HD-DVD Swings For The Fences

The two-year-old format war between Blu-Ray (Sony) and HD-DVD (Toshiba, Microsoft, and many other partners) got very interesting today. In a “secret” sale (which was widely known about online), Wal-Mart put Toshiba’s HD-A2 HD-DVD player up for $98.87 plus tax at 8AM on Friday.

That’s a big deal.

When standard DVD players first came out a decade ago, their prices weighed in at around $1,000 each, as did the original compact disc players a decade or so before that. At those prices, only hard-core enthusiasts and dedicated first adopters would even think about buying in. It took a few years for mass production and growing acceptance among customers to drive prices down to normal-human levels–call it the $100 barrier–but once they did, the CD and DVD both quickly became the de facto standard for audio and video, resulting in billions of dollars in sales for both hardware and software.

The high-definition video disc world has been held up not only by price–true to form, the first players were all at or right around four figures–but also by a self-destructive format war. Sony, having failed time and again to corner format markets with flops like Betamax and MiniDisc (please, no emails on how either was a great product–they may have been, but they still failed), is trying mightily to own the next generation of video with their Blu-Ray, and thought they’d get there by including a Blu-Ray player in every Playstation 3. The problem is, the PS3 is so expensive, it hasn’t become the ubiquitous device Sony had hoped for. Blu-Ray is by all accounts a great technology, with more capacity than HD-DVD, and Sony’s stand-alone Blu-Ray players have been getting pretty good reviews– but they’re still around $500 each.

The HD-DVD side has been concentrating on price, and they’re taking a huge swing for the fences with today’s sale. It’s a gigantic risk financially. Either Toshiba or Wal-Mart or both are absorbing a very substantial loss by selling these units for $98 (I’d guess just Toshiba, Wal-Mart is too smart to take a hit this big). The HD-DVD drive inside the HD-A2 all by itself is worth more than $98, even without all the associated technology and packaging.

So why are they doing it? To capture the market. I heard people saying it in line this morning: “Hey, for $100, if Blu-Ray winds up winning, so what? This one’s almost disposable.” That argument certainly worked on me; after years of dissing both formats (or more specifically the format war itself), I was up early and at my local ‘Mart my own self.

They sold about 25 of them before running out; Wal-Mart’s sticker price on the player is $198, and many were obviously bound for eBay. That’s not so many in the big picture, but there are lots and lots and lots of Wal-Marts out there. Twenty-five times lots and lots means HD-DVD gets a nice big stake in the ground this fall, and Sony’s going to have to do something to answer, or they’ll be stuck with Son Of Beta.

Big risks. Small prices. Awesome picture. Ain’t capitalism great?

UPDATE: Per Gizmodo, BestBuy is matching Wal-Mart’s $99 price for the Toshiba HD-A2. Now it’s on.

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32 Responses to “HD-DVD Swings For The Fences”

  1. Kendall Says:

    It doesn’t matter how many players you sell if media sales don’t end up backing the format well. And looking forward, HD-DVD doesn’t have a great release schedule compared to Blu-Ray for the foreseeable future.

    Even the recent Transformers HD-DVD release could not unseat Blu-Ray from outselling HD-DVD movies.

    What’s impossible to know right now is how many of these players will just be destined to be upconverting DVD players instead of supporting HD-DVD sales!

    I went to Wal-Mart later in the day and there were no A2’s left – but plenty of A3’s, at $300. Single day sales events of players or media are simply not going to affect the war much overall.

  2. Jason Coleman Says:

    Toshiba should strike while the iron is hot and toss out a HD-DVD recorder PC drive for 198.00 and a HD-DVD recorder/TIVO for 398.00. Then they could quite easily win this.

  3. Joe Says:

    Capitalism is indeed grand. 🙂

    Personally, I fall into the HD camp. This is not for any particular technical reason – it has more to do with the fact that Sony has a poor reputation when it comes to over zealous copy protection and invasive software.(root hacks on their music CDs)

    Considering these new players will support internet connectivity via home networks – which would you rather have?

  4. Chuba Says:

    Sony, having failed time and again to corner format markets with flops like Betamax and MiniDisc (please, no emails on how either was a great product–they may have been, but they still failed), is trying mightily to own the next generation of video with their Blu-Ray, and thought they’d get there by including a Blu-Ray player in every Playstation 3. The problem is, the PS3 is so expensive, it hasn’t become the ubiquitous device Sony had hoped for. Blu-Ray is by all accounts a great technology, with more capacity than HD-DVD, and Sony’s stand-alone Blu-Ray players have been getting pretty good reviews– but they’re still around $500 each.

    That’s how Sony is – their stuff, typically very nice and refined, more often than not costs considerably more than similar items by other manufacturers. Having liked a number of their products in the past, I will still usually hesitate when seeing what buying something of theirs would cost me.

  5. Laddy Says:

    The A2 is a discontinued model which is why it was being pushed out the door. Its replacement is the A3. They started at $200 to push the sale and finally now that the A3 has been released, $100 is the out the door price. The A3 is currently on sale at Best Buy for $200, down from its $300 suggested retail. I suspect it’ll stay down near that level through at least the holidays. Sears Back Friday price for the A3 is thought to be $170 with 2 titles plus the 5 that Toshiba has been offering everyone. The XBox 360 HD DVD player that also works with PCs if you have the playback software is also being discounted with the included King Kong as well as the Heroes Season 1 HD DVD Box Set and the 5 Toshiba titles. It’s $180 at Best Buy and Circuit City and somewhat lower at places like newegg.com and buy.com. I suspect there will be deals all through the holidays although I don’t know how many players will be available for $100 now that the A2 is sold out at WallyWorld and Best Buy. The Black Friday Blue Ray price is rumored to be around $325 – $350.

  6. E9 RET Says:

    Walmart sells a Durabrand player, the DVD-1002, I think, for less than $30.

    The nifty little secret is that the player will play almost every region’s DVD from region 1 -6. I routinely watch my Britcom DVDs I got in the UK that my $300 Panasonic won’t play.

  7. Paul Says:

    A company who sells a product below the cost of manufacture in an effort to gain market share is engaging in “predatory pricing”. Doesn’t that violate antitrust laws?

  8. Dar Says:

    Best Buy appears to be out of stock, as well as Wal-Mart.

    Circuit City has the A2 for $129, which isn’t too shabby.

    As Kendall said, media sales will likely be the determining factor in which format wins the war. If HD wins the price battle with cheap players like these however, those new owners will be buying HD DVDs on a large scale.

  9. RC Says:

    sounds more like clearing out discontinued stock than anything else. If it is anything else its a last gasp of a dying product. Regardless of how many $150 million bribes the HD-DVD alliance gives to Paramount the scales are still tipping heavily towards Blu-Ray. More br releases, more br sales, better technical quality, etc.

  10. Ian S. Says:

    As has been noted, the A2 is a discontinued model that they had tons of sitting in warehouses. So it’s more a fire sale and less a strategy.

    And it’s unfair to claim Blu-ray is solely a “Sony” format – the entire Japanese electronics industry except Toshiba is backing it, including Panasonic and Pioneer.

    HD-DVD exists for one reason only: Microsoft wants no optical disc format to win for next-gen so that everyone has to download DRM protected HD content via Windows Media Player. It’s a multiple win for them: they own movie distribution and they can shut out Apple and Linux permanently. Surveys consistently indicate that most consumers won’t upgrade until there’s only one format, so MS keeps the pocketbook open to prop up HD-DVD.

  11. benny_brad Says:

    Bait and switch. They quickly “sold out” of the cheap ones, but are willing to sell you the more expensive one.

    I hope the FTC nails Wal-Mart and Best Buy.

  12. JeremyR Says:

    I’m not sure this is a good thing. It will only prolong the war between the two sides (which Blu Ray had been winning in terms of movie sales for most of the year), and a drawn out war is not really good for anyone.

    Because some studios are exclusive, you have to own HD and Blu Ray to get everything you want in High Def.

    And I would also point out, the PS3 is now $400 for the 40 gig model. Not cheap, but not hugely expensive, either.

  13. Kevin M Says:

    In another sense, this is the Apple vs. Microsoft battle. Sony, like Apple, puts out the superior product, but prices it high and doesn’t license the technology right. The HD-DVD camp is pulling a Microsoft. Licensing the technology that is good enough, and cheaper, to anyone who wants it.

    If the HD-DVD plays this right, and it looks like they are, Sony will lose by marketing the superior Blu-Ray to the fringes, while HD-DVD becomes the defacto standard.

    You’d think Sony would really learn from history.

  14. John Says:

    Sony’s problem with the Betamax wasn’t the price as much as it was the time — the original Beta machines could only get one hour of show on tape, and JVC trumped them with a two-hour VHS machine, and when Sony figured out how to slow the speed of their machine and maintain an acceptable picture, they were beaten again when VHS times were extended to four and then six-hours.

    But the point is roughly the same — give people a better deal for their money in an emerging format, and you can become the dominant system. Sony has a little time to play catch-up here, since they do have more studios right now signed up for their format. But if the studios see someone else’s HD-DVD disc sales take off because of cheap players while their video sales languish, they’ll jump formats, the same way that Sony’s Betamax partners eventually gave up the battle a switched over to VHS before Sony itself finally threw in the towel.

  15. triticale Says:

    You’d think Sony would really learn from history.

    My understanding is that there has been a total of fifteen times when Sony’s proprietariness has locked up 100% of nothing for them while their big competitor wound up with a small percentage of the whole big deal and thus far more than what Sony got. I expect to see them doing this with terabyte media crystals in a few years.

  16. Whitehall Says:

    You guys still watch movies? There is so little interesting new content that I’ve given up on Hollywood. Sure, there are old movies, but do they benefit from 1080p and 7.1?

    Naaa.

    Until they reissue “Dirty Debutante #13” in HD, I’ll pass.

  17. whiskeypundit Says:

    As a huge fan of DVD movies I was very impressed with this new way to label all of the discs in my collection.

  18. rjschwarz Says:

    This is simply the last gasp before we all go digital download. At that point it won’t matter what hardware you have.

    I think I’ll just skip this format war and stick with DVD for now.

  19. shooosh Says:

    triticale: WTF is a terabyte media crystal?!?

  20. Kendall Says:

    Sony has learned from history. That’s why there are many companies involved in Blu-Ray, and many players made by many different companies (like Panasonic, Samsung, etc). There are multiple brands of Blu-Ray burners for computers as well.

    It’s HD-DVD that is repeating the path Betamax took. Have you not noticed the ONLY HD-DVD players you can buy are from Toshiba? And with Toshiba essentially dumping these below cost, how soon do you think you’ll see models from any other player? Part of the reason it’s only Toshiba is because of – licensing issues. So why is Sony the problem child in this round?

    As another poster said, what you have with HD-DVD is Microsoft propping up a few companies to continue the war until they have solidified digital downloads to peoples homes and captured a majority of the market (at least that is the goal). Just how do you think Toshiba is able to withstand heavy losses from selling players below cost, and where did the money come from for the Paramount exclusivity?

  21. Greg Toombs Says:

    Cheaper good enough beats more expensive great stuff – in volume – every time.

    Comeptitive manufacturing companies know how to cut the legs (i.e. naive assumptions) out from under their competitors as they look forward into leveraging the sweet spot of cost, pricing and demand.

  22. Casey Says:

    Plain ol’ DVD is just fine for me. I can’t tell the difference on my setup anyway, and I’m not ready to drop mega-bucks for some super-hi-rez screen just so’s I can count the nostril hairs during Julia Roberts’ close-up…

    There’s really only two major groups who are into hi-def: sports freaks and porn freaks, and I belong to neither. 🙂

  23. Blake Says:

    John,

    We had a beta back in 1980 and we got 2/4/6 hours per tape. (We used it to tape the Shogun miniseries, which fit just fine on 5 tapes at the best quality.) And the quality was much better than VHS. (For 15 years we used betas for recording off TV and VHS for rentals.)

    That said, I’m with Casey. Plain DVD is fine and cheap. With HD/BR movies going for $20, $30, $40 or more, the cost of the player is trivial even at $1000, if there’s a risk you have to throw them out.

    What’s more, hi def versus DVD won’t matter for 99% of the material out there.

    However, they say hi-def is too much def for porn….

    http://www.iht.com/articles/2007/01/22/business/porn.php

  24. Clyde Says:

    Re: HD-DVD vs. BluRay: Which way will the adult film industry go? From stuff I read a while back, they were decisive in the VHS vs. Betamax format competition. When VHS became the industry standard for porn, that decided which format won. The Valley makes more movies than Hollywood, and they’re decidedly more lucrative.

  25. calvino Says:

    This is may not be such a clever marketing ploy. This model does not support 1080p output, and a lot of consumers will be very angry when they discover their new high def player does not do high def. HD-DVD players do support 1080p, but not this cheapie model. That was one reason it was not selling well, and I’ll bet a lot of the purchasers will be irate when they discover the player’s limitation.

  26. Ann Says:

    Clyde,

    The adult industry isn’t much of a factor anymore. Since there is oodles of free amateur porn on the internet, they have been facing a huge loss of revenue.

  27. Ann Says:

    “Sure, there are old movies, but do they benefit from 1080p and 7.1?”

    Absolutely, they were shot of film just like current movies. Film resolution is 4x that of BluRay and if the film was shot in technicolor it’s even higher. Modern films don’t use technicolor.

  28. triticale Says:

    triticale: WTF is a terabyte media crystal?!?

    Just a hypothetical technology, somewhere in the future, which Sony will blow the opportunity to sell a considerable percentage of by going proprietory.

    By the way, high definition has not been good for porn. It lets people see what disgusting burnt out skanks all the performers are.

  29. h0mi Says:

    “Surveys consistently indicate that most consumers won’t upgrade until there’s only one format”

    Not really. The 2 greatest obstacles either format faces are price, and the fact that for most people, DVD looks “good enough” on their big HDTVs as is. $100-$200 players will go a long way to combat that.

  30. John Says:

    Blake —

    My friend had one of the original Beta machines back in 1978, which allowed for one hour of recording time only per tape. The times didn’t start increasing until JVC trumphed them with their two-hour machine.

    I had an SL-5200 Beta back in the early 1980s and then an SL-2700 Beta Hi-Fi (which is where I first encountered Sony’s now-legendary problems with customer service). The most those VCRs could get on an L-750 tape was 4 1/2 hours, and then 5 1/2 when the L-830 tapes came out. Sony’s slow speed picture quality was far better than the slow speed images VHS machines were producing, but VHS had the six, and then eight-hour tapes

  31. Chester White Says:

    Paul wrote:

    “A company who sells a product below the cost of manufacture in an effort to gain market share is engaging in “predatory pricing”. Doesn’t that violate antitrust laws?”

    Charge more than your competition: gouging

    Charge less than your competition: predatory

    Charge the same as your competition: collusion in restraint of trade

    I got you figured out, buddy.

  32. GyorgLyquor Says:

    I was hoping that Holographic Video Discs would kick both their asses

    http://en.wikipedia.org/wiki/Holographic_Versatile_Disc

    but it probably won’t come soon enough.

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