OPINION: No high-def tipping point
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By Paul Sweeting -- Video Business, 9/28/2007
SEPT. 28 | WHEN PARAMOUNT Home Entertainment made the switch from supporting both high-definition formats to supporting HD DVD exclusively, PHE president Kelly Avery stressed the need to concentrate on a single, low-cost format that would kick-start the high-def market.
Paul Sweeting is editor of Content Agenda
“Ultimately, we don't want this to become a niche business, she said at the time. “We need to get consumers to step up to high-def DVD players, and we think this fourth quarter presents an opportunity to do that.”
Avery may have been too optimistic.
According to a series of recent reports from credible analysts, this fourth quarter could be a disappointing one for high-def hardware sales in general. The odds that either high-def format will have a strong-enough Christmas to tilt the balance of the format war one way or the other are looking pretty long.
According to the National Retail Federation, retail sales during November and December will rise 4% this year to $474.5 billion, representing the slowest holiday sales growth since 2002, when revenue rose 1.3%.
“Retailers are in for a somewhat challenging holiday season as consumers are faced with numerous economic obstacles,” said Rosalind Wells, NRF chief economist. “With the weak housing market and current credit crunch, consumers will be forced to be more prudent with their holiday spending.”
According to VB sister-publication TWICE, Circuit City CEO Phil Schoonover cited the NRF forecast during a conference call last week, noting that it mirrors his company’s own assessment of the holiday period.
A separate report by research firm TNS Retail Forward was even gloomier, putting growth for the fourth quarter at only 3.3%.
“The credit crunch will lead to a consumer crunch by the holidays. This will extend the weakness in retail sales beyond home improvement stores to other retail channels,” senior economist Frank Badillo said.
“This top-line forecast may still underestimate the extent of the weakness,” Badillo continued. “Our forecast numbers are even weaker when home improvement and catalog retailer sales and online sales are excluded.”
Perhaps more alarming for the future of high-def were the results of a survey conducted by Best Buy, which found widespread consumer confusion about HDTV.
According to the survey, close to 90% of Americans say they lack a complete understanding of HDTV technology, and nearly half significantly underestimate the costs.
“You won't believe the number of times that someone will come in to a Best Buy and say, 'I just want a flat TV,” Best Buy VP of home theater merchandising Mike Mohan told CNNMoney.
Actually, I would believe it.
“We were getting a lot of anecdotal evidence that showed consumers were frustrated with their HDTV purchases,” Mohan said. “We felt that we had some gaps in key areas of consumer education. That's why we decided to commission this study and really understand where the issues were.”
While it’s nice to see Best Buy making the effort, the survey results suggest that HDTV sales this Christmas are unlikely to have much of a coattail effect for Blu-ray or HD DVD players. If consumers are confused about buying high-def displays, what are the odds they’ll be able to figure out Blu-ray vs. HD DVD?
ANY STUDIO STILL HOPING that some combination of pricing, exclusive titles and marketing this fourth quarter will move the needle enough for its chosen format to bring some clarity to the format war by early next year is kidding itself—as another pair of recent reports make clear.
According to a new forecast by U.K. research firm Screen Digest, Blu-ray and HD DVD are likely to coexist “for the foreseeable future,” in the U.S. and Western Europe.
“Christmas 2007 is going to be critical for the high-def video business,” Screen Digest video analyst Richard Cooper said. “Both formats will be seeking to secure consumer buy-in to their proposition during the critical holiday season, but with so much at stake on both sides, we think it is highly unlikely that one format will emerge as the ‘winner.’”
Even Forrester Research, which had previously called the race for Blu-ray, is having second thoughts.
“Blu-ray's content advantages are somewhat diminished since the recent decision by Paramount to commit exclusively to HD DVD. And HD DVD hardware prices have dropped directly into consumers' preferred price range,” the company said in a new report. “Blu-ray's failure to land a knock-out blow means that the format war will continue for at least 18 more months.”
That’s two more Christmases of stalemate.
Paul Sweeting is editor of Content Agenda. Get more of Sweeting's analysis here.
