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Blu-ray of Hope (It's Beta vs. VHS II)
http://www.smartmoney.com/Techsmart/index.cfm?story=20060615 ^

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.


TOPICS: Business/Economy
KEYWORDS: blueray; bluray; dvd; formatwars; hddvd
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To: Boundless

Walmart is selling out of their HD DVD players what are you talking about?


61 posted on 06/16/2006 7:07:09 PM PDT by marajade (Yes, I'm a SW freak!)
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To: John Williams

The Toshiba player is 499; not 600.


62 posted on 06/16/2006 7:08:22 PM PDT by marajade (Yes, I'm a SW freak!)
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To: Syntyr

Buy on line you can get discounts of the MSRP.


63 posted on 06/16/2006 7:09:47 PM PDT by marajade (Yes, I'm a SW freak!)
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To: andy58-in-nh

I grew up with a B&W TV, console, twelve inch screen. Later we got a bigger screen that sat on four thin legs - the dog used to sleep under the TV set. All the shows were in B&W: Combat, Have Gun Will Travel, The Man From UNCLE. Sometime around '66 we got our first color TV.


64 posted on 06/16/2006 7:15:06 PM PDT by Ciexyz (Let us always remember, the Lord is in control.)
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To: Ciexyz

Man... I can't wait to get the Man from UNCLE on DVD. You?


65 posted on 06/16/2006 7:33:57 PM PDT by marajade (Yes, I'm a SW freak!)
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To: Ciexyz
Boy, does that sound familiar. I don't think we got a color set until 1967 or so. Only a 13" screen (all my dad could afford, I'm sure), but I remember vividly the first time I watched it, and it was for Saturday morning cartoons (remember those?). It was like Dorothy opening the door to gaze upon Oz. And having only seen that movie in B&W at the time, it opened up a whole new world to see the Yellow Brick Road as intended, and the Wicked Witch in color (green, as I recall).
66 posted on 06/16/2006 7:38:30 PM PDT by andy58-in-nh
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To: marajade
Man... I can't wait to get the Man from UNCLE on DVD. You?

Me? Dr Kildare, of course. (Before we ever knew D'Artagnan was a poofter too.)

67 posted on 06/16/2006 7:42:19 PM PDT by Revolting cat! ("In the end, nothing explains anything.")
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To: andy58-in-nh

>Remember when we had only three or four channels and needed rabbit ears to get those semi-clearly? <

I remember turning an outdoor antenna to bring in stations 50 miles away to get some variety...

...curiously, there seemed to be more to watch in those years.


68 posted on 06/16/2006 8:53:25 PM PDT by RSteyn
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To: Revolting cat!

>I can't wait to get the Man from UNCLE on DVD. <

Looks like there is a legal dispute about the ownership of the rights. Somehow, Warner is involved and the planned release of S1 DVDs has been delayed.


69 posted on 06/16/2006 8:55:14 PM PDT by RSteyn
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To: Lunatic Fringe
Blu-ray, a format championed by Sony, has ... backers, Apple, Dell, Disney, Buena Vista Home Entertainment, MGM, Panasonic and Pioneer.

I don't think that is enough to cause PC's to install it instead of HD-DVD.

70 posted on 06/16/2006 9:00:41 PM PDT by higgmeister (In the Shadow of The Big Chicken)
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To: RSteyn

Right. I've heard people compare it to the days of black and white TV being replaced by color when people complain about it. It's a rather ridiculous argument - you can still use a black and white TV to watch color broadcasts - they are just in black and white!


71 posted on 06/16/2006 11:05:56 PM PDT by Republican Wildcat
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To: AntiGuv

ping


72 posted on 06/17/2006 7:49:33 AM PDT by Wiz
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To: mugs99

No, the oppposite was the case.


73 posted on 06/17/2006 7:55:38 AM PDT by reg45
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To: chae

Actual PS3's don't exist yet. Everything we've seen up until now is a dev/debug kit.


74 posted on 06/17/2006 7:59:45 AM PDT by Sofa King (A wise man uses compromise as an alternative to defeat. A fool uses it as an alternative to victory.)
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To: Lunatic Fringe
IMHO, Blu-ray will definitely win the format war: “several major players in the porn industry going the Blu-ray route.”
75 posted on 06/17/2006 8:04:41 AM PDT by AntiGuv ("..I do things for political expediency.." - Sen. John McCain on FOX News)
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To: Just another Joe; dljordan
I've still got my Sony Beta. It's the best format, you know.

The Beta tapes are about 15 years old and still record beautifully. Those were the times when Sony used Mylar as a feed and high quality iron oxide/iron pentacarbonyl as recording media. Ahhhhhh, those were the days.

76 posted on 06/17/2006 10:13:11 AM PDT by Zuben Elgenubi
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