Feels like old times

Some news out of China last week laid a nostalgia trip on those of us who covered the long saga of the Blu-ray vs. HD DVD format war. According to a report in the Timesof London, a recently introduced high-def DVD format developed in China, called China Blue High Definition (CBHD), is already outselling Blu-ray in the Peoples’ Republic by a margin of three-to-one.

bluray-vs-hddvdThe Times called the development a “new format war” but it’s really a continuation of the same format war that had simply gone underground after Toshiba pulled the plug on HD DVD  in the West back in February 2008.

The roots of CBHD go back to 2005, when the Chinese government set out to “break the monopoly” of Western and Japanese companies on the technology underlying the DVD format by creating new intellectual property controlled by China to be used in a next-generation format.

In 2007, the DVD Forum fomally approved specificationsfor a “China-only” version of the HD DVD standard, which was to be based on the HD DVD physical specs developed by Toshiba and Chinese-developed audio and video codecs. Instead of MPEG 2, VC-1 and H.264, for instance, the Chinese format would support only the Advanced Video System (AVS) developed in China, saving Chinese manufacturers boat-loads in royalty payments to foreign technology owners. Read More »

Red flag for Blu-ray

This can’t be good news for Blu-ray: Singulus Technologies, a leading manufacturer of Blu-ray replication equipment, said Friday that sales of complete Blu-ray production lines fell sharply in the first half of 2009 and show no signs of improving over the second half.

“[T]he optical disc market shows little impulses for the remaining months of the business year 2009,” the company said in a press release announcing its first-half earnings. “The orders usually placed by major customers towards the end of the 2nd quarter have failed to appear so far. The expected total number of Blu-ray disc production machines in the business year 2009 will therefore remain below the sales realized in 2008. A recovery in the entire business activities has not yet materialized and we also expect a difficult 2nd half of 2009.”

blu-ray-eyeLast year Singulus sold 31 Blu-ray lines, according to Bloomberg News, but sales have fallen by roughly two-thirds this year. If the current trend continues, Singulus would end up selling about 12 lines this year.

That doesn’t augur well for Blu-ray replication demand, despite industry efforts to sound bullish about the format.

It’s also not good news for Blu-ray IP owners Sony, Panasonic and Philips, who have been gearing up a licesning program to start collecting Blu-ray royalties from replicators. The three companies recently created a one-stop shop for device makers to license essential Blu-ray technology, and are planning to start knocking on replicators’ doors later this year, The Media Wonk hears.

Replicators in general are facing a difficult year. DVD sales are falling sharply, which is hurting revenues. Gearing up for Blu-ray production, meanwhile, is expensive. Blu-ray machines from Singulus go for about $1.8 million a piece. Putting in any significant Blu-ray capacity represents a significant captial investment, which is tough to justify when demand is uncertain and revenues are falling.

Many replicators are are likely to try to get by for now with racks of less expensive Blu-ray burners, using finished discs, and defer the larger capital investment in Blu-ray molding and production equipment until greater demand is locked in.

When that demand eventually materializes, of course, perhaps sometime in 2010, the capacity to handle it likely won’t be in place, which will create a whole new set of problems for the industry, but I suppose a problem in meeting demand is better than no demand.

Toshiba climbs aboard the Blu-ray lifeboat

Now we know why Toshiba is apparently ready to swallow its corporate pride and begin selling Blu-ray players: According to new projections by the Consumer Electronics Assn., sales of CE products are expected to drop 7.7% in 2009, to $165 billion, as the recession continues to grind away consumer spending.

The one CE product category expected to show positive growth this year? Blu-ray Disc players. Unit shipments of stand-alone (i.e. non-PlayStation 23) Blu-ray players are expected to grow by 112% this year, to nearly 6 million, while revenue is expected to grow by 48%, even in the face of price cuts, to top $1 billion.

Any port in a storm. Even in formerly enemy territory.

Lipstick on a pig

The Digital Entertainment Group takes the Sarah Palin Rouge-Lipped Hockey Mom Prize this week for slathering lipstick on the runtish snout of the home video market. The industry spinmeisters reported that total consumer home entertainment spending for the first half of 2009 was down a mere 3.9% compared to last year. Not bad, you say, in the depths of the Great Recession.

From the perspective of the Hollywood studios, however, things aren’t looking quite so “not bad.”

blu_ray_300pxMost of the good news, such as it was, came from DVD and Blu-ray rentals, which surged 8.3% through June, raking in $3.4 billion for the likes of Netflix, Blockbuster and Redbox’ dollar-a-night kiosks. The studios see a much smaller slice of the consumer rental dollar, however, than they get from DVD and Blu-ray sales, which fell a painful 13.5%. In a break from past practices, DEG didn’t break out DVD and Blu-ray sales this times. But Video Business calculated that DVD sales were down a whopping 17%, partially made up for by 91% growth (from a much smaller base) in Blu-ray sales.

The other “good news” came from digital sales and rentals (movie downloads) and cable and satellite video-on-demand, which combined grew 21% for the half, to $968 million. It’s not clearly exactly how DEG is counting things, but if that total includes Netflix’s subscription streaming business, that’s not really helping the studios much, either, since they see an even smaller percentage of that than of traditional rentals.

Bottom line: Consumer spending has shifted massively away from the studios’ most profitable channels into less profitable channels. And Blu-ray has done nothing to stem that tide.

While VOD is a good business for the studios, it remains tiny compared to other high-margin channels, to say noting of low-margin channels like DVD rentals and subscription streaming.

Sony Pictures Home Entertainment president David Bishop was at least honest about where things stand. “People are trying to save money, and there is strong evidence that consumers are trading down. They are renting instead of buying,” Bishop told Video Business. “That is the growth category now in DVD.”