Posted on 06/15/2006 8:01:01 PM PDT by Lunatic Fringe
CHOICE IS A BEAUTIFUL thing, whether it's picking stocks, voting for a politician or ordering pizza toppings. However, when it comes to the ongoing battle of the high-definition DVD formats — Blu-ray Disc vs. HD DVD — choice is a burden consumers will have to bear. That is, if they opt to choose at all.
The first Blu-ray player in the U.S. is coming from Samsung next week — HD DVD players hit store shelves in the U.S. in mid-April — and I can't help but think that those early adopters who choose wrong will get burned. Recall how Sony (SNE: 42.30, +1.15, +2.8%) took it on the chin in the mid-'80s as Betamax was supplanted by VHS as the VCR format of choice. Those who are old enough to remember spending hundreds of dollars on Beta players and tapes only to watch the technology turn obsolete cringe at the choice that they made, not because VHS was necessarily a better technology but because they were asked to gamble, and they placed their bet on the wrong horse.
The new souped-up DVD formats, which allow for crisper images, mind-numbing audio and added room for bonus features like extra movie scenes or director commentary, have brought that scenario to an even grander level that has created a schism among Hollywood's studios and the electronics, PC and gaming communities. Blu-ray, a format championed by Sony, has a litany of backers including PC giants Apple Computer (AAPL: 59.38, +1.77, +3.1%) and Dell (DELL: 24.91, -0.16, -0.6%), movie studios like Walt Disney's (DIS: 29.19, +0.50, +1.7%) Buena Vista Home Entertainment and MGM, and electronics makers Panasonic and Pioneer. Among those in Toshiba's HD DVD court are Microsoft (MSFT: 22.07, +0.19, +0.9%), Intel (INTC: 18.12, +0.39, +2.2%), Universal Pictures and NEC (NIPNY: 5.16, +0.09, +1.8%). For the consumer, this means that the format they choose to buy into will determine which movies and other content will be available to them. For example, Blu-ray has "The Terminator" and "Crash" while HD DVD has "Goodfellas" and "Million Dollar Baby."
Last summer, the two camps tried to figure out a way to unite their technologies into one format and make things easier for shoppers, but the talks failed. And here we are today with the antithesis of that King Solomon parable playing out before our eyes. Instead of ensuring the welfare of the baby, the baby has been split in two.
It's no wonder then that many anxious customers are sitting on the sidelines as they watch this battle play out. HD DVD has been out for a couple of months now and sales have been sluggish at best. Michelle Abraham, an analyst at independent research outfit In-Stat, expects sales of high-definition DVD players in North America to be under 100,000 units this year and grow to three million annually by 2010. DVD players, on the other hand, were introduced in 1997, and by 1999 unit sales grew to more than four million annually, says Abraham. Not only will the market likely be limited to those with the cash to buy high-def television sets, but the costs of the players themselves will also bog down demand. Toshiba currently offers two HD DVD players at $499 and $799. Samsung's upcoming Blu-ray player is a much heftier $999.
Once customers peruse the limited selection of movies available to them — Best Buy's (BBY: 51.50, +0.10, +0.2%) web site yielded close to two dozen titles each for HD DVD and Blu-ray — they may feel less compelled to buy the players. (The first Blu-ray titles will be made available on June 20). Sales of DVDs, which in recent years were a cash cow for movie studios, are starting to slow. The new formats could help pick up some of that slack by allowing studios to offer fans more in-depth features about the making of a film or different movie endings. But Hollywood seems to be waiting for customers to start buying the players before they spend money adding these extras or putting entire movie libraries into the high-def format. "It's a chicken and egg scenario," says In-Stat's Abraham.
Unlike the state of the market when DVDs debuted in 1997, there are many different formats that high-definition DVD will have to contend with that could keep it from reaching the same commoditized level as its first generation brethren. Viewers can now order a movie via cable or satellite using video on demand, they can tape shows using digital video recorders like TiVo's (TIVO: 6.62, +0.38, +6.1%), and they are increasingly capable of downloading films off of the Internet. This could leave the high-definition DVD market in the lurch, at least for the near term, appealing primarily to videophiles with deep pockets and the yen to build an impressive home theater.
From an investment standpoint, betting on Blu-ray over HD DVD (or vice versa) is like trying to predict whether Tom Cruise and Katie Holmes are going to make it. It's just too early in the game and there are a lot of variables yet to play out. Significant delays in the release of these players do not bode well for investor confidence. Both Sony and Pioneer recently delayed the release of their Blu-ray players until August and September, respectively. The sale of Sony's much-anticipated PlayStation 3, which will be sold with Blu-ray capabilities, has been pushed to November — the brink of the crucial holiday selling period. Toshiba's HD DVD player was originally anticipated to come out late last year and didn't arrive until this spring. The results have been lackluster.
The best way to play this new field without getting burned Betamax-style would be to invest in a company that's positioned to win no matter what. Sonic Solutions (SNIC: 14.82, +0.33, +2.3%) sells its DVD-authoring software to both consumers who fancy themselves homegrown directors, and professionals, including Hollywood studios that use its technology to create DVDs and prepare them for mass replication. The Novato, Calif.-based company, with $148.7 million in sales and diluted earnings of 70 cents a share for the year ended March 31, has been selling software for both Blu-ray and HD DVD authoring since April 24 (they diplomatically released the two products on the same day). Studios have already been lining up to use Sonic's high-end Blu-ray and HD wares to create some of the first titles in the market.
Another good reason to bet on Sonic is its stock price. In a research report published Monday, Roth Capital Partners analyst Richard Ingrassia noted that Sonic's valuation "is low on almost every metric." Trading at 13 times estimated 2007 earnings, Sonic's stock is well below the 18 to 20 times forward P/E ratio of its peers, says Ingrassia, whose firm makes a market in Sonic's shares. His price target: $21.50. (For more analysis of Sonic's valuation see our June 7 Stock Screen, "A Super Small Cap?.")
A lot of power and money is being thrown behind Blu-ray and HD DVD, and the technologies themselves are impressive. But I think it's the customers and their choices that have to be watched closely, and I don't think they are ready to make those big decisions quite yet.
You can't beat 8-track for portable music and reel to reel for video.
:^P
I have cable access, but I rarely use it to watch local broadcasts, which are useful when severe weather moves through the area.
I know two families who do not have cable because they want to exercise control over what their children can access.
>Haven't you heard, the Federal Government is going to fund and adapter for people so they won't lose access to television once the move takes place.<
Seriously, what about people who have tvs throughout their houses--but don't have cable/satellite connections for each of those rooms? I have not heard of providing adapters for EACH receiver in every household.
I can appreciate the local weather angle, but increasingly, local cable networks are carrying these stations as the cost declines (along with aerial broadcast viewership). Additionally, you have many other options for local information, including the internet (weather.com, www.erh.noaa.gov, etc.) As for parental control, that's a real concern, but all TV's made in the past decade have V-Chips, and cable network boxes frequently have additional content controls. I use the latter in my house to limit program and movie ratings for the kids' benefit.
>produces an excellent picture on a reasonably-sized HDTV (42-50 inches).<
Not everybody wants a large screen tv. I like tv on the small side, because I don't care for the way large screens dominate a room. I have 4 color tvs, not counting the portable Casio, and none of them is larger than 19". Nearly all the time I spend watching is on a receiver dedicated to playback of DVDs and VCDs [I have a large collection of Korean, Hong Kong, Chinese and Japanese movies, many of which have never and will never be released here in Region 1 format].
Not everyone wants to see the individual pores on an actor's face.
The technical advantages are obvious in true HD tv, but I am not sure most people are going to be enthusiastic about replacing their systems at the present prices. For people with extensive movie collections, I doubt they are going to run out and replace all of their present DVDs, either.
There are large numbers of technophobic people in this society who adopted DVD reluctantly, if at all, and if you have ever tried to explain coming changes to such people, you've seen their eyes glaze over.
By the way, the new DVD formats also have DIFFERENT regions than the present DVD regions. I'm interested in television from all over the world, so my 4 DVD players are all region free and convert PAL to NTSC. Regions are an evil marketing scheme. People sneer at VCD format, but it crosses borders so nicely.
I don't know the answer to this question, but I suspect a lot of people are going to be disappointed.
Most current models have at least one HDMI, two are better. It pays to check, especially on bargain models. This is a spec that is usually prominently noted.
IIRC, VHS won out over Beta in part because more porn was available on VHS than Beta. Will porn settle this one too?
This may sound silly, but I think all things being equal, Blu-Ray will win because of the cooler sounding name. While I was in college, I worked at a beverage drive-in. One of our products was a cheep wine called Reunite - pronounced Re-u-neat-ee. Folks would drive in and ask for our Red Reunite. I'd ask 'em, "Which one, we have regular and Lambrusco". I bet 49 out of 50 times, they, without knowing a dang diff between the two, would order the Lambrusco. Cooler name.
Cool names? How about the sound of Sony copy protection?
Why yes....that IS the purpose of HDMI. (among other things)
It is now believed that HDCP will not be implemented until 2012. That's plenty of time to trade in the earlier (and crappier) HDTV sets.
all the new ones have it.
I'm the type of tightwad, low-spending consumer that the market hates. I have a $99 TV that I use to play DVD's, and that's all I'm ever gonna buy to play DVD's. Unless I hit the lottery.
Government is crap. Government is set up to screw the little person and give breaks to big business. Both parties, having agreed to this thing, are crap.
Yeah, ME! I'm retired and I had to cut my expenses. Once my cable TV went over fifty bucks a month, it was history.
Same here. Extended basic plus roadrunner was well over 100 bucks a month here so I cut the cable TV part, had to keep RR though.
Now I get the major networks and PBS in 1080i or 780p for FREE over the air via rabbit ears. :)
Ain't nothing wrong with rabbit ears. It gets me local news, PBS, the local Fox station ("24" and "American Idol"), and the local religious station. And it's free!
May (as is usually the case) the inferior system win!
Sorry about that. You may want to call and speak with someone at the company. Most national cable providers hate to disconnect anyone. They often have "unadvertised" packages of basic service that include local channels and a few cable networks. Phone companies do the same thing, by the way. In addition, with a little technical knowledge, finding streaming TV content on the Internet is not too difficult. What a world.
Remember when we had only three or four channels and needed rabbit ears to get those semi-clearly? Ask a kid what "rabiit ears" are today and he'll put two fingers behind his head...
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