Another Bad Day for HD DVD

Despite Toshiba's attempts to keep HD DVD alive by cutting prices on their players, the format received two crushing blows today. First, Netflix announced it would drop its support for HD DVD and offer only Blu-ray titles to those seeking to rent high-def discs. The existing stock of HD DVDs will continue to be made available until their life cycle is over.

According to Ted Sarandos, chief content officer for Netflix, "The prolonged period of competition between two formats has prevented clear communication to the consumer regarding the richness of the high-def experience versus standard definition. We are now at the point where the industry can pursue the migration to a single format, bring clarity to the consumer and accelerate the adoption of high-def. Going forward, we expect that all of the studios will publish in the Blu-ray format and that the price points of high-def DVD players will come down significantly."

Sarandos' sentiments were echoed by Best Buy, which announced it will recommend Blu-ray to its customers, even though the chain will continue to carry HD DVD players and titles. As president and chief operating officer Brian Dunn explained, "Consumers have told us that they want us to help lead the way. We've listened to our customers, and we are responding. Best Buy will recommend Blu-ray as the preferred format. Our decision to shine a spotlight on Blu-ray Disc players and other Blu-ray products is a strong signal to our customers that we believe Blu-ray is the right format choice for them."

Dunn went on to say, "Best Buy has always believed that the customer will benefit from a widely-accepted single format that would offer advantages such as product compatibility and expanded content choices. Because we believe that Blu-ray is fast emerging as that single format, we have decided to focus on Blu-ray products."

At UAV, we wonder if Best Buy's decision is based on a clearly expressed consumer preference or the company's desire to push consumers toward Blu-ray. It's likely that Blu-ray products represent a higher profit margin, especially in light of Toshiba's recent price cuts, so this could be Best Buy's attempt to generate more revenue.

In reality, it's probably a combination of both factors—Blu-ray titles have enjoyed a 2:1 sales margin over HD DVDs for some time, indicating that consumers are tending toward Sony's golden child, even though Blu-ray players are at least twice as expensive as those from the other camp.

Speaking of player sales, a leaked report from NPD Group, a market-research firm, indicates that Toshiba's price slashing might have had some effect, narrowing Blu-ray's lead through the week ending January 26. According to Ross Rubin, NPD Group's industry analysis director, the two formats ended 2007 essentially in a dead heat. "Until one camp decides to give up its format," he continued, "we are going to continue to see confusion at retail." Still, today's announcements seem to be two more nails in HD DVD's coffin.

Since we posted this story, the HD DVD Promotion Group issued a statement in response to the announcements from Netflix and Best Buy: "We have long held the belief that HD DVD is the best format for consumers based on quality and value, and with more than 1 million HD DVD players on the market, it's unfortunate to see Netflix make the decision to only stock Blu-ray titles going forward. While the Best Buy announcement says they will recommend Blu-ray, at least they will continue to carry HD DVD and offer consumers a choice at retail."

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