So the over-arching point of the the previous article is that many times in history there have been companies who often try to set the ‘standard’. Nintendo tried to make the NES (Famicom in Japan) the standard gaming console, and prior to that, there was the battle between BETA Max and VHS. For those who don’t know, Beta Max lost out because they initially produced tapes that could only contain one hour of film. Most movies were longer than that. They changed over later, making their tapes 90 minutes long, but it was too late. Soon, most of the larger film studios changed over to VHS. Beta Max had died.
So more recently, the Blu Ray and HD-DVD debate: well it seems that Blu Ray has emerged the winner. But the business aspects of the case are much simpler. Heres a number of things you should consider:
- availability of movies will drive the demand for the player
- studios have to therefore commit to format or create movies in dual-format, which drives up costs
- retailers have to stock both HD-DVD and Blu Ray, which means that have to divide their shelf space into two, with duplicate titles
- they have to divide the space for disc players into two, or three if you included the legacy DVD format
Now, the facts:
Toshiba (HD-DVD) and Sony faced off early in the High Def market. Sony targeted distribution and sales much more aggressively . By the middle of 2007, HD-DVD players were outselling Blu Ray players 2 to 1. However, Blu Ray discs were outselling HD-DVDs 2 to 1. Film companies make their profit from the discs, and want to distribute their title to the company that produces more discs. More importantly, producing discs in both formats is expensive. So companies started moving: Warner moved over to Blu Ray by the end of 2007, followed by Netflix and Bestbuy. By January 2008 the only distribution companies still affiliated with HD-DVD were Universal and Paramount. By the end of February Paramount had titles on both formats, and Universal had signed an exclusive Blu Ray format contract. The final blow came when WalMart moved over. Walmart is the largest retailer in the world and when they drop you, you’re finished. It is interesting to note that PlayStation 3 comes with a Blu Ray player built in, but the XBOX 360 users have to buy an additional player to support HD-DVD. This in no small part fueled the demand for discs.
Blu Ray won. My conclusion is that they won because the Blu Ray consortium pushed distribution really hard. When the production companies saw they would make more money off Blu Ray discs, they switched over. When retailers saw that Blu Ray had more titles because more distribution companies are moving over, they stopped selling HD-DVD players and titles. Again, Genius!
If you are interested in more business-type opinions, try the Freakonomics Blog at the New York Times site.