Warner backs Blu-ray exclusively

Citing consumer confusion, studio will stop marketing HD DVD in May

By Susanne Ault -- Video Business, 1/4/2008

JAN. 4 | UPDATE: Warner Bros. Entertainment this year will begin releasing high-definition titles exclusively in Blu-ray Disc, dealing a severe blow to the HD DVD format.

The studio hopes its decision will help end the format war, and boost the chances of high-definition quickly becoming a vital business. Retailers have long complained that consumers are too confused by two formats to adopt either Blu-ray or HD DVD.

“Not only did neigher format really take off as expected in the fourth quarter, but standard-def was softer than expected given the release slate,” said Warner Home Video president Ron Sanders told VB in explaining the studio’s decision. “We’re seeing research now that shows that consumers are starting to delay purchases because of the format war, not just on high-def, but on standard-def purchases as well. That’s alarming.”

“It’s hard for us to speculate about the impact this will have on the format war,” Sanders said. “All we can do really is make the best decision for our business.”

With Warner now in the BD camp, only Universal Studios Home Entertainment and Paramount Home Entertaiment/DreamWorks will produce and market titles in the HD DVD format.

Warner will be joining other BD-exclusive suppliers Sony Pictures Home Entertainment, Walt Disney Home Entertainment, 20th Century Fox Home Entertainment and Lionsgate. Time Warner divisions New Line Home Entertainment and HBO Video are also included in the move to Blu-ray.

Warner’s shift to Blu-ray becomes effective later this year. All new releases are expected to street in BD and HD DVD through May 2008. However, during those upcoming months, there will be a short lag between the Blu-ray/standard DVD release and the HD DVD release.

“Warner Bros.’ move to exclusivity release in the Blu-ray Disc format is a strategic decision focused on the long term and the most direct way to give consumers what they want,” said Warner chair and CEO Barry Meyer. “The window of opportunity for high-definition DVD could be missed if format confusion continues to linger. We believe that exclusively distributing in Blu-ray will further the potential for mass market success and ultimately benefit retailers, producers and, most importantly, consumers.”

Through last year, Warner had been touting its dual format strategy as a way to maximize high-definition revenue.

But Warner management decided switching to Blu-ray exclusivity was necessary to match increasing consumer demand toward the format over HD DVD. BD does enjoy a far larger hardware installation base, due mostly to the millions of BD-equipped PlayStation 3 consoles sold. At last count, following the hot Black Friday shopping weekend, 750,000 HD DVD set-tops and Xbox 360 HD DVD drives had sold in the U.S. since the format’s launch last year. Including PS3s and set-tops, 2.7 million BD players have sold since launch through that same frame.

"One of the things you see in the NPD data for this fourth quarter was that even with a $100 premium, BD set-tops outsold HD set-tops in December," said Sanders. "Even with Toshiba having the lower-cost player in the marekt, software sales remained 2-to-1 in favor of Blu-ray. Our titles were running roughly 60/40 Blu-ray and that didn't change in the fourth quarter even with the price advantage HD had on the hardware side."

"You also can't underestimate the impact of PS3 as a playback device," Sanders said. "The attachment rate may not be very high, and in fact it isn't, but in the aggregate that still adds up to a lot of software sales."

Other Warner executives also emphasized the company's desire to respond to what it sees as greater consumer demand for Blu-ray than for HD DVD.

“A two-format landscape has led to consumer confusion and indifference toward high-definition, which has kept the technology from reaching mass adoption and becoming the important revenue stream that it can be for the industry,” said Kevin Tsujihara, president of Warner Bros. Home Entertainment Group. “Consumers have clearly chosen Blu-ray, and we believe that recognizing this preference is the right step in making this great home entertainment experience accessible to the widest possible audience. Warner Bros. has worked very closely with the Toshiba Corp. in promoting high-definition media, and we have enormous respect for their efforts. We look forward to working with them in the future.”

Jeff Bewkes, president and CEO at Warner Bros. parent Time Warner, added, “Warner Bros. has produced in both high-definition formats in an effort to provide consumer choice, foster mainstream adoption and drive down hardware prices. Today’s decision by Warner Bros. to distribute in a single format comes at the right time and is the best decision both for consumers and Time Warner.”

One retailer opined that the HD DVD camp has been severely wounded by losing market leader Warner’s support. But he was hesitant to declare the format war over.

“It’s not going to end the format war because Paramount is still HD DVD exclusive and Universal is still exclusive,” said Newbury Comics buyer Ian Leshin. “But this is a huge blow to HD DVD. Warner releases so many titles. There is going to be a limited choice for HD DVD titles, and its going to make it that much more difficult to sell [HD DVD hardware]”

Leshin said he understands Warner’s sole embrace of Blu-ray, as Newbury has been consistently selling twice as many BD titles as HD DVD.