Blu-ray boom not enough to rescue DVD sales



Since Blu-ray Disc's victory in the hi-definition DVD format war, data have trickled in suggesting a sales boost for Sony's fledgling technology. But if the pace doesn't quicken, home video might not return to sustained growth mode for several years.

In December, when Sony's duel with rival Toshiba was raging and next-generation DVD players and movies were a popular Christmas gift, 63 per cent of next-generation DVDs sold in the US were Blu-ray.

In March, however, the first full month after the format war ended with Toshiba's surrender, Blu-ray's advantage swelled to 81 per cent, according to Redhill Group.

In the first quarter this year, 4.9 million next-gen movies were sold, 3.8 million of which were Blu-ray. That's half of the 9.8 million copies of 536 different titles that have been sold in the US since the inception of Blu-ray and HD DVD.

However, the numbers – while impressive since mid-February, when HD DVD threw in the towel – don't make up for sagging traditional DVDs, sales of which might have peaked two years ago in terms of revenue.

Citigroup analyst Jason Bazinet figures that wholesale DVD revenue worldwide, for theatrical releases only, came in at $25 billion (Dh92 billion) in 2006, dropped to $23.1 billion (Dh85 billion) last year and will further decline to $21.4 billion (Dh79 billion) this year.

``The industry appears to be lowering pricing to keep demand aloft,'' he said in his recent 2008 studio forecast.

Library titles have seen the biggest decline in DVD sales. While Disney makes an exceptional $2.3 million (Dh8.5 billion) per year on each of its 990 library titles, most other studios generate only $300,000 (Dh1.1 million) per title. Time Warner, with 6,600 library titles, makes the least per title because a large number of them are in black and white.

Bernstein Research analyst Michael Nathanson also crunched the numbers and concluded that, even since the end of the format war, folks are only mildly interested in Blu-ray discs.

At the end of 2007, there were at least 3.5 million Blu-ray players in US homes. At most, each of those households had purchased an average of three Blu-ray titles. Nathanson said that the same point in the adoption curve of standard DVD players, each household had purchased as many as 30 DVDs.

The disparity isn't surprising, though, considering most Americans are so happy with their switch from VHS to DVD that they just don't see the value proposition of making another switch to Blu-ray any time soon.

Plus, since the vast majority of Blu-ray players are in homes because Sony has embedded them into the PlayStation 3 video game consoles, many consumers don't seem to care that they even have a Blu-ray player.

Until stand-alone Blu-ray players – the cheapest is about $370 (Dh1,362) – fall to below $200 (Dh736), Americans en masse won't adopt the new technology, experts predict. Nathanson predicts in a recent 27-page report that that won't happen until the end of 2009.

In addition, he says, many Blu-ray households will upgrade only small portions of their libraries, particularly their favorite action and sci-fi films. ``We have a hard time understanding why consumers will rush out to Best Buy to pick up the Blu-ray version of 'Caddyshack' or 'Sleepless in Seattle,''' he said.

The analyst figures that early Blu-ray adopters eventually will average about six to 10 titles apiece. But, with the extra $10-$15 per unit Blu-ray commands, it might be enough to put home video back into growth mode.

Taking into account that Blu-ray sales will cannibalise a large portion of standard DVD sales, Nathanson says that during the 2007-2011 period, home video could boast a 2.4 per cent compounded annual growth rate in revenue. Without Blu-ray, he estimates home video would have lost 2.2 per cent each year during that same time frame.

His forecast assumes that stand-alone Blu-ray players, in about 1 per cent of US households by the end of this year, will expand their reach to 25 per cent by the end of 2011. He also assumes that the average price of a Blu-ray disc will drop from $28.50 (DhDh104.88) this year to $24.43 (Dh90) in 2011 and that overall revenue from Blu-ray movies sold in the US will rise from $260 million (Dh957 million) this year to $4.24 billion (Dh16 billion) in 2011. (Reuters)