Analysts: Blu-ray's Not Home Free

Feb. 20, 2008 — -- So it finally happened. In the two-way battle for the high-definition video player format, Toshiba gave up on HD DVD and Sony is crowing. But should it be?

According to analysts, just because Sony's Blu-ray prevailed doesn't mean it's won the war for consumers' eyeballs and wallets.

After a wave of increased support for the Blu-ray format over the last two months, Toshiba announced Tuesday that it would no longer make or develop HD DVD players.

"We concluded that a swift decision would be best," Toshiba President Atsutoshi Nishida told reporters.

HD DVD's slide began in January when Warner Bros. made a surprise announcement — at least to Toshiba — that it would release its high-definition videos on Blu-ray. In the following weeks, Netflix, Best Buy and most notably Wal-Mart announced that they were dropping HD DVD products.

Not surprisingly, Sony viewed Toshiba's withdrawal as a clear win, the company told ABCNews.com in an e-mailed statement.

"Overwhelming support from all the relevant industries, including Hollywood studios, consumer electronics and IT companies, retailers and video rental stores is clear proof that consumers have chosen Blu-ray as the next generation optical disc format," Sony said. "We believe that a single format will benefit both consumers and the industry, and will accelerate the expansion of the market. Blu-ray has been and will continue to be a core part of Sony's high-definition strategy."

With strong studio and retailer support, Sony's Blu-ray disc is now the only offering for high definition DVD. But that fact alone won't push it to the top in terms of consumer acceptance, according to analysts.

Consumer support for next-generation DVD players, for both Blu-ray and HD DVD, is small at best. Less than 1 million of the new DVD players – both HD DVD and Blu-ray — were sold last year, according to Ross Rubin, director of industry analysis for consumer technology at the NPD Group. (NPD declined to divulge the sales of HD DVD and Blu-ray players individually.) Compare that to sales of 10 million standard home DVD players in 2007.

"Blu-ray players really need to come down a bit in price, which they may not do as quickly as they might have when there was competition with HD DVD, in order for it to be a viable alternative to DVD among price-conscious consumers," Rubin told ABCNews.com.

A Blu-ray player starts at $400, while the PlayStation3, which also plays Blu-ray discs, retails for as little as $499. Standard non-high def DVD players can be found for less than $100.

Blu-ray also faces competition from so-called optimizing DVD players, which optimize regular DVD discs to play at a higher level of output on high definition television, according to Rubin.

"Digital distribution is something that looms more on the horizon. Clearly today there's a huge market in people obtaining movies through digital [outlets]," Rubin said. "Certainly there are a number of broadband offerings from Apple and Microsoft. And also the cable and TV service providers are increasing their available bandwidth and … offering more high-def movies on demand."

Similarly, both iTunes and Netflix offer digital movie rentals.

Rob Enderle, a Silicon Valley technology analyst, agrees.

"Downloads will replace all optical media," he said. "Every single studio is aggressive on movie downloads. Downloads are the next big thing. … Downloads will replace DVDs and Blu-ray will never reach the multimillion sales that DVDs have had."

In addition to DVDs being "good enough" for most consumers, the biggest problem Blu-ray faces, at least right now, is that the player in its current incarnation is not updateable, according to Enderle.

"The ones on the market are not upgradeable," Enderle said. "Everything but the PS3 is going to be obsolete" once version 2.0 of the player is released. Enderle predicts consumers won't see the newest version until at least early 2009.

"I'm not convinced the consumer is going to get it," he said. "For a lot of people, DVDs are good enough."