Latest Cut in DVD-Player Duel: Prices
Deals Rev Up the Blu-ray, HD DVD Battle
By YUKARI IWATANI KANE and SARAH MCBRIDE
November 23, 2007; Page B1
Until a few weeks ago, Bill Zimmerman had no interest in buying a next-generation DVD player, at least until a winner was declared in the battle between the two dueling formats, Blu-ray and HD DVD.
But the Kissimmee, Fla., copy editor changed his mind earlier this month when Wal-Mart Stores Inc. offered a special deal for an HD DVD player from Toshiba Corp. At $98.87, it was only a few dollars more than the standard Samsung DVD player that he was thinking of buying.
"Format concerns definitely went out the window at that price," Mr. Zimmerman says. Both Blu-ray and HD DVD players play high-definition movies with crisp images on big, high-definition televisions -- and also play regular DVDs. But until now, consumers have largely been reluctant to purchase players of either kind. With the next-generation players costing at least $300 more than standard machines, many were reluctant to spend the money on a player before the winning format was decided. What's more, consumers had to buy a pricey high-definition TV in order to see a difference in the images.
That picture is starting to change this holiday season since retailers began slashing the price of HD DVD players to a level much lower than anyone had expected. Makers of Blu-ray players are responding with their own price cuts.
Analysts say they don't expect the format battle to be decided until late next year at the earliest when more consumers will have high-definition TVs, prices on players will likely come down further, and more movies will be available. Nonetheless, while Blu-ray clearly led the race until recently, the aggressive holiday-season pricing could help bolster HD DVD's position, they say.
"The low price point was, if anything, a test and a precursor," says Paul Erickson, analyst at the NPD Group's DisplaySearch research firm. "They've shown that people will bite if the price is low." Mr. Erickson says he will probably revise his projections for HD DVD player sales upward though he declined to give an estimate. Tom Adams of consultancy Adams Media Research in Carmel, Calif., predicts that by the end of the year, households with stand-alone HD DVD players will total 600,000 and households with stand-alone Blu-ray players will total 400,000.
The price wars started late last month, when retailers like Wal-Mart, Amazon.com Inc. and Circuit City Stores Inc. dropped prices on a Toshiba player below $200 -- a critical level for electronic products that has sparked purchases in the past among general consumers. Then, Wal-Mart surprised industry observers by taking an additional $100 off in a 48-hour sale, triggering other retailers to match the price. The players sold out in minutes at some Wal-Mart stores. According to DisplaySearch, Toshiba sold 90,000 to 100,000 players in just two days.
Wal-Mart's $99 price was a temporary move to clear out an old Toshiba model, the HD-A2 player. But analysts expect the newer model to be available during specials for under $200. That is still much lower than the least expensive stand-alone Blu-ray player or Sony Corp.'s PlayStation 3 videogame console, which includes a Blu-ray player.
But makers of Blu-ray players are coming up with their own price cuts. After lowering its price on an existing Blu-ray player by $100 to $399 last Sunday, Sony, the lead manufacturer in the Blu-ray camp, said Best Buy customers could get an additional $100 gift certificate with every purchase starting today for the next few weeks, effectively making the players even less expensive. Customers will receive five free Blu-ray movies with their purchase; HD DVD buyers also get free movies.
"Make no mistake. We'll do what we have to do to remain competitive this holiday season on Blu-ray," said Sony's chief marketing officer, Andrew House.
While Blu-ray players cost more to make than HD DVD players and have had higher price tags, one big advantage for the Blu-ray camp has been more movie titles. Because of exclusive deals, only owners of Blu-ray players can watch movies by News Corp.'s Fox, Walt Disney Co., and Sony Pictures, while HD DVD player owners have exclusive access to titles by General Electric Co.'s Universal and Viacom Inc.'s Paramount. Time Warner Inc.'s Warner Bros. is the only studio that publishes on both formats.
But analysts say the price is now low enough that even Blu-ray fans might buy an additional HD DVD player so they can watch high-definition movies in either format.
Some Blu-ray backers say the format battle will depend just as much on the number of movie titles that each side sells, as movie studios will ultimately support the side that can sell more. Blu-ray now sells significantly more movies than HD DVD. "If you think the player price alone will somehow create mass adoption, that's a mistake," says Andy Parsons, senior vice president for business solutions at Pioneer Corp., a Blu-ray company. Movies in both formats typically cost $10-$15 more than regular DVDs.
One question is how long the companies can keep up such generous price cuts on players. A person familiar with the matter said that Wal-Mart bought about 55,000 HD-A2s from Toshiba for just under $200 apiece before the early November sale, and that it lost about $100 on each sale. A spokeswoman for Wal-Mart says the company doesn't comment on its negotiations with suppliers.
The head of Toshiba's HD DVD business, Yoshihide Fujii, says the company had no prior knowledge of Wal-Mart's plans and declined to comment on its marketing and promotional costs. "Right now we need to increase the size of the market," Mr. Fujii says. He adds that Toshiba expects to sell close to its goal of one million HD DVD players this calendar year, and triple that number next year.
Analysts say selling the players to Wal-Mart at such a low cost also likely represented a loss for Toshiba, but that's not unusual in the consumer-electronics business. Product plans generally call for getting rid of older generations of a product at low prices as newer generations hit stores, and the discounts are figured into the business models. Toshiba says it didn't sell any players below cost based purely on manufacturing expenses, but once marketing and promotional expenses are factored in, the HD DVD business is operating at a loss. The company expects it to turn profitable in its next fiscal year, beginning April 2008.
Increasingly, it seems that the solution to the format war may lie in dual-format players like the one from LG Electronics Inc. At around $1,000, they lie beyond the reach of most consumers this Christmas, but prices should drop drastically by next holiday season. At that point, consumers can buy high-definition movies regardless of format.
