Blu-Ray versus HD-DVD: We Won’t Get Fooled Again?

It looks like the war of words between Blu-ray and its backers and HD-DVD and its backers is heating up. For marketing professors like me, this is interesting stuff. We haven’t had a good format war in consumer electronics since, oh, Beta versus VHS in the early 1980s. Before that, I’m told, there was a battle between 8-track and cassette tapes.

The way the Betamax story is usually told, Beta was technically superior but VHS had wider distribution and managed to get more production going sooner, riding their economies of scale, getting prices down quicker, eventually becoming the standard. The moral of the story became one of increasing your distribution the quickest. A variant of the story had the porn industry adopting VHS first, and thus driving the rest of the industry through the influence of this type of oft-ignored-but-really-influential distribution.

That old battle, and its clear winner has been in a lot of people’s minds lately in the world of consumer electronics. Consumers have been waiting on the sidelines to commit to the new HD format, even though many are committing themselves to new HD capable televisions so they eventually will likely want HD players to match their capabilities. Retailers have had to hedge their bets between two different standards, doubling their inventory costs and making every buy riskier. Both parties love to have certainty, but the producers aren’t budging—each one thinks their format is better.

The result is pretty simple. The total DVD rental market is apparently split 98% traditional rentals and only 2% hig def. Some reports say the combined sales + rental market for hi-def is split 67% to Blu-ray and 33% to HD-DVD. Sales of discs and players are much lower than forecast. Toshiba recently cut its estimates of player sales by a whopping 44 percent. Analysts are blaming tough economic times. But times aren’t that tough.

It’s more like “won’t get fooled again.”

But that’s exactly what seems to be happening in the media. Yesterday, the National Post ran an incredibly misleading article that made it seem like the tide had turned in the battle. A big splash diagram (which I’ve copied above: hope that’s okay) shows us a DVD split up under the title “Defining the future of DVDs.” Blu-ray, backed by Sony and built into its generation of Playstation 3 machines, is also backed by Apple, Walt Disney, Dell, MGM, and Philips. It appears, in white, on the “right” side (get it?) in the diagram to already have about a 70% share of hi-def rentals. In black and red (classic Mephistophelean colors), on the sinister side, is competing hi-def format: HD-DVD. It is backed by Microsoft and Toshiba and, it seems has only a 30% share of high-def rentals.

Well, 70 percent to 30 percent. This one’s almost over. It’s, um, a black and white case. Unless we’re backing Microsoft (and which of us would do that?), we can all breathe a big sigh of relief. But wait one minute. There’s a tiny little asterix next to those decisive statistics. In teeny letters hidden on the page it says “based on Blockbuster rental test program Source: Blockbuster Solutions Research Group.”

Hold all tickets. This one’s not over yet.

A couple of days ago, Blockbuster—with its chain of 8,000 rental stores—publicly announced that they would be expanding the number of stores carrying hi-def, and that the hi-def they would be carrying would be Blu-Ray. Now they’re releasing stories to the media from their “Solutions” group about this 70-30 ratio. That’s interesting. What question is it that this solution is an answer to? How to manage their own inventory? The net effect seems also to be to cast a big pile of proxy votes in favor of one format over another.

The story is getting lots of press and it is getting cast in the particular light of a heavyweight choosing sides. In a tipping pointish reference, ABC News asks if the Blockbuster decision will “tip the balance.” Engadget called it “huge blow” and asked us if the “war” is now over. I haven’t seen the American mass media carry stories quite as biased as that one or the one in the Post, which called the Blockbuster backing “A Body blow for HD-DVD.” Ouch. What’s next? The knockout punch?

It’s a war of words, ladies and gents. This one isn’t being fought on the store shelves as much as it is in the media, in the coverage of the inventory/sales/rental/consumption events themselves.

The market research findings, the polls of consumer voting, if you will, are now the main news events themselves. In a gorgeously postmodern recursion, the market research is being used to sway the consumer decisions they ostensibly are meant to measure. Knowing what other people are buying has enormous power with networked products like this one that depend upon lots of other people adopting the same format as me.

DVD rental titan Netflix hasn’t committed to one format versus another. Apparently, Canadian Netflix-knockoff Zip.ca says that it is renting 56 percent HD-DVDs versus 44 percent Blu-Ray discs. There doesn’t seem to be much reportage of actual sales or rental figures thus far. It’s all pretty hush-hush as the big boys fight it out.

In the user forums, another format war battle is heating up. In this one, the Internet echo chamber is working its magic. A thread over at the AVS Forums is busy discussing a potential problem with the coating on the Blu-ray discs (yes, the ones that are supposed to be leading in this format war, the one’s anointed by Blockbuster’s media program and it’s “solutions research group”). Apparently, a number of users are describing a problem they are appetizingly calling “disc rot.” There seem to be mould-like spots are affecting dozens of consumers’ Blu-ray discs, particularly the movie “The Prestige,” and making it unplayable. (Maybe it’s just David Bowie’s bad acting that is making the entire movie smell rotten…?)

Disc rot? Yummy. Let’s see if the mass media get hold of this currently niche anti-Blu-ray story, and push it out into the mainstream. And what will happen then.

So the big lesson for marketers here? This is an interesting current case showing how the power of the media—both the old media and consumer-generated content on the web—are used to sway consumer opinions and seek to make gains in a format war. If I’m a buyer, it’s not about the format or the technical specs at all. It’s all about who’s going to be the winner. And who’s going to be a big loser if I buy the wrong one.
The distribution conclusions we talk about in our discussion of the classic VHS-Beta case might be artifacts of a time long gone. This is a higher order battle, a war of words to convince a much more self-conscious electronics consumer that other people are adopting a particular format and that the market is now settled enough for them to enter it.

That means every blow needs to be a knockout punch. Every weapon in a marketer’s arsenal needs to be on the ready to be unleased. And the consumer needs to doubt it all.

And that says to me that this one’s not gonna be settled any time soon.

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