New research from The Diffusion Group indicates the next six months will likely see the end of the early adopter phase of the HDTV market and the beginning of the mainstream, mass market adoption of high definition televisions.
According to the research, up to a third on non-HD households in the United States are interested in buying an HDTV set in the next six months. Dubbed “HDTV Intenders” by the research organization, this group differs from the first to own high definition sets when it comes to household income, age and race and reflect the mainstream market for electronics.
The implications of this shift extend beyond set sales, however. A mainstreaming of the market also will impact the battle between Blu-ray and HD DVD players, according to the research firm.
This week, HD Technology Update speaks with Michael Greeson, president and principal analyst of The Diffusion Group, about the findings and what they say about where the high definition market is headed.
HD Technology Update: HDTV Intenders that you identify vary widely from current HDTV owners. How do they differ, and why are these differences beginning to show up now?
Michael Greeson: They differ in terms of some key demographic characteristics. For example, they tend to have lower annual household incomes, are more ethnically diverse, and tend to be single. As a researcher, you recognize these types of demographic trends as indicative of a shift in the buying segment, in this case the shift from early adopters to more mainstream consumers.
HD Technology Update: What did you find among this group as relates to the strength of HD-DVD versus Blu-ray among this group in your findings?
Michael Greeson: Among those interested in buying a new high-def DVD player, forty-three percent express a preference for HD-DVD compared to 20 percent who express a preference for Blu-ray. But what’s really important is that 30 percent remain undecided, and this 30 percent can move the market toward one format and away from another and tip the market.
Why do more people express a preference for HD-DVD? For one, consumers who don’t know a great deal about high definition technology but still wants to buy a high-def player may be leaning towards names that seem more familiar. Prima fascia, the “Blu-ray” name doesn’t say “high-definition DVD” to the ordinary consumer. HD DVD, on the other hand, says it’s a high definition DVD. Little things like product names may pull the unsophisticated buyer toward HD-DVD. This has nothing to do with technological superiority – sometimes it’s all in a name.
HD Technology Update: What role does the relative price advantage of HD-DVD over Blu-ray players have in your findings?
Michael Greeson: I think it has played and will play a very strong role. Early mass market consumers are going to be much more pragmatic in how they approach this type of purchase. They are much less likely to be driven by the novelty of the technology its “coolness.” They tend to wait for proof of concept and the prices to come down, many of the same reasons so many consumers have yet to purchase an HDTV. And both camps are aware of this.
HD DVD has certainly been able to leverage price to its advantage, recently rolling out sub $200 players and generating much improved sales. At that time, the lowest price Blu-ray-enabled player was a PS3 and $399, and those not wanting a game console would have to pay close to $500 for a stand-alone Blu-ray player. Of course, Amazon is now listing a Samsung player at around $270, so the Blu-ray camp is well aware of the importance of getting prices down as quickly as possible. They have, however, failed to do so are not able to do it as quickly as HD-DVD has been able to do.
HD Technology Update: How does the game market (Microsoft Xbox with optional HD-DVD and Sony Playstation 3 with Blu-ray) fit into your model of the high-def DVD market?
Michael Greeson: We include these platforms in our analysis in large part because the industry does. For example, some of the latest sales numbers show you have approximately 2.7 million Blu-ray players in use in U.S. households, about 2 million which are PS3s, begging the question as to how many PS3 owners are using these consoles to watch Blu-ray movies. Our research shows that about 40 percent of next-generation game console owners use these platforms to watch high-def DVDs, a sizable percentage but certainly not the 100% that is assumed for usage calculations. Xbox HD DVD add-ons are a different story. The 269,000 consumers who have purchased these devices are using them to watch DVDs – that’s all they’re good for.
HD Technology Update: How does video on demand and broadband Internet delivery of video content impact this battle between HD-DVD and Blu-ray to dominate the high definition home entertainment experience? Do those and other similar factors make the high-def DVD format battle irrelevant?
Michael Greeson: That’s a very good question. Video on demand has been around for several years but has been slow to mature. Only now are we starting to see cable operators build up their video on demand movie libraries. Even with cable VOD in full swing, it is still unclear how this will impact DVD sales. VOD is a rental medium and many consumers who will rent the movie on VOD will still buy the DVD.
You’re also starting to see high definition content float out into over-the-top video services like VuDu, a new on-demand movie service that uses a broadband-connected set-top box to push movies to the TV. Users must spend $399 upfront for the set top box, after which they can rent or purchase movie downloads to view on their TV. And VuDu is now adding high definition content. Just last week The Bourne Ultimatum was released on VuDu the very same day it was released on DVD, a critical tipping point for over-the-top. VuDu doesn’t allow you to rent this title, but you can buy the download. After a specific period of time elapses consumers will be able to rent the movie, an arrangement that gives the studios an opportunity to sell full-priced downloads through the service before they begin rental.
When will these services reach critical mass? That’s going to take several years, meaning there is a window of opportunity for high definition DVD to take hold before the digital download model gets a foothold in the mainstream market. But if the format war isn’t resolved soon and consumers chose to stay with regular DVD, this window may close before high-def DVDs get a foothold – that’s the concern.
HD Technology Update: Is there anything else you would like to add?
Michael Greeson: Actually there is. Unless there is some earth-shattering news in this space, like Warner signing exclusively with HD-DVD or Blu-ray, this war is going to continue for another five or six quarters, early to mid-2009. The first to get their player prices down to the level of traditional DVD players will win out. In other words, the camp which best targets the needs of mainstream consumer will be the one left standing.
And this is an important consideration. Too often people forget that the real competition for is not between Blu-ray and HD-DVD but between high definition and regular DVD. Today you can buy a DVD player for as little as $50 or an upconverter for $85 to $100, well below even the least expensive high-def player at $199. And as long as consumers continue to believe that their DVD experience is sufficient in terms of quality and pricing, they will not be motivated to move to high definition, especially if the players are more expensive and the titles are two to three times more expensive.
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