SEPT. 22 | SO, AFTER ALL THE WRANGLING, posturing, cajoling and intrigue among the studios and consumer electronics makers, it appears the next-generation DVD format battle will be settled not by high-end home theater enthusiasts and videophiles but by low-end, twitchy-thumbed game jockeys.
At the Tokyo Game Show last week, Microsoft announced that its long-awaited HD DVD add-on drive for the Xbox 360 game console will go on sale in Japan Nov. 22 for 19,800 yen, or roughly $170.
The Japanese price was lower than many expected but consistent with Microsoft’s evolving strategy for both the Xbox and HD DVD. After Sony stunned gamers by pricing the two versions of its Blu-ray-equipped PlayStation 3 console at $499 and $599, respectively, Microsoft shifted its strategic focus from emphasizing Xbox’s advanced technology to keeping costs down so it can put maximum pricing pressure on both PS3 and Blu-ray.
Microsoft executives have lately been increasingly adamant, for instance, that the company has no plans to develop or introduce a new Xbox edition with an internal HD DVD drive.
While that’s the exact reverse of what Microsoft and HD DVD sources told me as recently as January, now that I’ve seen the price of the HD DVD add-on, I’m inclined to believe it. With Sony facing both manufacturing delays and gamers’ wrath over PS3 pricing, it would make little sense now for Microsoft to introduce a more expensive Xbox SKU.
Keeping costs low also helps Microsoft compete with Nintendo, whose low-end Wii console is proving to be a significantly disruptive force in the next-generation game market—and indirectly in the next-gen DVD market—before it has even shipped.
Although Microsoft did not announce U.S. pricing for the add-on in Tokyo, analysts now expect it to come in at around $199, making it by far the cheapest high-def option on the market, at least for those who already own an Xbox 360.
Underscoring the point, Microsoft also announced that it will shortly release a software update for the Xbox that will allow the consoles to output movie and game content at full 1080p resolution.
SONY, MEANWHILE, IS ONCE again in a bind of its own making. ...Clearly feeling the pressure from Microsoft, Sony announced on Sept. 22 that it is slashing the launch price of its 20GB PS3 console by 20% in Japan, to 47,600 yen, or about $410, from 59,800 yen, or about $515.
The price cut does not apply to the U.S. version of the console, however, or to the higher-end, 60GB model.
Tellingly, the company also said it would add an HDMI port to all 20GB PS3 consoles, reversing an earlier, controversial decision to limit the high-def digital connection to the more expensive model.
That will make the 20GB PS3 console the lowest-priced, fully functional Blu-ray Disc player available in Japan, as well as more competitive with set-top HD DVD players.
In limiting the price cut to Japan, however, Sony unavoidably highlights the difficult competitive corner it has painted itself into by conjoining PS3 and Blu-ray.
The set-top market in Japan is dominated by recorders, not playback-only devices. Introducing a low priced BD-ROM player on the back of PS3 there is less likely to draw the ire of other Blu-ray hardware makers, who are likely to focus on BD recorders.
The U.S., however, is a ROM market. Introducing a low-end, HDMI-equipped Blu-ray PS3 console here would put Sony in conflict with its hardware partners, who are still hoping to sell $1,000 set-top BD-ROM players to U.S. consumers.
Given the high-cost of manufacturing PS3 consoles, moreover, cutting prices now in the larger U.S. market would expose Sony to steeper initial losses on the consoles at a time when it is under growing pressure from shareholders.
As the strategic and competitive pressures of the game and high-def DVD markets come increasingly into conflict, Sony is finding it increasingly difficult to respond in each.
NOW THAT THE STRATEGIC direction of the high-def DVD market has been hijacked by the game business, the ultimate outcome of the Blu-ray/HD DVD format battle could well be determined by the incidental behavior of gamers and game developers.
The presumed appeal of PS3 to gamers was supposed to help quickly build the worldwide base of Blu-ray players. But that strategy never really took into account whether gamers are even interested in high-def movies, let alone likely to be motivated by them.
The high cost imposed on PS3 buyers by Blu-ray, meanwhile, is likely to retard PS3’s share of the next-generation game market.
That’s likely to lead game publishers to shift some of their original development resources from PlayStation to the Xbox and Wii platforms, increasing the appeal of those formats among gamers and further undermining the PS3-powered growth of Blu-ray—all without reference to anything going on in the DVD business.
Should Xbox 360 make significant market share gains against PlayStation, meanwhile, and should the HD DVD add-on prove popular, it would likely cause prices for HD DVD set-tops to fall quickly in response, reinforcing the format’s cost and price advantages over Blu-ray.
And you thought this was the movie business.
