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Scalers beat HD DVD and Blu-ray at CES 2007 - analysis

Scalers beat HD DVD and Blu-ray at CES 2007 - analysis
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San Jose (CA) - The high-def age is upon and if you are buying a TV this year anyway, why not buy a HD player as well? And, do you buy HD DVD or Blu-ray, if you are looking for the technology that makes most sense right now? We were looking for clues at CES and found a very convincing answer. Just not the one we expected.

With unbelievable drama both the HD DVD and Blu-ray camp claimed victory at CES, but it quickly became clear that the market was moving on as even supporters started drifting to the next "big thing".

HD DVD takes the lead, in numbers

Much of this year's Consumer Electronics Show focused on the high-def battle between HD DVD and Blu-ray - and we saw some interesting developments that may not have been so obvious. Take, for example, the introduction of Toshiba's announcement of low cost HD-DVD players and recorders. Besides the fact that HD becomes a bit more affordable to the consumer, this move really upset the Blu-ray vendors: This aggressive pricing comes at a relatively early point and it was going to destroy the cushy margins that typically come with the entry of any new technology.

When something is "new," vendors can charge high prices for the related hardware for some time and while they won't sell many products, they do make a tasty profit on each unit that changes hands. Toshiba is penetration pricing - you could think that they actually want to win this battle against Sony and they are foregoing the healthy margins to get there. Toshiba knows that Blu-ray has a significant cost disadvantage right now anyway; but I doubt the other HD-DVD manufacturers are particularly happy (though they weren't vocal about that at CES) about this rapid drop in prices either.

If this wasn't enough, there was a lot of discussion on just how badly many of the first Blu-ray movies were done, mostly out of the Sony studios. This wasn't a Blu-ray technology problem, this was a studio problem. Blu-ray movies, for example, from Time/Warner, who releases in both formats, are well done. Folks were wondering whether Colombia Pictures, Sony's studio, was actually trying to torpedo Blu-ray by releasing bad conversions. Sony has a historical problem with divisional infighting and this may be another example of that infighting breaking out into the real world.

It is interesting to note that Sony/BMG and Columbia have both been the most aggressive in the use of DRM. Columbia movies are known for having problems with some players and Sony/BMG got nailed for tying a rootkit based anti-piracy attack last year.

From a standpoint of the facts, HD-DVD ended the year as the clear leader. And, with an apparently increasing cost advantage, this scenario is unlikely to change.

Over on Amazon's Product Wars, which provides some clues how HD media sales are developing, HD DVD had the clear lead in most categories, though Blu-ray did close the gap for a short time towards the end of last month.

Blu-ray declares victory

We are used to rather strange and unexpected announcements in the HD industry. And here is another one: The numbers didn't keep the Blu-ray camp from declaring victory at CES. Using some questionable statistics sourced from one of the Blu-ray exclusive studios (Fox), they came out with a brilliant PR effort that reminded me a lot of textbook campaigns in politics.

Twice recently wrote about a rather creative lead in titles and some really aggressive PS3 numbers. There was also talk about a controversial GFK report stating that Blu-ray had 96% of the Japanese market, which led to the conclusion that this technology would have the clear lead by 2010 Blu-ray.

At CES, HD-DVD folks suddenly looked like a deer caught in the headlights as they moved from what they believed to be a clear victory to a defensive position battling the Blu-ray message. This battle is far from over and just because you have a clear victory doesn't mean you can kick back and let the other side own the message.

Fox did a brilliant job of taking the fight back to the HD-DVD camp and also provided a reminder that marketing will probably play a huge role in whether either of these formats actually makes it. In 2008, the PS3 is expected to ramp to volume and even though the Xbox 360 has an HD-DVD attachment there will likely be more PS3 sold than HD-DVD accessories for the Xbox largely because Sony actually markets the PS3 while Microsoft continues to underfund demand-generating marketing (I should note that the HD-DVD player did sell out in some markets).

While we know that most PS3s won't be used for movies, the market moves on perception. This could allow Sony to balance the ramp of low cost Toshiba HD DVD players and recorders hitting the market.

Granted, the real metric will be on movies sold. HD-DVD should have the advantage here, but that will both depend on the number of actual players and the quality of content because it doesn't matter if the player is cheaper if the content you want is on the other kind of player. For example, this week's hottest movie, Crank, is on Blu-ray.

One huge discord was that Disney, the only studio that people ask for by name and a big asset for Blu-ray, seemed to be more interested in Apple TV at MacWorld than Blu-ray at CES.