Random Thoughts

The turning point during World War II came on June 6, 1944 when the Allies launched 150,000 troops onto the beaches of Normandy and established a beachhead in France. For the high def format wars, D-Day is likely January 4, 2008, when Warner Bros. announced their decision to discontinue support for the HD DVD format and exclusively support Blu-ray disc.

Blu-ray has been ahead in software sales for some time, typically by a margin of 2:1 or 3:1 (depending on the week), but because of Toshiba’s aggressive pricing strategy, HD DVD had been holding on in the hardware front. According to Warner’s press release, the crucial holiday season showed that even the hardware trend had been reversed, despite Blu-ray’s $100 price premium over its most formidable competitor.

Back in June and August of 2007, I had provided some analysis of how the format wars stood from a box office perspective. The initial analysis was done more to satisfy my own curiosity, but turned out to be quite popular. When Paramount/Dreamworks announced they were switching exclusively to HD DVD in August, I provided an update so the impact could be understood. I am now providing another update, in order to understand the impact of the Warner Bros. decision.

A few items of note:

  • films DIRECTED by Steven Spielberg are captured as format neutral, with the exception of Close Encounters (which is captured as Blu-ray exclusive because it is currently available only on Blu-ray, and has been advertised as Blu-ray exclusive). This is to recognize that when the HD DVD group has tried to advertise any Spielberg films as HD DVD exclusive (twice, so far), Spielberg has required them to publicly acknowledge that his films are not exclusive to HD DVD. Films produced or executive produced by Spielberg are assigned based on the studio that released the film, as the public acknowledgments have only covered films he directed.
  • I have included films from Warner Bros. subsidiaries (e.g. New Line) as Blu-ray exclusive. I realize the “official” announcements have not come from these subsidiaries as of this writing, but realistically, it’s only a matter of time (the wholly-owned subsidiary doesn’t stray from the path of the parent company).

Up until this point, Warner has been the Switzerland of the format war, choosing to remain neutral and allowing consumers to decide which format best suited their needs. The official reasons they changed that stance are highlighted in their press release:

In response to consumer demand, Warner Bros. Entertainment will release its high-definition DVD titles exclusively in the Blu-ray disc format beginning later this year, it was announced today by Barry Meyer, Chairman & CEO, Warner Bros. and Kevin Tsujihara, President, Warner Bros. Home Entertainment Group.

“Warner Bros.’ move to exclusively release in the Blu-ray disc format is a strategic decision focused on the long term and the most direct way to give consumers what they want,” said Meyer. “The window of opportunity for high-definition DVD could be missed if format confusion continues to linger. We believe that exclusively distributing in Blu-ray will further the potential for mass market success and ultimately benefit retailers, producers, and most importantly, consumers.”

Warner Home Video will continue to release its titles in standard DVD format and Blu-ray. After a short window following their standard DVD and Blu-ray releases, all new titles will continue to be released in HD DVD until the end of May 2008.

“Warner Bros. has produced in both high-definition formats in an effort to provide consumer choice, foster mainstream adoption and drive down hardware prices,” said Jeff Bewkes, President and Chief Executive Officer, Time Warner Inc., the parent company of Warner Bros. Entertainment. “Today’s decision by Warner Bros. to distribute in a single format comes at the right time and is the best decision both for consumers and Time Warner.”

There also lots of rumors and speculation that Warner received a large payout from the Blu-ray disc association to go exclusive, but there has been no confirmation of that. Having said that, it’s public knowledge that both the HD DVD and Blu-ray camps have been courting Warner to go exclusive to their side.

Warner home entertainment president Kevin Tsujihara responded to High Def Digest, claiming “This [decision] was one hundred percent around what makes the most sense for the consumer, the retailer and the industry. This was not a bidding war. This was all about what was best, strategically, for us.” According to the story, Tsujihara flatly denied rumors that the studio had accepted money in exchange for dropping its HD DVD format support. Warner is also concerned that the standard definition DVD market is beginning to decline, and without an immediate successor, their bottom line is at significant risk from people waiting out the format war and not buying films in any format (including DVD).

What Warner hasn’t said though, though, is that it did not receive non-cash payments like promotional considerations, manufacturing discounts, etc. Having said that, the momentum has been with Blu-ray since Sony launched its Blu-ray equipped PS3 in November of 2006, and at no point throughout 2007 did HD DVD discs outsell their Blu-ray counterpart (even in weeks when high profile HD DVD exclusives like Transformers and Shrek 3 were launched). If Warner’s intent was to indeed bring as quick an end to the format war as possible, this move is the best one they could make.

In my prior pieces on this subject, I compared box office grosses to the format preference of the studios they came from. This piece is no different, but given the size of Warner Bros. and the strength of their library, the impact of this move is far greater than when Paramount/Dreamworks moved to HD DVD last August.

Top 100 Grossing Films of 2007To put things in perspective, of the 100 highest grossing films of 2007, 22 came from Warner affiliated studios, representing 21.8% of the total grosses of the top 100 films. Paramount and Dreamworks accounted for 13 of the top films, for 17.2% of the total gross. From an overall perspective, this means that Blu-ray has 70% of the total gross, while HD DVD has 30%. There are now no films in the top 100 from 2007 from studios that support both formats.

Looking into all time grosses, the picture is very similar to that of 2007. Of the top 100 grossing films of all time, 25 films representing 23.8% of the grosses come from Warner. 16 films, representing 15.6% of the grosses come from Paramount or Dreamworks. When the “Spielberg factor” is taken into account, the HD DVD exclusive releases from Paramount/Dreamworks represent 12 films at 12.1% of the total grosses of the top 100 films of all time (never underestimate the power of the world’s highest grossing director).

If the picture is adjusted for inflation, the top 100 films (inflation adjusted) show 10 films from Warner, representing 8.8% of the adjusted gross. Paramount/Dreamworks show 18 films, representing 17.9% of the gross. Take Spielberg into account, and the Paramount/Dreamworks slice of the pie drops to 15 films representing 15.1% of the gross.

Spielberg is responsible for 28.5% of the total grosses associated with films that could be released on HD DVD (assuming Spielberg decides to release films he directed for Paramount or Dreamworks on both HD formats). His percentage of the Blu-ray grosses is around 10%.

One other common argument from many observers is that neither format will be relevant in the long run, and that digital downloads are the way of the future. Those people are ahead of themselves. Digital downloads are nowhere near ready for prime time, just based on the fact that there is no standardized platform for delivery of them. They could do damage to the rental market in the short term (XBox Live video rentals, iTunes, Cable VOD services, Amazon Unbox, etc.), but as a standardized platform for owning films, downloads have a long way to go. The downloads are too big, broadband internet service isn’t pervasive enough, the quality isn’t good enough, there are too many competing “standards”, and it’s too difficult for the average consumer to get downloads onto their television set, and that doesn’t even mention the content availability issue. These are all issues that will sort themselves out over time, but physical media is here for at least another decade.

As it stands now, Blu-ray has about 77% of the top 100 grossing films of all time available to their format (when they’re released is another issue, but that’s a matter ofAll Time Top 100 Films (as of Jan 2008) market penetration). HD DVD has about 29%. The “dual format” overlap is just about entirely from Steven Spielberg’s film catalog, and he appears to prefer Blu-ray (given the fact that he forced Paramount/Dreamworks to exclude his films from their exclusivity agreement with HD DVD and that the only Spielberg film available on either format is exclusive to Blu-ray). If Spielberg decides he won’t release any of films on HD DVD at all, then the HD DVD portion of all-time grosses (inflation adjusted or not), drops to 21%.

All Time Top 100 Films - Adjusted for Inflation (as of Jan 2008)Make no mistake about it, this move by Warner all but ensures that Blu-ray will be the next dominant home video standard. Retailers will begin making more space for Blu-ray discs by taking away HD DVD, and much like DVD killed VHS (and VHS killed Beta), the momentum will shift in Blu-ray’s favor until HD DVD is pushed off the market as the format to replace DVD.

It is possible that Blu-ray may never be as popular as standard definition DVD (given that DVD is the most successful home video format in history), but by effectively killing HD DVD, Warner has ensured that high-def at home will be a reality for some years to come. Then, when the time comes that digital downloads truly are ready for prime-time, Warner will be waiting to sell us their content all over again.

2 Responses to “By The Numbers III – D-Day from the WB”

  1. RoneTyne

    Great article!!!! I will be glad to see one format come out on top so I can finally buy a player. With a limited tech spend I know I for one I have been holding off on committing to a hd player until I was more confident in which format would be sticking around. Thanks for putting this together.

  2. Prickleblog » HD Format war over?

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