Blu-ray Target deal intensifies pressure on HD DVD

Stan Beer
Monday, 30 July 2007 07:34

Opinion and Analysis

The latest news that Target, the second largest retailer in the US, is going to stock Blu-ray players exclusively in its physical stores over the holiday shopping season is a worrying sign for Toshiba and the backers of the HD DVD high definition video format.

Following on from the announcement in June by Blockbuster, the largest video rental chain in the US, that it would stock Blu-ray titles exclsuively in most of its stores, the Target announcement has sent the HD DVD spinmeisters into damage control.

Through its PR company Weber Shandwick, the HD DVD camp hurriedly rushed out a statement that it wished to be attributed to Ken Graffeo, Executive Vice President of HD Strategic Marketing for Universal Studios Home Entertainment - the sole major movie studio backing HD DVD exclusively.

"Target will continue to carry the Xbox 360 HD DVD drive as well as HD DVD titles so we don’t see much of a change in their plans to carry both formats. In fact, they continue to sell Toshiba HD DVD players on their web site. Sony appears to have bought an end cap, just as HD DVD has in retail stores such as BestBuy and Circuit City.

What’s important is that stand alone HD DVD players are still much more affordable than Blu-ray players, plus they offer a better experience – just compare titles appearing in both formats like “300” or “Blood Diamond.” Ultimately consumers will be the ones that determine what format provides the greatest value," the statement read.

The major point of the statement is that the HD DVD is banking all its money on winning the battle by undercutting Blu-ray in price. Unlike Sony and its Blu-ray backers, which have formed strategic alliances with studios and retailers, Toshiba and the HD DVD camp are appealing directly to the hip pockets of consumers.

From the point of view of the Blu-ray backers, however, they would be justified in feeling quite confident right now. They have most of the major movie studios on their side; they have succeeded in getting major retailers to publicly back their HD format; and they have a trump card that can't be matched by HD DVD - the Playstation 3.

On that last point, the PS3 may be getting slaughtered in the games console wars, but it has by default given Sony more than 80% of the nascent HD video market - a dominant position. With 1.5 million PS3 consoles sold in the US alone, and close to 4 million sold worldwide, this single device dwarfs the sales of all the HD DVD players combined, including the Xbox 360 add-on HD DVD player.

Once again ignoring the games console aspect of PS3, its recent price drop in the US has given an enormous boost to the console's sales, further to adding to the pressure on the HD DVD camp.

While Toshiba is trying to win the HD battle on price, it's an issue that is arguably more important in the games space than in the HD market. Consumers who a prepared to spend thousands for a flat panel HD TV and home theatre system are less likely to be swayed by the lure of saving a couple of hundred of bucks on a HD player. This would especially be the case if more content were available for the more expensive player.

At present in the US, if you eliminate PS3 and Xbox 360 HD DVD add-on sales, standalone HD DVD players are outselling standalone Blu-ray players by about 60% to 40%. The HD DVD camp likes to tout this figure as pointer to the success of the format. However, given that HD DVD players are selling for less than half the price of the cheapest Blu-ray players, one would expect them to be doing a lot better if price were the main issue.

What it boils down to in the end however is PS3 sales. It may not be the best HD player on the market and it may be a lousy selling games console right now. However, when a total of 300,000 HD DVD players have been sold in the US and PS3 is selling at a rate of better than 100,000 units a month, Toshiba and HD DVD are not a happy bunch of campers right now.