Slow Blu-ray Adoption: A Threat to Hollywood's Bottom Line?

Viacom's (VIA) Paramount Films business makes money through box office ticket sales, DVD sales and TV licensing of its films. In recent years, the DVD business has been the most profitable part of the film industry with many films becoming profitable only after the film is released on DVD. Viacom's recent Q3 earnings indicated that DVD revenues declined 21% year-on-year for the quarter.

Historically, Viacom's US DVD pricing increased from $21 in 2005 to $22 in 2008. We currently estimate that pricing will continue to increase to $26 by the end of our forecast period due to on-going adoption of Blu-ray HD DVDs which are currently priced above regular DVDs.

However, adoption of Blu-ray DVD players has been slow to date, with only 7% of US consumers owning a Blu-ray DVD player, according to a recent poll conducted by Harris Interactive. Furthermore, DVD alternatives such as internet video (YouTube, Hulu) and video on-demand continue to gain consumer attention. For example, Comcast's (CMCSA) video on-demand views (both paid and free) have increased from 1.4 billion in 2005 to 3.3 billion in 2008, and we expect this figure to reach 9 billion by the end of the Trefis forecast period. Netflix (NFLX), the DVD rental company, has been investing heavily in on-demand delivery, both online and through digital boxes, in anticipation of the long-term shift away from DVDs.

Overall, upgrades to Blu-ray DVDs have not had the impact that the Viacom and other media conglomerates had hoped. With DVD sales stagnating or declining, a significant profit driver for big media is at risk.

Disclosure: No positions

Comments

[Robert Mart...:]

Treflis:

At first I was surprised by the low adoption rates, but my personal experience makes me a biased observer.

I bought a Blu-ray player years ago, and it's fantastic. Big-screen TVs are growing in popularity as prices fall, and a Blu-ray player is a match made in heaven since it offers the clarity necessary for an ideal big-screen experience. I have seen Blu-ray players recently for about $100, so equipment prices are no longer a constraint. Blu-ray DISCS, however, remain unconscionably expensive, so I rarely buy them.

Nevertheless, it's clear that most people do not share my enthusiasm for high-def movies. The data you cite suggest that Internet content providers such as Hulu and YouTube are just too convenient (and free!).

The videotape format war between VHS and Betamax eventually went to VHS because of convenience: VHS offered longer recording times and easier tape transfer, vs. the better picture quality offered by Betamax. I read this on Wikipedia, so you know it's true. en.wikipedia.org/wiki/...

The lesson for Blu-ray: Consumers will become addicted to the convenience of the Internet, and are being trained to get good content for free. Videophiles like me do not drive the market, so I would bet on YouTube rather than Blu-ray.

Thanks for the article.
Rob

Nov 04 01:34 PM

[Nettligent:]

Market has changed in profound way. While entertainment industry countinues to worry about copyrights and complains about revenue loss, customers are:
Customers are watching VoD over Internet.
Customers are no longer buying DVD or expensive BlueRay movies anymore.
Customers would rather rent at Netflix: cheap, pratical, fast and save our planet.
No more expensive "collections." No more discs fill up the Earth and home.

Nov 04 02:13 PM

[Pink Panther:]

I think it's not that customers are not enthusiastic about hi-res movies but they are fed up with the increasing strength of DRM measures. With a DVD you essentially can bypass the (weak) DRM measures (region code, casual copying), while the movie quality isn't too bad either. Of course it can't compare against hi-res, but the format is locked against things which I would consider "fair use" (c'mon, why can't I purchase a movie in Hong Kong while I'm on a trip and watch it at home?)
This has been the main reason why I still watch DVDs and don't even think about going hi-res.
The studios better reconsider their attitude towards a more balanced view of fair use rights.

Nov 04 04:21 PM

[User 510432:]

Blu-ray discs expensive? You can buy most new BDs on Amazon from under $10 to $19.99. I can't understand why folks would buy anywhere else then complain about the price.


On Nov 04 01:34 PM Robert Martorana wrote:

>
> Treflis:
>
> At first I was surprised by the low adoption rates, but my personal
> experience makes me a biased observer.
>
> I bought a Blu-ray player years ago, and it's fantastic. Big-screen
> TVs are growing in popularity as prices fall, and a Blu-ray player
> is a match made in heaven since it offers the clarity necessary for
> an ideal big-screen experience. I have seen Blu-ray players recently
> for about $100, so equipment prices are no longer a constraint. Blu-ray
> DISCS, however, remain unconscionably expensive, so I rarely buy
> them.
>
> Nevertheless, it's clear that most people do not share my enthusiasm
> for high-def movies. The data you cite suggest that Internet content
> providers such as Hulu and YouTube are just too convenient (and free!).
>
>
> The videotape format war between VHS and Betamax eventually went
> to VHS because of convenience: VHS offered longer recording times
> and easier tape transfer, vs. the better picture quality offered
> by Betamax. I read this on Wikipedia, so you know it's true. en.wikipedia.org/wiki/...
>
>
> The lesson for Blu-ray: Consumers will become addicted to the convenience
> of the Internet, and are being trained to get good content for free.
> Videophiles like me do not drive the market, so I would bet on YouTube
> rather than Blu-ray.
>
> Thanks for the article.
> Rob

Nov 08 09:08 AM

[Paul K:]

I won't move to Blu-Ray for one main reason:
1. Video on Demand from my satellite provider (DISH) is far more convenient and far cheaper than buying a DVD that we would only watch once or twice.

In fact my regular DVD player mostly just gathers dust for that reason. I only keep it around to watch my own home videos that I produced to DVD. And I just bought a new computer and skipped the Blu-Ray recorder option because of the DRM crap that goes with it. I have no interest in installing something that limits its use. Regular DVD is good enough...and no restrictions. Doesn't take a rocket scientist to see where the problems lie.

Nov 12 09:45 AM

[Disgruntled...:]

Blu-Ray is the illegitimate successor to DVD. I say this due to the shenanigans Sony pulled in getting Warner to drop support for HD-DVD. Sony started this second format war and will probably go very near broke trying to replace DVD. Unfortunately for Sony it is not 1984 when the choice was VHS or Beta. Consumers have many choices for Home video entertainment and the over priced and IN SOME CASES poorly transferred BLU-Ray is not an automatic choice for most of us. Until the movies come down in price to DVD levels most consumers will opt for standard dvd's and players.

Nov 21 08:34 PM