With the battle for the successor format to the wildly successful DVD continuing, restless consumers are scooping up DVDs, liquidated VHS tapes, and the new, small Universal Media Disc (UMD) format for Sony's PlayStation Portable game device.
Although Sony-backed Blu-ray technology seems to be outpacing Toshiba-backed HD DVD in the ongoing high-definition DVD format war, retailers need to be increasingly aware of the PlayStation Portable movie format - UMD, also known as PSP, released in March 2005 - as it gains support from all the major movie studios and gives consumers something new and "now" to focus on.
"While consumers will be waiting for the HD DVD/Blu-ray thing to sort itself out, they will be buying PlayStation Portable players and millions of UMD movie discs," said Gerry Kaufhold, principal analyst, converging markets and technologies, multimedia, broadband and consumer content, In-Stat, Scottsdale, Ariz.
The portable video game device is expected to sell more movies on the UMD cartridges than video games and has already sold more than 15 million movie discs, Kaufhold said.
Unlike the high-definition formats - which, according to Ted Schadler, analyst, Forrester Research, Cambridge, Mass., are both expected to launch in spring 2006 but not to inspire enough consumer confidence to be purchased in large numbers for at least another two years - UMD is making swift progress at retail.
Theresa Daniels, video manager for McMaken's Supermarkets in Brookville, Ohio, purchased a PlayStation Portable for her grandson this holiday season and expected that many of his friends would be receiving the same. "I'm going to make the decision whether or not to carry UMD movies after all of my customers tell me what they got for Christmas," she said.
The installed hardware base for PlayStation Portable has exceeded 2.6 million, and "the future is bright for the PSP format," said Bill Bryant, vice president of sales for Ingram Entertainment, La Vergne, Tenn. "Retailers report the UMD units are viewed as incremental purchases," he said.
DVD sections in supermarkets will need to be "re-thought" as DVDs are becoming impulse items and the PlayStation Portable is opening up a cross-over opportunity with video games, Kaufhold said. "It's a nice portable movie player and the kids are going wild for it," he said.
Kaufhold suggested a DVD selling area near the checkout coupled with a hybrid movie/video game section elsewhere in the store.
Daniels expects to start carrying the UMD movies as well as an increased number of previously viewed sell-through DVDs, which have been a successful supplement to her rental business.
"The first Saturday of every month I offer a lot of previously viewed titles, especially newer titles, and my customers [buy] me out every month," Daniels said. However, she does not expect January's previously viewed titles to do as well as other months because a high number of consumers will have received new DVDs for the holidays.
"We are looking at a traditional video market, even through Christmas 2006," said Russ Crupnick, president, NPD Music and Movies, Port Washington, N.Y.
It is a bit early to make a decision about which high-definition format to look forward to, especially for supermarkets, since only the most technologically advanced consumer will own this new equipment within the next year, Crupnick said.
Blu-ray technology is the sure winner, according to Forrester's Schadler, in his October 2005 report "Blu-ray Will Win a Pyrrhic Victory Over HD DVD," for the simple reason that Sony has more industry support from the movie studios and the technology world. Moreover, Forrester anticipates that Sony's PlayStation 3, which will offer Blu-ray drives, will sell at least as many game consoles as its predecessor, PlayStation 2 - something over 90 million units.
Ingram's Bryant agreed. "The war is over: Five of the big six studios have endorsed Blu-ray."
Warner Bros. and Paramount had been backing HD DVD and recently announced that they will support both sides, and all other studios had been backing Blu-ray except Universal Pictures - now the only major studio remaining solely in the HD DVD camp.
However, nearly all of the studios have taken a non-exclusive approach to these formats, Kaufhold said. "They can provide their content to either or neither."
"Most consumers are not keeping close tabs on next-generation formats so Blu-ray and/or HD DVD are not having any negative affect on DVD rentals or sales," Bryant said.
The continued adjustment at the supermarket retail level seems archaic compared to what is happening in the converging worlds of movies and technology. Nonetheless, the move away from VHS is still center stage.
"I have customers who still want and prefer VHS. Some stores I work with still rent VHS and many still do tremendous with sell-through, but manufacturers want to kill the format so we're working with the reality of it," said Greg Rediske, president, Video Management Co., Tacoma, Wash.
Layout of the section becomes a problem as stores gradually downsize VHS and move to DVD, Rediske said.
On the bright side, it seems once VHS is gone there will be a window where supermarket video buyers will only have to deal with DVDs. "I'm hoping the studios will let VHS die a quiet death because it will make ordering easier," said Ray Wolfsieffer, video specialist, Bashas', Chandler, Ariz.
But before that happens, supermarkets have a great opportunity to sell VHS at a discount.
"VHS continues to be in demand, but only at liquidation prices," Bryant said. "Consumers are still willing to pay up to $5 for VHS cassettes."
Shoppers prefer the DVD format, but are still willing to purchase low-priced VHS product for their VCRs, and most homes have several units, he said, adding that new release sales are over 90% DVD.
"Right now, the big push from Hollywood studios is support for widescreen versions of standard DVDs, which are selling very well," Kaufhold said.
Bashas' Wolfsieffer agreed, saying that he is seeing a strong trend from the studios toward widescreen, but as with the switch from VHS to DVD, adoption is slow. "I see more rental on full screen than widescreen," he said.
However, most retail customers are cautious by nature. Consumers are still working out the benefits of owning a high-definition TV, according to Schadler. His report states that at the end of 2004, fewer than half of HDTV owners had high-definition TV service. For many consumers, watching regular-format DVDs on an HDTV is such a step forward that there will be little urgency to upgrade to a high-definition DVD player.
Also acting as a possible barrier for high-definition DVD and short-term maintainer of regular-format DVD is consumer awareness of digital media.
"We are really watching this whole post-iPod introduction of what will happen on the digital media front," NDP's Crupnick said. Some consumers are already moving beyond physical media and watching video on demand through their cable subscriptions, Internet video and downloaded movies and TV shows, according to Forrester's Schadler.
Over 46% of online North American consumers are viewing Internet video, according to Schadler's report. This activity is not hurting DVD sales, but it is not encouraging consumers to jump at the chance of having more hardware, the report said.
Consumers will postpone a decision until the winner is obvious, Schadler said. The war between Betamax and VHS trained a generation of consumers to be wary of competing formats, according to his report. And in the case of Blu-ray and HD DVD, there can only be one winner to make the high-definition DVD market an ultimate success.
Waiting for a Winner
Blu-ray is winning the war, but HD DVD is not making it easy.
While the Sony-backed Blu-Ray high-definition DVD is leading the way in the competition for a marketwide format standard, Toshiba's rivaling HD DVD's biggest advantage is its mandatory managed-copy technology.
The technology lets users copy movies from the high-definition DVD and transfer them to PCs. This will be a mandatory capability of every movie released by every studio on HD DVD and it furthers the idea of the PC as an entertainment focal point in the home.
Blu-ray, which is backed on the technology side by Hewlett-Packard, has not decided to make this technology a mandatory part of its tool set, rather leaving it up to the studios to decide if they want to make copying a capability on a release-to-release basis.
"The point here is that the studios can release a single title multiple times. If I were a studio, I'd want to release the 'managed-copy' version when I thought it would bring in the most money," said Gerry Kaufhold, principal analyst, converging markets and technologies, multimedia, broadband and consumer content, In-Stat, Scottsdale, Ariz.
However, Hewlett-Packard has recently announced its desire for Blu-ray to follow in HD DVD's footsteps, but no decision has been made.
The problem, according to Ted Schadler, analyst, Forrester Research, Cambridge, Mass., is that consumers will be far less motivated to get a next-generation DVD player if they lack the flexibility to view movies on multiple devices.
Blu-ray, although still the probable industry leader, is now in a situation where it must either favor the studios, and let them control the flexibility of their media, or favor the variety-hungry technology world.
"Lots of people think that Blu-ray will be the ultimate winner because all Sony PlayStation 3 consoles will ship with a built-in Blu-ray player," Kaufhold said. But the ongoing conflict is keeping retailers and consumers on the sidelines until a winner is as clear as the high-definition images they're anticipating.
