High Def Brings High Sales Hopes
BY BRIAN DEAGON
Hollywood studios, electronics retailers and consumer electronics makers have a potential gold mine waiting for them when a new generation of DVD players starts to arrive late this year.
Total U.S. sales of standard DVD players have approached $15 billion, says the Consumer Electronics Association. Many predict even higher sales of the new high-definition DVD players. And Hollywood is looking at a market that should surpass $10 billion a year in high-def DVD movie sales.
DVD players, introduced in 1997, are the fastest-growing consumer electronics product ever. The CEA says more than three of every four U.S. homes already own a DVD player. A shift to new high-def DVD players should go along with the move to high-definition TV and surround-sound systems to provide the best video experience in the home ever.
"The arrival of DVD players created a phenomenally successful business model, especially for the software (DVD movies and extra features)," said Mark Knox, a consultant for Toshiba on DVD technology. "Hollywood makes more money from home video sales than at the box office."
Going To Next Level
The shift to higher-quality home theater systems could boost the fortunes of consumer electronics retailers such as Best Buy (BBY) for years — and things already were looking up. In 2003 and '04, the industry recorded consecutive years of double-digit growth for the first time in a decade. The shift to digital video is the reason, says the CEA.
"When consumers first started buying high-definition TV sets, they did so to enjoy the benefits the DVD brought," said Sean Wargo, an analyst for the Consumer Electronics Association. "Now it's going to the next level."
Meanwhile, DVD sales have rescued Hollywood from a box-office slump. Consumers who bought a movie on VHS and later on DVD are expected to buy the movie for the third time, this time in the new high-def format.
"We'll have the capacity to exploit our new releases and to take a look at our movie catalog," said Marsha King, general manager of Warner Home Video.
When the new high-def DVD players start arriving, Warner will release about 50 movie titles in high def. Walt Disney, 20th Century Fox, MGM, Paramount and Universal are gearing up as well.
U.S. consumers spent $15.5 billion buying DVDs last year and another $5.7 billion renting them, vs. $10 billion in U.S. movie ticket sales.
Toshiba is likely to be the first maker to introduce high-def DVD players. The company says the new format will double picture resolution for users with high-def TV sets. The better video quality could prod users to improve audio with surround-sound setups.
"History shows that a new medium expands the market," said Jim Barry, a spokesman for the Consumer Electronics Association.
Digital high def has helped turn a commodity product, the TV set, back into a status symbol. New technologies like LCD and plasma have let TV screens expand to 62 inches, twice the size of ones based on old cathode ray tube technology.
U.S. consumers spent about $40 billion last year for TV entertainment, including cable and satellite pay-TV services and DVD. They spent $24 billion in 1996, the year before the introduction of DVDs. Some $9 billion of that $16 billion jump came through DVD sales, says Steve Nickerson, senior vice president of market management at Warner Home Video.
Analysts don't know when the new DVD revenue will flow. The first systems, likely available in time for Christmas, will cost $1,000 or more at first. Sales of today's DVD players didn't take off until prices fell below $300.
Merger Talks Failed
There's another tough issue facing the field: a standards war. Two competing high-def DVD systems will be brought to market — and they're not compatible. That's forcing people to choose sides or, as the Hollywood studios do, double up on their output. One technology, backed by a Toshiba-led group, is pushing HD DVD. The other camp, led by Sony, (SNE) is pushing Blu-ray.
The two sides have talked about merging their formats, but to no avail. "The possibility of a tech merger is not dead, but it's more difficult now than it was even a few months ago," said Nickerson.
Blu-ray's development is three to six months behind HD DVD. Besides Sony, Blu-ray backers include Dell, (DELL) Hewlett-Packard, (HPQ) Apple Computer (AAPL) and Hitachi. (HIT)
Besides Toshiba, HD DVD backers include NEC, (NIPNY) Sanyo Electric and Thomson. (TMS)
"Consumers will decide by voting with their wallets," said Andy Parsons, a senior vice president at Matsushita's (MC) Pioneer Electronics, which backs Blu-ray.
HD-DVD discs can hold 45 gigabytes of data, while Blu-ray can hold 50 gigabytes. Current discs hold 5 gigabytes.
The larger size opens the door for new marketing possibilities. A movie disc could provide audio in multiple languages. A single disc could contain every episode of a full season of TV dramas. And no more need for two-disc sets — one for the movie and another for features.
Analysts see the standards war ending in a year or two, as the DVD market enters its new phase.
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