Blockbuster expands Blu-ray but not HD DVD

By Cindy Spielvogel -- Video Business, 6/18/2007

JUNE 18 | Blockbuster is expanding Blu-ray Disc rentals to 1,700 stores by mid-July, dealing a setback to the rival HD DVD format.

The retailer will continue to offer both Blu-ray and HD DVD through its online rental service and in the 250 locations that have been carrying both formats since November.

The company said it made the decision to expand just Blu-ray because Blu-ray rentals were “significantly outpacing HD DVD rentals at Blockbuster stores.”

The 1,700 stores will offer more than 170 Blu-ray titles and will add more as they are released.

“This is not a format endorsement,” said Matthew Smith, Blockbuster senior VP of merchandising. As to whether the company will continue to roll out either Blu-ray or HD DVD beyond this initiative, “it depends what consumer trends will be,” he said.

The added locations are “in those stores where our research indicates there will be the most demand,” said Smith.

The company hasn’t given up on HD DVD. “Obviously, when customers are ready, we can expand the Blu-ray offering to more stores and add HD DVD to more locations if that’s what customers tell us they want,” Smith said.

Executives from studios that release only in Blu-ray have been saying that retailers will begin favoring Blu-ray over HD DVD. Blockbuster’s announcement is the first official acknowledgement.

Smith acknowledged the high-definition rental market is still “small.” Although he wouldn’t give an exact figure for Blu-ray and HD DVD rentals in Blockbuster stores, he said the percentage of high-def is in the “single digits.”

The percentage of Blu-ray rentals vs. HD DVD in the average store and online is 70% Blu-ray vs. 30% HD DVD, he said.

Sony Pictures Home Entertainment worldwide president David Bishop said the rental split has been in favor of Blu-ray more than the sell-through split. He speculated that is partly because Blockbuster and other rental retailers are drawing in PlayStation 3 users for games, who are then trying out movies.

He predicted more retailers would follow Blockbuster’s move. Sony has been talking to retailers and showing them data that shows Blu-ray sales continue to outpace HD DVD.

“This is really the beginning of the end you’re going to see in the marketplace,” he said of Blockbuster’s announcement.

Bishop said the move should give consumers more confidence in Blu-ray and get more people off the sidelines, who may be waiting until a clear winner emerges.

“We really want the consumer to feel comfortable about making a choice as they move forward,” he said. “This will certainly go a long way to help things.”

Blockbuster rival Netflix is viewing the chain's Blu-ray favoritism in-store as a competitive opportunity.

"It's just another reason for people to rent online," Netflix chief content officer Ted Sarandos said. "We have not seen a clear decision yet [on which format consumers prefer]. We think it would help if more studios would dual publish." 

When asked whether Blockbuster was given any type of financial incentive to expand Blu-ray, Smith said “absolutely not.”

He also said the decision had nothing to do with revenue sharing, although he acknowledged that Blockbuster has revenue-sharing deals on high-definition titles with some studios. He would not divulge specifics regarding studios and terms.

Smith said Blockbuster made the decision because the company felt the time was appropriate to go to the next level for Blu-ray.

“We’ve been looking at 250 stores for five to six months now, and we’ve definitely seen from Blu-ray a significant increase in rentals over a period of time,” he said.

"I think it's a true development," said Mike Dunn, president of  Blu-ray supporter 20th Century Fox Home Entertainment, speaking on a panel at the Home Entertainment Summit: DVD and Beyond conference in Los Angeles this week. "Blockbuster is following consumers and showing where the consumer market is growing. It's a big, big milestone."

Other sources agreed that the Blockbuster move is a valuable marketing tool for Blu-ray, though the actual revenue generated will likely be small.

“It’s more publicity than volume impact,” said Alison Casey, with market research firm Understanding & Solutions. Nevertheless, she condeded “there is the perception that there is wider support for Blu-ray.”

“It’s good consumer exposure for the format in stores that people frequent for entertainment,” agreed Steve Nickerson, senior VP of Warner Home Video, which supports both Blu-ray and HD DVD. “If these people are early adopters or not, that’s for someone else to debate.”

Indie supplier Starz Home Entertainment recently decided to release its titles in Blu-ray only, said president Bill Clark at the DVD and Beyond conference. While the penetration of PlayStation 3 and major studio support were the primary factors in the company’s decision, Blockbuster’s move reinforced that stance, he said.

Jennifer Netherby and Susanne Ault contributed