High-definition DVD issue looms over CES

LOS ANGELES —Not long ago, some analysts expected the high-definition DVD format war to be over by now, with either HD-DVD or Blu-ray burying the other. But 18 months after the two technologies debuted, there’s no end in sight to the war, and retailers are stuck in the middle.

While movie studios have been aligning themselves on either side—only Warner Bros. is releasing titles on both formats—most retailers are remaining neutral as they wait for a winner to emerge. And though player prices have come down, generating sales in stores has been a challenge, with consumers unsure about which side to choose.

“It’s tough when you have two competing formats, especially when they’re both bashing each other,” said Chris Crotty, senior analyst for consumer electronics with research firm iSuppli. “And with major players with deep pockets on both sides, neither is going to give in easily.”

Despite the problems, iSuppli says sales are slowly building. It predicts that 2.2 million high-definition players will ship to retail in 2007—compared to just 200,000 in 2006—and that 7.1 million players should ship in 2008.

On the DVD end of the business, Blu-ray holds an edge, a lead helped in large part by support from Disney, Fox, Sony and Warner. HD-DVD has Universal, Paramount, Dream-Works and Warner backing it, but generates fewer releases. While exact numbers are hard to come by, estimates are that Blu-ray controls about 65% of the DVD market.

Compounding the problem of slow sales is a lack of awareness among consumers. An NPD Group survey from October showed just 29% of consumers even know HD-DVD players exist and only 20% are aware of Blu-Ray. Nevertheless, retailers are doing their best to generate sales and reinvigorate a DVD sector that flattened in 2006 and is expected to decline this year. And they’re getting help from suppliers and studios kicking in instant rebates on players and free DVD titles with each purchase.

A few retailers have thrown more support behind Blu-Ray. Target has given Blu-Ray players an exclusive in stores for the holidays—though it sells HD-DVD players online—and dedicates two-thirds of its shelf space to Blu-Ray DVDs. Blockbuster has also thrown its weight behind Blu-Ray, dedicating all of its shelf space to the format.

But for the most part, retailers are giving both formats equal time. Wal-Mart unveiled a new stand-alone display last month with monitors, players and the latest titles on both formats. Best Buy and Circuit City have large Blu-Ray and HD-DVD displays in stores, and Costco carries both players. And each retailer sells the players with a number of free DVD titles, ranging from four to seven.

Price points vary from one retailer to another, but most are down about $100 from this time last year, with a basic HD-DVD model from Toshiba selling for $199 and a Sony Blu-Ray player down to $399 and falling. DVD prices are also down about $10 from last year.

Players won’t emerge as a ‘must have’ holiday gift this year, but that could change in 2008. “You should see good growth in 2008 as new models come on the market and price points continue to come down,” said Rubin.

Crotty expects the format war to drag on into 2008 and beyond, and doesn’t see it being resolved until more affordable, dual-deck players that play both formats make the war moot.