Premonvision has for a long time cautioned against the short term and potentially also the long term success of Blu-ray. Before founding Premonvision, the first report I wrote cautioning against a rapid adoption of either Blu-ray or HD DVD was in 2005. After Toshiba decided to throw in the towel and withdrew HD DVD from the market, there have been many positive forecasts provided by vendors and industry commentators. We have remained sceptics and continued to caution against a very weak Christmas quarter for Blu-ray this year, and well into 2009. Over time Blu-ray might gain a foothold in the market, however it is doubtful that there will be much profitability left in the market once price competition increases, with the introduction of more low-cost vendors. This happened to the DVD market, and will likely happen to Blu-ray as well.
Official industry recognition of the weak Blu-ray market came late last week when Sony Electronics North American President & COO admitted to tougher times for Blu-ray with lower than predicted sales. This should not come as any surprise given the financial difficulties created by the credit crunch, no matter how optimistic the industry is in its forecasts. It is simple economic sense; households struggle with mortgage payments and debt levels, at the same time as the valuation of their homes plummet down which leaves many household owners in net debt. The last thing on their shopping list is an upgrade to their existing DVD player, especially when workers are made redundant. Given that the micro effects of the credit crunch will probably come into further effect in 2009 it is unlikely that the situation will significantly change for the Blu-ray industry in the near term. We also suspect that when consumer purchasing power is under pressure it is more likely that consumers will prefer to reduce spending on household goods, such as DVD & Blu-ray players, rather than on personal goods, such as mobile phones and PCs.
The collapse of Blu-ray in the run-up for Christmas has also been confirmed to me in private conversations with another leading Blu-ray executive. As it was so frankly stated “...sales of Blu-ray went down in September and fell off a cliff in October”.
For Blu-ray to gain more traction in the market, the Blu-ray Disc Association needs to make the format more than just about high definition video packaged media. This as a sales pitch might have limited impact as a substantial customer group for Blu-ray is the older and more mature customer segment which is accustomed to buy & watch packaged media such as DVDs and VHS. This target audience tends to have reduced eye sight. This again can limit the demand of the higher definition video quality of Blu-ray; many consumers based on their natural eye sight probably see no difference between DVDs and Blu-ray. Furthermore some households have the television too far away from where people sit (based on its screen size and the resolution) to tell the difference between the video resolution of DVD movies and Blu-ray movies. Younger audiences may be more willing to switch to digital distribution of content or change to other content types.
No, Blu-ray needs to think differently. It needs to make Blu-ray something more than just a higher definition video playback format. It needs to develop a web service platform that supports the primary function of the Blu-ray player (video entertainment services). This platform could include either managed video services from pay TV providers (such as telcos, cable or satellite operators) or content from Internet based video providers. Blu-ray also need to put in place how additional related video content can be downloaded to the playback device. Blu-ray could differentiate from DVD players if it was possible to download bonus material, such as extra scenes or the Director's cut edition. This would remove the need to re-buy a movie just to get the bonus features. However, Blu-ray has so far failed to capitalise on these market opportunities. Instead of developing a coherent web strategy, the Blu-ray Disc Association has left it entirely up to the movie studios to provide extra content via Internet connected BD-Live feature. The studios are likely to only provide simple ad-hoc services since the vendors have failed to standardise service interoperability and to provide a hardware platform that is suited for a wider range of services such as streaming and downloading of movie titles or bonus material.
Blu-ray has so far been a work-in-progress specification; there is still work left to be done for the format to be unique in the market. As long as Blu-ray just remains a higher definition version of DVD players we expect the credit crunch to put the squeeze on Blu-ray.
