Prices, format wars turn away buyers

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New research from the NPD Group brings good news and bad news for the high-definition disc business, which studios hope will one day replace standard DVD.

Nine out of 10 consumers who have bought either Blu-ray Disc or HD DVD players are extremely satisfied with their purchase, and they plan on replacing up to a quarter of the titles in their existing DVD libraries with high-definition discs.

That's good news for studios that welcome any replacement technology, mindful of how DVD not only reinvigorated the home video business in the late '90s but subsequently spurred consumer spending on packaged media to record heights.

"This is great news for any of us in the packaged media business," said Steve Feldstein, senior vp corporate and marketing communications at 20th Century Fox Home Entertainment, one of the leading studio supporters of the front-runner Blu-ray Disc format.

"Here's even more evidence of consumers' satisfaction -- or love affair, even -- with disc-based entertainment," he added.

But the NPD study, based on a nationwide survey of HDTV owners, also found an overwhelming reluctance to buy either a Blu-ray Disc or an HD DVD machine. When asked, "How likely are you to buy a high-definition player in the next six months?" two-thirds of respondents said "not at all" or "not likely." Another 23% answered "somewhat likely," while just 11% said they were extremely likely to buy a player.

The hesitation, the NPD study revealed, stems from a variety of factors, most notably high player prices (cited as the major deterrent by 72% of respondents). Another 70% said they were holding off because they saw no immediate need to replace their existing DVD players, while 60% said they get their high-definition movies from cable or satellite, and 54% said they intend to hold off buying a player until the format war between Blu-ray Disc and HD DVD is resolved.

Still, the NPD Group ultimately believes that high-definition discs will succeed. The new study projects that by the end of the year, the number of high-def disc players sold will top the 1 million mark, while software sales will hit 4.5 million units, accounting for 3.5% of the packaged media business. By 2011, the study predicts, annual sales of HD discs will be in the neighborhood of 400 million units and account for about 40% of the packaged media business.

Russ Crupnick, vp and senior analyst at NPD Entertainment, said the high replacement rate among HDTV owners might be a little misleading "because you're looking at the very early adopters who may go in and replace all their 'Matrix,' 'Star Wars' and 'Shrek' DVDs.

"Once you get to the mainstream consumer," he added, "we're not sure they're going to be all that anxious to replace their libraries."

Even so, Crupnick sees good times ahead for the high-definition disc business, though it might take a little longer than initially expected.

For HD packaged media to succeed, he said, "There has got to be a coordinated effort between the studios, consumer electronics manufacturers and retailers to really make consumers more aware of the benefits of the formats."

He added, "Overall, consumers are very happy and complacent with DVD. So what is the messaging we can create that will make people take the plunge? That's what's missing now -- there isn't something equivalent to, 'Ah, ABS brakes, I'd better get a car that has that.' "

To that end, Crupnick applauds big awareness campaigns like the Walt Disney Co.'s national mall tour in support of the Blu-ray Disc format, which he calls "brilliant."

"The one problem you have right now is that when stores demonstrate the software, they show them on small TVs that haven't been properly calibrated, so you don't see much of a difference," he said. "Anything you can do to get consumers to see the same things we see at (the) CES (trade show), to better understand the benefits, is crucial.

"Consumers sort of get it -- they know high-definition discs are better and clearer and so on. But they're not quite ready to make the leap, so anything we can do to push them that way is great, which is why I think the Disney mall tour is terrific."

Crupnick said that over the years there have been other home entertainment formats "that didn't get off the ground because consumers didn't quite get the benefits -- SACD, DVD Audio, laserdisc and so on.

"So without improving the benefit proposition and probably driving down hardware prices even more," he said, "it's going to be a longer haul than we'd probably like."
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