Dark economic clouds over Blu
April 24, 2008

The economic outlook is darkening dark for Blu-ray--and it has litle to do with the format itself.

Sony and company—and all the retailers that sell entertainment hardware and software-- have the bad luck of trying to sell a relatively pricy new format during an economic downturn that coffee purveyor to the masses Starbucks last week called the “weakest economic environment” in its history, due to slumping home values and rising costs for fuel and food, among other products. (The coffee chain started in 1971.)

If consumers are cutting back their coffee purchases at Starbucks (and they are, so much so that the java giant essentially dismantled its entertainment unit last week) and hoarding bulk rice from Costco (as also happened last week), how likely are they to shell out $400 for a fancy new movie player and $30-plus per movie?

First quarter spending on packaged home entertainment purchases and rentals edged up to $5.6 billion, we reported last week. DVD still accounts for 95% of that, with spending on the decade-old shiny disc format flat to very slightly down. Blu-ray, meanwhile, grew by a large enough percentage (from a small sales base) to pull the industry into the black.

That is encouraging and likely to continue, but the economy cannot be ignored as a limiting factor to the format’s growth this year.

Consider that NPD last week reported that 83% of respondents to its ‘Entertainment Trends in America’ survey said they expect to spend the same or less on media products this year than they did in 2007.

“It appears from our recent consumer surveys that the current economic climate might be more challenging [than the 2001 recession] for those who make and sell entertainment products,” NPD analyst Russ Crupnick said.

More than 10% of survey participants did say they do plan to invest in Blu-ray. That was more people than planned to buy standard DVD players or such Web-to-TV devices as Slingbox, Vudu and Apple TV, but I’m not sure that’ saying a heck of a lot.

Bernstein Research analyst Michael Nathanson also said in a report last week that Americans just don’t see the value proposition in upgrading to Blu-ray, and likely won’t until player prices come down to $200 or less. He also questioned whether consumers will replace their libraries with BD discs, especially at the premium the discs are commanding. (How many people want Walk Hard on Blu-ray enough to pay a $14 premium over DVD?)

At the same time, the higher price on Blu-ray discs may be the key to returning the industry to at-least moderate revenue (if not unit) gains.

In the current economic climate, pricing is key to how Blu-ray will fare this year, as are tightly controlled expectations for growth.

Posted by Marcy Magiera on April 24, 2008 | Comments (0)