Holiday Sales Frenzy – Friday’s HD-DVD Smoke Clears

A

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Audioholics Robot
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Last Friday’s pre-Black Friday sales wars kicked off what should be an interesting holiday season for the little format war that is going on. The opening salvo was fired not by either format backer, but retailers starting with Wal-Mart who first dropped the $299 MSRP HD-A2 to $198 and after the competition followed suit, to $98 for a one day sale.

So what became of it all you ask?


Discuss "Holiday Sales Frenzy – Friday’s HD-DVD Smoke Clears" here. Read the article.
 
sholling

sholling

Audioholic Ninja
I think two more massive pre-Christmas $99 sales and can just about call the format war over. Hi-Def DVD may or may not take off but you now have semi-main streamers getting excited about picking up the latest cool thing. Maybe enough to get the studios to shake loose with more titles. I'd love to be a fly in the Disney board room. Little questions like "Why are we settling for selling a couple of thousand copies of Cars in BD only and blowing off sales of hundreds of thousands of copies to customers with dedicated HD DVD players?" And you know darned well that question is being asked. :cool:
 
Rock&Roll Ninja

Rock&Roll Ninja

Audioholic Field Marshall
Now we need 50" 1080p plasmas for $99
 
BMXTRIX

BMXTRIX

Audioholic Warlord
I think two more massive pre-Christmas $99 sales and can just about call the format war over.
Why do you feel this way?

I'm not knocking, I mean, I picked up a HD DVD player during this promotion, but it does seem like a promotion, and I have no intent to start buying HD DVD discs immediately as the format war definitely doesn't lead me to want to invest hundreds of dollars in software that may be part of a dead format.

Yet, in polls taken on other sites, a lot of people (about 33%) said that they purchased a $100 player as a second player for their homes - this does not lead to increased disc sales in any way.

So, while I do agree that 60K first time owners is significant, I wouldn't call it something that would lead to the word 'over' considering the competition.

Hi-Def DVD may or may not take off but you now have semi-main streamers getting excited about picking up the latest cool thing. Maybe enough to get the studios to shake loose with more titles.
Over 60K potential buyers? While selling 60K extra copies of a blockbuster like Transformers is possible, and good, it realistically may be closer to 10 or 20K copies - which is almost meaningless to studios who sell millions of copies on DVD.

I'd love to be a fly in the Disney board room. Little questions like "Why are we settling for selling a couple of thousand copies of Cars in BD only and blowing off sales of hundreds of thousands of copies to customers with dedicated HD DVD players?"
If you read the above information, and put it in perspective, you will likely agree that Disney is most definitely NOT asking this question for the reason listed. They may be asking for other reasons, but, until HD DVD actually starts having more titles, with more significant sales figures, it is unlikely that any studio will change sides based entirely on the merits of the format alone.

And you know darned well that question is being asked. :cool:
No, I don't think anyone knows if that question is being asked except some studio execs.

Likewise, it could be claimed that throughout this year, HD DVD hasn't sold enough discs to outsell Blu-ray one week of the year. Do you think this has passed by WB, Paramount, Dreamworks, or Universal?

The price of the players, for the one day sales, is excellent. But, it still remains a question as to whether or not Toshiba player pricing can stay significantly lower than Sony, Panasonic, Pioneer, Samsung, etc. pricing long enough to win, or maintain survivability, in the long run. In two years (or so) standard pricing will be 100 bucks for these players, from both sides, but then it will be 4+ major CE manufacturers vs. Toshiba. At that point, the war may be decided by consumers, while right now it seems to be salvos that hit a target, but may not truly be affecting the 'war' in the least.
 
sholling

sholling

Audioholic Ninja
So, while I do agree that 60K first time owners is significant, I wouldn't call it something that would lead to the word 'over' considering the competition.
What I said is that two more $99 sales would be pretty much enough to call it over. That's the price of mainstream DVD players and sales would be high enough to shake up the studios.

What I've been saying all along is that the two sides may have squabbled too long for either format to take off, and the studios' asinine anti-copy hardware requirements have contributed to the mess. But the first format that sells consistently for under $125 wins whatever is left of the market to win. Sales of another ~200k units between now and Christmas should be enough to drive the economies of production scale down within reach of that goal. It's also seriously igniting interest in main streamers as evidenced by the number of units sold in approximately a half day (really 1-2 hours at most Walmarts). Sony can't come close to matching this price-point/level of excitement.


Over 60K potential buyers? While selling 60K extra copies of a blockbuster like Transformers is possible, and good, it realistically may be closer to 10 or 20K copies - which is almost meaningless to studios who sell millions of copies on DVD.
While you could call 30k units second players, the reality is that the vast majority are not going in the bedroom. They will almost all wind up on the main TV. That brings potential software sales back up to the 90Plus-k figure. It also spikes the heck out of the studios' rental income. Blockbuster pays the studios per rental not per video on the shelves. Families renting 300 and Transformers etc a second time, this time in hi-def.

If you read the above information, and put it in perspective, you will likely agree that Disney is most definitely NOT asking this question for the reason listed. They may be asking for other reasons, but, until HD DVD actually starts having more titles, with more significant sales figures, it is unlikely that any studio will change sides based entirely on the merits of the format alone.


No, I don't think anyone knows if that question is being asked except some studio execs.
The last people to ask that question will be Disney Studio execs. It's the stock holders and the board that will be asking why.

Likewise, it could be claimed that throughout this year, HD DVD hasn't sold enough discs to outsell Blu-ray one week of the year. Do you think this has passed by WB, Paramount, Dreamworks, or Universal?
Yet which studios are dropping HD DVD in favor of exclusive deals with Sony/BD? I think it's going the other way... Except for Sony Pictures and Disney the studios are moving to HD DVD.

The price of the players, for the one day sales, is excellent. But, it still remains a question as to whether or not Toshiba player pricing can stay significantly lower than Sony, Panasonic, Pioneer, Samsung, etc. pricing long enough to win, or maintain survivability, in the long run.
The price of players is driven by economies of scale. In the end I'd be pleasantly surprised if either survives. Sony did a typical Sony move in dividing the market and may have doomed hi def DVD of any flavor by keeping the market confused too long. If you read the link that I posted you'll see that Sony is beginning to realize their mistake.

In two years (or so) standard pricing will be 100 bucks for these players, from both sides,
BD is technically more challenging to produce and therefore more expensive to produce as are the discs. While I could easily be wrong I suspect that if a winner hasn't been declared by Christmas 08 then the public will lose interest.

but then it will be 4+ major CE manufacturers vs. Toshiba.
That's the PS3 against Toshiba and Onkyo, and however many others join in when they start to smell Sony's blood.

I'm not a betting man but if I had to set odds I'd guesstimate that there is a 70% chance that because of the format war the two hi def DVD formats will be little more than a historical footnote in 10 years. A 20% chance that HD DVD becomes the new standard - if they get in 2 more huge $99 '07 sales and drop the non-sale price to $129 in '08. And a 10% chance that Sony pulls a rabbit out of its hat.

What we have all left out of the equation is the historical king maker in the home video market. ;) The porn industry. It was arguably the porn industry that drove much of the early adoption of the VCR and quite possibly selected the winner of the VHS/Beta wars (Sony lost). It may just be whether or not porn industry decides to back HD DVD that decides the fate of hi def. ;)
 
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aberkowitz

aberkowitz

Audioholic Field Marshall
What we have all left out of the equation is the historical king maker in the home video market. ;) The porn industry. It was arguably the porn industry that drove much of the early adoption of the VCR and quite possibly selected the winner of the VHS/Beta wars (Sony lost). It may just be whether or not porn industry decides to back HD DVD that decides the fate of hi def. ;)

Haha- that would be a good point but it seems to be generally accepted that the idea that porn affected the VHS/Betamax outcome is more of an urban myth than fact- especially considering that many studios (including Playboy) launched all of their movies in both formats and that the porn industry makes up such a small percentage of the total video rental industry (both today and back in the 70s and 80s). PErsonally, I think the fact that Sony was so late to release players and tapes that could handle more than 2 hours of recordings had more of an impact than Johnny Wadd :D.

To the issue at hand, I think it's impressive that HD DVD sold so many units in 1 day (if I didn't live in NYC I would have gone to a Walmart to buy one to complement by PS3), however I completely agree that everything comes down to DVDs sold. Of those 90K, I bet at least 50% of them will buy 1 HDDVD or less in the next 6 months. How many of those 90K players were sold with actual discs? I don't think John Q. Public truly understands what HD DVD/Bluray are... hell- many people still don't realize that you need an HD cable box or antenna to see HD programming with their brand new $1500 tv they got on sale at Best Buy!!! For almost every week of 2007 Bluray disc sales have outsold HDDVD (here's one website that tracks amazon.com), and amazingly enough this continued during the same week that the 90K A2s were sold.

What does this mean? At this point, I don't think it means anything except the fact that early adopters with deep pockets will continue to make purchases like they've always had (Laserdisc, early DVD, VHS) and the general population probably won't buy in until this "war" is settled- which in my opinion probably will be with the next generation format.
 
T

Tex-amp

Senior Audioholic
Likewise, it could be claimed that throughout this year, HD DVD hasn't sold enough discs to outsell Blu-ray one week of the year. Do you think this has passed by WB, Paramount, Dreamworks, or Universal?
Am I the only one who thinks that with all the exclusive content that the Nielsen numbers aren't all that meaningful? What are the next couple of big movies from WB after the holidays? The effect of the 90K+ HD DVD players on sales of titles released on both formats is what I want to see. I also want to see PS3 sales for this holiday season.
 
sholling

sholling

Audioholic Ninja
It's not sales anymore, although it's still important. It's rentals. Very few people that I know buy DVDs except for their kids. They rent them from blockbuster or netflix. I know I only buy classics. Kids can sit through Cars 372 times in 8 days. How many times can you watch 300 three times without getting bored? It's rentals for adults.

BTW I was around during the Beta/VHS wars and I'll agree that the main disadvantage of the Beta format was the length. The picture was better but it couldn't do 2 hours at full quality. I also spent a lot of time renting movies and remember seeing hard core porn flying off the rental shelves in California and most experts agree porn contributed heavily to the early popularity of VCRs. Sorry I don't mean to take this discussion off color but it's always been a powerful driver of the video industry.
 
T

Tex-amp

Senior Audioholic
With porn being readily available over the net and on cable and satellite I don't see it having the effect it did on Beta v VHS.
 
aberkowitz

aberkowitz

Audioholic Field Marshall
With porn being readily available over the net and on cable and satellite I don't see it having the effect it did on Beta v VHS.
I knew I forgot to type one point into my argument, and that was it!!! There's no way that the porn industry has anywhere near the clout into the home video purchase/rental market that they used to with the advent of on demand and the internet. According to Forbes (and these stats are a few years old I admit) adult video/dvd income totals $1 billion a year in the US- Walmart alone sold $5 billion in DVDs in 2006. Now add in Circuit City, Best Buy, Amazon, specialty stores, Netflix, blockbuster, etc. and the numbers show that porn has at best a minimal effect on the video industry these days.

To the point about VHS/Betamax- I was quite young at the time of the war, but based on some of the reading that I've done on the web (not sure which experts you've read) it seems that the pornography argument is an urban legend.

It's not sales anymore, although it's still important. It's rentals. Very few people that I know buy DVDs except for their kids. They rent them from blockbuster or netflix. I know I only buy classics. Kids can sit through Cars 372 times in 8 days. How many times can you watch 300 three times without getting bored? It's rentals for adults.
I would incredibly disagree on this point from the perspective of the movie studios. They make very little money on studio rentals. Check out this quote from an NYT article from 2006

"Studios make money when Netflix and other companies rent out their movies. (Depending on the studio and movie, Netflix either buys the DVD's or licenses the use of them.) But the amount that studios make on rentals pales compared to how much they make when consumers buy discs. Studios earn $17.26 for each DVD they sell, but only $2.37 for movies on demand and $2.25 per DVD rented, according to Tom Adams, the president of Adams Media Research."


Studios still care about sales because that's where the highest profit margin exists, and since over 80% of DVD sales for blockbuster movies occur within the first 6 weeks of their release on DVDs, studios can get a higher return on their investment in a shorter period of time through sales as opposed to rental returns which are lower and occur over a timeframe of several years.

More interesting, if you're going to base the argument on rentals, then Bluray would seem to have an advantage as Blockbuster only carries BDs while Netflix carries both formats (although they have 25% more BDs than HDDVD).

Just to be clear, I'm no Bluray apologist (I think Sony has the worst product management team on the planet), I just don't agree with the argument that this stupid war is anywhere near over.
 
T

Tex-amp

Senior Audioholic
According to Forbes (and these stats are a few years old I admit) adult video/dvd income totals $1 billion a year in the US- Walmart alone sold $5 billion in DVDs in 2006. Now add in Circuit City, Best Buy, Amazon, specialty stores, Netflix, blockbuster, etc. and the numbers show that porn has at best a minimal effect on the video industry these days.
With those numbers and that we know that Walmart sells 40% of all DVDs so that means $12.5 billion total. Which leaves porn just under 9% of DVD sales.




I would incredibly disagree on this point from the perspective of the movie studios. They make very little money on studio rentals. Check out this quote from an NYT article from 2006

"Studios make money when Netflix and other companies rent out their movies. (Depending on the studio and movie, Netflix either buys the DVD's or licenses the use of them.) But the amount that studios make on rentals pales compared to how much they make when consumers buy discs. Studios earn $17.26 for each DVD they sell, but only $2.37 for movies on demand and $2.25 per DVD rented, according to Tom Adams, the president of Adams Media Research."


Studios still care about sales because that's where the highest profit margin exists, and since over 80% of DVD sales for blockbuster movies occur within the first 6 weeks of their release on DVDs, studios can get a higher return on their investment in a shorter period of time through sales as opposed to rental returns which are lower and occur over a timeframe of several years.
But, at $2.25 per rental that means if a disc gets rented just 8 times it makes more than a sold disc. I don't think $2.25 can be accurate as the $1 DVD kiosks are in most convenience and grocery stores in my neighborhood. Maybe there is a per day(s) rented fee?
 
aberkowitz

aberkowitz

Audioholic Field Marshall
With those numbers and that we know that Walmart sells 40% of all DVDs so that means $12.5 billion total. Which leaves porn just under 9% of DVD sales.
Apples to oranges. The porn number is for sales & rentals (sorry if that wasn't clear). You'd have to add Netflix ($1 billion in 2006 revenue) and Blockbuster ($5.5 billion in 2006 revenue), which makes a total market of $19-20 billion and dropping porn to 5% of the market.



But, at $2.25 per rental that means if a disc gets rented just 8 times it makes more than a sold disc. I don't think $2.25 can be accurate as the $1 DVD kiosks are in most convenience and grocery stores in my neighborhood. Maybe there is a per day(s) rented fee?
Yes- it takes 8 rentals to equal one sale, but let's look at some more #'s for a second. Transformers, the most successful DVD released this year, sold 8.3 million units within its first week of sales worldwide. That's 8.3 million units of direct profit back into the studio's pockets. To match that in rentals, there would have to be 65+ million rentals of Transformers, and there's no way that occurs in one week. I did find that Transformers had $10 million in rental revenue that first week, but I'm not sure how to accurately interpret that number because I don't know how places like netflix apply revenue per rental. Even if we used the figure of $2 per rental (which is probably low when you consider blockbuster charges $3-4 for store rentals), you'd come up with 5 million rentals for the week. After it's 2nd week transformers had a total of $17 million in rentals, 8.5 million units. How long will it take to hit 65 million rentals? And even when it does, remember the movie has still been ranked towards the top of the sales charts for the past few weeks.

Again, it's all about return on investment for studios. Paramount's production budget on Transformers was $150 million, they made $702 million worldwide in the box office, and DVD sales in ONE WEEK added an additional $160 million on top (if you assume a $20/dvd price). Rentals allow for low amounts of recurring revenue over long periods, but DVD sales drive yearly profit numbers and production of new movies/sequels.

I don't know where you live, but I've never seen a $1 DVD kiosk that had a movie that was released anytime in the last 6 months. Anyway, I'm not going to pretend to understand the economics of those kiosks but from my experience I'm guessing they're generally for movies that studios are no longer relying on to make lots of money off of.
 
A

aarond

Full Audioholic
"Studios make money when Netflix and other companies rent out their movies. (Depending on the studio and movie, Netflix either buys the DVD's or licenses the use of them.) But the amount that studios make on rentals pales compared to how much they make when consumers buy discs. Studios earn $17.26 for each DVD they sell, but only $2.37 for movies on demand and $2.25 per DVD rented, according to Tom Adams, the president of Adams Media Research."
you are insane if think that studios make $17.26 on the sale of a DVD. How can that be when I can but any $24.95 list new release for $15.00 at costco on the day of release! No store sells them above $19.95 the first week of release. When you consider manufacturing costs & residuals I would be surprised if they make as much as $5.00 per DVD sold.
 

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