Trouble With A Capital "T"

We've got Trouble my friends, Trouble with a capital "T" and that rhymes with "B," which of course, under the circumstances, could only stand for Betamax.

An article by Rachel Abramowitz in today's LA Times details the demise of the standard definition DVD's "go-go years" and explains why the studios are hopeful consumers will embrace their next generation Blu-ray and HD DVD products:

For many in Hollywood, it's as if they just discovered Santa isn't real. No matter how bad the movies, the box office, the marketing costs, the bloated star salaries, there was always salvation in the shiny little disc.

The studios could make and market one for $5 and then sell it to consumers for more than $17, a tidy profit of at least $12 bucks per disc. The disc generated rivers of cash. "Finding Nemo" is the all-time bestseller on DVD; it made $340 million at the U.S. box office and $537 million in home video.

But will the new high-def discs truly save the home entertainment business (which, by the way, is still pretty healthy)?

It depends whom you ask.

The future of the new format is hazy, given the fact that studios and consumers are bracing for the coming format war between Blu-ray, which is backed by Sony, Disney, and Dell, and HD DVD, which is the horse of Toshiba, Microsoft and Universal.

Adams Media projects that sales of traditional DVDs will fall by 20% by 2010, as the new technologies take hold. For many, the battle is reminiscent of the war between VHS and Betamax, in which the owners of Betamax were left with a useless technology.

The article quotes Reed Hastings, chairman of Netflix:

"DVD sales will go down this year because consumers know about high definition but they don't know which format to buy. The problem with picking sides is that creates consumer anxiety, and so they'll just stop buying, period, or slow down their buying.

The solution to getting the business growing is to have the studios support both formats. In video games, the two main formats are Xbox and PlayStation, and the market does well with two formats."

Then again, Mike Dunn, president of Fox Home Entertainment is bullish:

"Next Christmas, I would expect you'll be at 10 to 20% household penetration... four years from now, you'll have 50% penetration of the new technology. Those flat panel high-def TVs, they're selling at unprecedented rates."

Well, I agree both Dunn and Hastings to a point. It's true that flat panel TVs are popular, but I think that has more to do with the increasing availability of prime time television programming and sports broadcasts in HDTV.

And Hastings is absolutely spot-on with his assessment of consumer anxiety. But his "can't we all get along" and support both formats solution shows a remarkable naiveté about Hollywood egos and corporate backing of failed initiatives for a man who completely reinvented the DVD rental business.

High-Def DVD players may indeed be flying off the shelves of the Best Buy in West Los Angeles (when they have them in stock), but at retail prices that are currently $450 - $950 more than a standard DVD player, not many average movie fans are buying them.

Nor should they.

One of these two competing formats will fail.

And early adopters may be left with a very large, very expensive paperweight (albeit, one that is backwards-compatible and that will still play standard definition DVDs).