DEFINING HIGH DEFINITION

CHRISTINE BLANK

While new high-definition DVD formats are getting a lot of hype, it will likely be another six months to a year before supermarkets will get involved in the market.

Two competing formats of disc players and discs, Sony's Blu-ray and Toshiba's HD DVD, are primarily being sold at electronics retailers such as Best Buy, Target and online retailers.

With HD DVD players priced at around $500 each and Blu-ray players at around $1,000, most grocery chains are taking a wait-and-see approach in 2007. Also, the new HD DVD players and discs are being sought out by early technology adopters, not by the majority of consumers. For example, only 13% of U.S. households will likely have HDTV sets to play the high-definition movies by 2010, according to Adams Media Research, Carmel, Calif.

“We have no intentions of getting into it at this point. Price is an issue and not enough people have players,” said Bob Gettner, video buyer/coordinator for B&R Stores, Lincoln, Neb.

DVD buyers are not asking for the new formats, some retailers report. “There is no demand — I haven't had a single account call and say they're looking for it. There aren't the dollars for our stores anyway,” said Greg Rediske, president, Video Management Co., Tacoma, Wash., a video supplier.

Most retailers will wait to carry high-definition discs until they see consumer demand, which will grow throughout 2007, predicted Mark Fisher, vice president, membership and strategic initiatives, Entertainment Merchants Association in Encino, Calif.

“Supermarkets are going to be late in. It's going to be a late-adopter market,” agreed Tom Adams, president and senior analyst of Adams Media Research.

Until high-definition players become more available and consumer acceptance is more widespread, the software will primarily be sold at mass merchant locations and e-commerce sites, said Bill Bryant, vice president of sales, Ingram Entertainment, LaVergne, Tenn.

“Most supermarket chains are presently keeping an eye on high-definition consumer demand,” Bryant said.

At the same time, Giant Eagle, Pittsburgh, and Schnuck Markets, St. Louis, are among the first grocery chains to get involved.

Earlier this year, Schnuck added both Blu-ray and HD DVD software to its stores. “We are just trying to send the message that we have them available,” Therese Davis, Schnucks' video specialist, told SN in July.

Giant Eagle also started selling both formats earlier this year, but only in stores with large sell-through sections.

In fact, most major retailers are merchandising high-definition discs and players, just not in all their stores, according to Fisher. Movie studios' home entertainment divisions estimate that 400,000 HD DVD players will be sold by the end of this year, along with 130,000 set-top Blu-ray players and about 450,000 PlayStation 3 units, according to figures from EMA, via several studios' home entertainment divisions.

RAMPING UP

Consumers are becoming more aware of the new technologies as Sony shipped its Blu-ray player in time for Christmas and television advertising for high-definition discs soared in December. Also, high definition entered the PC market in December, when Dell announced that its highest-priced laptop includes a Blu-ray drive.

In addition, some consumers have been introduced to high-definition TV via PlayStation 3, which includes Blu-ray technology.

“People who are excited about Blu-ray are going to be watching sales of PlayStation 3. It builds up the market of people for the Blu-ray player,” said Gerry Kaufhold, principal analyst of converging markets and technologies, multimedia, broadband and consumer content, at research firm In-Stat, Scottsdale, Ariz.

Kaufhold also expects dual HD DVD and Blu-ray players to be available by summer, 2007, which will help push sales forward.

Standard DVD formats can also be played on the new high-definition players, another selling point to consumers who don't want to do away with their existing DVDs.

In addition, while the high-definition movie discs are priced higher than standard DVDs at between $17.95 and $29.95 each, those prices are not significantly higher than prices on new-release standard DVDs.

THE OLD VS. THE NEW

While some supermarkets will wait to add high-definition formats, they are faced with the quandary of what to do with standard DVDs when they do start selling more high-def discs.

When DVD technology first came out about 10 years ago, for example, supermarkets and other retailers gradually cleared out the VHS tapes in discount bins, instead of carrying both VHS and DVD formats.

While analysts expect many consumers eventually to adopt high-definition formats, they do not believe retailers and consumers will discard regular DVDs.

“So many people have finally accepted DVD. I don't think people are going to run out and buy a new player,” Gettner said.

“It would be a mistake to think that this is like a transition from VHS to DVD,” agreed Bob Alexander, president of consulting and market analysis firm Alexander & Associates, New York. “They [new DVD formats] will be slow to achieve some broad acceptance.”

In fact, it has taken years for VHS to drop off to near-extinction, Fisher pointed out. “DVDs are anticipated to retain 50% of the market through 2012, and still a viable 33% of the market in 2015,” Fisher said.

Hampering adoption is the players' cost, some analysts say, as well as the fact that consumers are still in the early learning curve with their HDTV sets, according to Alexander.

For high-definition disc sales, consultants suggest pricing Blu-ray and HD DVD discs at a premium and not significantly discounting regular DVDs.

“The movie industry is hoping HD DVD and Blu-ray hold a premium and hold the line on regular DVDs,” Kaufhold said.

At the same time, Alexander is concerned that movie studio executives will become frustrated with the slow adoption of high-definition movies and will “run spectacular discounts on high def software.”

“Studio pricing decisions are absolutely critical right now,” Alexander said. “It is important for them to have patience. If you price it lower in order to build unit volume and that doesn't work, you not only destroy the pricing platform for high def, but for standard DVDs.”

WHEN TO GET INVOLVED

Analysts and others expect the grocery industry to watch the progress of high-definition formats throughout 2007, then slowly enter the market later in the year or early 2008.

“By the latter part of 2007, it will be an emerging opportunity for grocery stores that want to rent movies. It's a year to watch what is happening and be ready for 2008,” Kaufhold said.

Alexander agreed: “There is too much uncertainty right now to bet too much counter space on it. Take a look at where we are going into summer and fall [2007] and maybe there is something that will be relevant.”

The new technologies will likely gain more mass appeal in 2008. Thirty-one percent of homes will have some type of high-definition device, including those on computers and video game players, by 2008, Adams Media Research found.

Supermarkets with an electronics focus will not want to lag too far behind their supercenter competitors. Target is the first major mass-market chain to commit to the category, carrying both high-definition DVD players and discs.

The discs in Target's stores range from $19.99 to $29.99, while the players are sold on Target's website: $499 for the HD DVD player and $999 for the Blu-ray player.