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Holiday Sales Frenzy – Friday’s HD-DVD Smoke Clears

by November 08, 2007
The opening salvo

The opening salvo

Last Friday’s pre-Black Friday sales wars kicked off what should be an interesting holiday season for the little format war that is going on. The opening salvo was fired not by either format backer, but retailers starting with Wal-Mart who first dropped the $299 MSRP HD-A2 to $198 and after the competition followed suit, to $98 for a one day sale.

Holiday Sales Frenzy - HD-DVD Players as low as $99

As the smoke clears from this first battle field, estimated numbers are coming in and it looks like around 90,000 units moved over the weekend.

High Def Digest: Report: Weekend Toshiba HD DVD Player Sales Top 90,000

Video Business: HD DVD set-top player $99 sales moves units

BetaNews: How HD DVD Got its Groove Back

BetaNews has estimated that between 40,000 to 70,000 of the players were sold by Wal-Mart alone. The sales number estimates are incomplete, based only on the major players, Wal-Mart, Best Buy, and Circuit City, and are not comprehensive sales numbers for all retailers, so the actual number sold is potentially higher.

Demand was strong enough over the weekend that Best Buy sold out of the HD-A2 and rather than stiffing customers has apparently started substituting the $299 HD-A3 to fill orders.

The end result of the sales frenzy is that HD-DVD is approaching 500,000 standalone players in the market. It also illustrates a point that has been harped on by market analysts: price does matter to most consumers.

In the battle over next-gen DVDs, the winner may be decided more by price than by which format has the most backers

Businessweek: Blu-ray vs. HD DVD: Price Matters

Blu-ray players have thus far typically been priced twice what competing HD-DVD players have been priced. Blu-ray has attempted to leverage higher price to suggest to consumers some sort of quality advantage, but the same 1080p resolution is available in both formats and this discs themselves are nothing but data containers. While one container is larger, they hold the same content: MPEG-2/4 and VC-1 encoded 1080p video.

The format war is still at an early stage, both with insignificant market penetration compared to SD DVD players. Early adopter sales numbers don't really mean anything as much as both formats trumpet such numbers about. Until HD optical disc sales are an actual blip on the retail radar, sales figures and supposed sales advantages are irrelevant.

But with HD players coming down to prices that are competitive with upscaling SD DVD players, this may move a format out of the early adopter phase and into the mainstream

Like the company or not, Wal-Mart is the mainstream.  It looks to be an interesting holiday sales season.

About the author:

Professionally, David engineers building structures. He is also a musician and audio enthusiast. David gives his perspective about loudspeakers and complex audio topics from his mechanical engineering and HAA Certified Level I training.

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Recent Forum Posts:

aarond posts on November 14, 2007 14:05
aberkowitz, post: 329078
“Studios make money when Netflix and other companies rent out their movies. (Depending on the studio and movie, Netflix either buys the DVD's or licenses the use of them.) But the amount that studios make on rentals pales compared to how much they make when consumers buy discs. Studios earn $17.26 for each DVD they sell, but only $2.37 for movies on demand and $2.25 per DVD rented, according to Tom Adams, the president of Adams Media Research.”


you are insane if think that studios make $17.26 on the sale of a DVD. How can that be when I can but any $24.95 list new release for $15.00 at costco on the day of release! No store sells them above $19.95 the first week of release. When you consider manufacturing costs & residuals I would be surprised if they make as much as $5.00 per DVD sold.
aberkowitz posts on November 13, 2007 12:03
Tex-amp, post: 329087
With those numbers and that we know that Walmart sells 40% of all DVDs so that means $12.5 billion total. Which leaves porn just under 9% of DVD sales.

Apples to oranges. The porn number is for sales & rentals (sorry if that wasn't clear). You'd have to add Netflix ($1 billion in 2006 revenue) and Blockbuster ($5.5 billion in 2006 revenue), which makes a total market of $19-20 billion and dropping porn to 5% of the market.



Tex-amp, post: 329087
But, at $2.25 per rental that means if a disc gets rented just 8 times it makes more than a sold disc. I don't think $2.25 can be accurate as the $1 DVD kiosks are in most convenience and grocery stores in my neighborhood. Maybe there is a per day(s) rented fee?

Yes- it takes 8 rentals to equal one sale, but let's look at some more #'s for a second. Transformers, the most successful DVD released this year, sold 8.3 million units within its first week of sales worldwide. That's 8.3 million units of direct profit back into the studio's pockets. To match that in rentals, there would have to be 65+ million rentals of Transformers, and there's no way that occurs in one week. I did find that Transformers had $10 million in rental revenue that first week, but I'm not sure how to accurately interpret that number because I don't know how places like netflix apply revenue per rental. Even if we used the figure of $2 per rental (which is probably low when you consider blockbuster charges $3-4 for store rentals), you'd come up with 5 million rentals for the week. After it's 2nd week transformers had a total of $17 million in rentals, 8.5 million units. How long will it take to hit 65 million rentals? And even when it does, remember the movie has still been ranked towards the top of the sales charts for the past few weeks.

Again, it's all about return on investment for studios. Paramount's production budget on Transformers was $150 million, they made $702 million worldwide in the box office, and DVD sales in ONE WEEK added an additional $160 million on top (if you assume a $20/dvd price). Rentals allow for low amounts of recurring revenue over long periods, but DVD sales drive yearly profit numbers and production of new movies/sequels.

I don't know where you live, but I've never seen a $1 DVD kiosk that had a movie that was released anytime in the last 6 months. Anyway, I'm not going to pretend to understand the economics of those kiosks but from my experience I'm guessing they're generally for movies that studios are no longer relying on to make lots of money off of.
Tex-amp posts on November 13, 2007 10:05
aberkowitz, post: 329078
According to Forbes (and these stats are a few years old I admit) adult video/dvd income totals $1 billion a year in the US- Walmart alone sold $5 billion in DVDs in 2006. Now add in Circuit City, Best Buy, Amazon, specialty stores, Netflix, blockbuster, etc. and the numbers show that porn has at best a minimal effect on the video industry these days.

With those numbers and that we know that Walmart sells 40% of all DVDs so that means $12.5 billion total. Which leaves porn just under 9% of DVD sales.




I would incredibly disagree on this point from the perspective of the movie studios. They make very little money on studio rentals. Check out this quote from an NYT article from 2006

“Studios make money when Netflix and other companies rent out their movies. (Depending on the studio and movie, Netflix either buys the DVD's or licenses the use of them.) But the amount that studios make on rentals pales compared to how much they make when consumers buy discs. Studios earn $17.26 for each DVD they sell, but only $2.37 for movies on demand and $2.25 per DVD rented, according to Tom Adams, the president of Adams Media Research.”


Studios still care about sales because that's where the highest profit margin exists, and since over 80% of DVD sales for blockbuster movies occur within the first 6 weeks of their release on DVDs, studios can get a higher return on their investment in a shorter period of time through sales as opposed to rental returns which are lower and occur over a timeframe of several years.

But, at $2.25 per rental that means if a disc gets rented just 8 times it makes more than a sold disc. I don't think $2.25 can be accurate as the $1 DVD kiosks are in most convenience and grocery stores in my neighborhood. Maybe there is a per day(s) rented fee?
aberkowitz posts on November 13, 2007 09:16
Tex-amp, post: 329045
With porn being readily available over the net and on cable and satellite I don't see it having the effect it did on Beta v VHS.

I knew I forgot to type one point into my argument, and that was it!!! There's no way that the porn industry has anywhere near the clout into the home video purchase/rental market that they used to with the advent of on demand and the internet. According to Forbes (and these stats are a few years old I admit) adult video/dvd income totals $1 billion a year in the US- Walmart alone sold $5 billion in DVDs in 2006. Now add in Circuit City, Best Buy, Amazon, specialty stores, Netflix, blockbuster, etc. and the numbers show that porn has at best a minimal effect on the video industry these days.

To the point about VHS/Betamax- I was quite young at the time of the war, but based on some of the reading that I've done on the web (not sure which experts you've read) it seems that the pornography argument is an urban legend.

It's not sales anymore, although it's still important. It's rentals. Very few people that I know buy DVDs except for their kids. They rent them from blockbuster or netflix. I know I only buy classics. Kids can sit through Cars 372 times in 8 days. How many times can you watch 300 three times without getting bored? It's rentals for adults.

I would incredibly disagree on this point from the perspective of the movie studios. They make very little money on studio rentals. Check out this quote from an NYT article from 2006

“Studios make money when Netflix and other companies rent out their movies. (Depending on the studio and movie, Netflix either buys the DVD's or licenses the use of them.) But the amount that studios make on rentals pales compared to how much they make when consumers buy discs. Studios earn $17.26 for each DVD they sell, but only $2.37 for movies on demand and $2.25 per DVD rented, according to Tom Adams, the president of Adams Media Research.”


Studios still care about sales because that's where the highest profit margin exists, and since over 80% of DVD sales for blockbuster movies occur within the first 6 weeks of their release on DVDs, studios can get a higher return on their investment in a shorter period of time through sales as opposed to rental returns which are lower and occur over a timeframe of several years.

More interesting, if you're going to base the argument on rentals, then Bluray would seem to have an advantage as Blockbuster only carries BDs while Netflix carries both formats (although they have 25% more BDs than HDDVD).

Just to be clear, I'm no Bluray apologist (I think Sony has the worst product management team on the planet), I just don't agree with the argument that this stupid war is anywhere near over.
Tex-amp posts on November 13, 2007 06:51
With porn being readily available over the net and on cable and satellite I don't see it having the effect it did on Beta v VHS.
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