Monday, January 21, 2008

It's over - They bought the war out

The format war that is; between Blu-Ray and HD-DVD.

From Black Friday 'til two weeks ago, HD-DVD players outsold Blu-Ray more than 2 to 1; more than 4-1 if you take away the PS3. In non-childrens movies (the major studios for kids movies are all Blu-Ray exclusive), HD-DVD outsold Blu-Ray more than 2 to 1.

On black Friday weekend alone, more standalone HD-DVD players were sold in the U.S. than all the standalone Blu-Ray players sold the entire rest of the year.

The fact is, both the hardware and the content available for HD-DVD were clearly superior, at a lower price; and the consumers recognized that.

This scared Sonys pants off.

They had their answer ready by CES two weeks ago; money.

Step 1: Drop prices on all Blu-Ray players by $200
Step 2: Sweeten the free movie deals, and drop prices on all Blu-Ray movies 15%
Step 3: Bribe the studios.

Just prior to CES, they announced the price cuts. They had already announced the rebate sweetener; and a few weeks prior they had "re-affirmed Foxes commitment to Blu-Ray" to the tune of $400 million. They had also been flirting with Paramount, who's on an exclusive HD contract; to the tune of $600 million if they go Blu-Ray exclusive.

The second day of CES, a few hours before the HD-DVD consortium was going to give a big press conference announcing new studio partnerships, new players, and the figures showing how much they beat the pants off of Blu-Ray; Sony buys out Warners contract for $600 million, gives Fox an additional $120 million, and gives the other studios all told about $500 million in "incentives".

In response the HD-DVD group did the only thing they could do; they cancelled their press conference. They've bunkered up, and they've been issuing defensive statements; but it's time to give up. They're throwing good money after bad at this point.

All told, since black Friday Sony has dropped about $2 billion, buying off the competition. This leaves HD-DVD with exclusive support only from Dreamworks and Universal.

Additionally, Sony has managed to reduce their manufacturing costs on the PS3, from $800 to $400, by dropping the chip count, and through process improvements. This means where they had been losing up to $200-400 per box sold (about 4 million of them total), they are actually making money on the higher spec version of the box.

It's over; HD-DVD is dead.

Warner is, by themselves, 20% of all new movies and 30% of the home video market. Between Warner, Fox, and Disney, that's essentially the entire kids DVD market; and kids DVDs are the highest volume, highest profit market segment.

Universal will still release on HD-DVD, because they have an iron clad contract; but that's up in a year. Paramount and Dreamworks both have escape clauses, and it looks like they are going to use them; lubricated with great gobs of cash from Sony.

The consumer had made their choice; that choice was not Sony; and Sony used the judicious application of billions of dollars of cash directly to studios, to thwart the consumers choice.

You may want to support HD-DVD, but realistically, you no longer have the option; now that there won't be any new content for it (10% of all new movies isn't viable).

Sony and the studios they bribed may be short term winners here; but the consumer... that's you and me... are the losers; because we had our choice taken away artificially, rather than letting the market decide.

Oh well... at least we don't have to worry about which format to support anymore.