BD at the right time, where it could give the heaviest possible damage to HD DVD supporters. It was just before the 2008 International CES. The HD DVD Promotion Group, an organization promoting the HD DVD format, was forced to call off its press conference scheduled for the CES, letting the public notice how badly HD DVD supporters were shaken by the news.

Under the current circumstances, where the market shares of the players are offsetting the others across the supporter groups, it is difficult to anticipate that the format competition will be over soon. However, it is apparently sure that the next-generation DVD war is likely to fluctuate widely for quite a while depending on US movie companies' reaction to Warner's move.

2008 International CES Special Site