Blue Skies for Blu-Ray

March 18, 2009— -- As many consumers turned their backs on such popular gifts as digital cameras, MP3 players, and GPS devices last December, one product that many considered a dark horse during the holiday stole the spotlight.

Perhaps Blu-ray players, much like many of the movies available for them, seek to capture the dramatic. With its stunning high-definition picture quality, uncompromised audio and new interative features, Blu-Ray has long had the ability to make consumers drop their jaws.

Now, though, the format is becoming more successful at enticing them to drop their cash.

In January 2009, a year after Warner Home Video announced support for Blu-ray at the expense of its rival format HD-DVD, stand-alone Blu-ray sales increased 55 percent in units compared to January 2008. The main catalyst has been lower prices. Whereas the average price for a Blu-ray player was $395 in June 2008, it had dropped to $240 during December.

In certain parts of the country, Blu-ray has grown to a significant percentage of player sales. In Denver, for example, one of the hottest markets for the technology, Blu-ray players accounted for 24 percent of the total DVD market for the three months ending January 2009.

Not Just Lower Prices

Of course, lowering prices often helps spur demand for consumer products. With Blu-ray, however, the lower prices are not just an absolute incentive but a relative one, compared to its long-time competitor DVD. Consumers have long cited satisfaction with DVDs as a reason for shying away from Blu-ray.

The quality gap is even narrower for "up-converting" DVD players that can make DVD video resolution more closely resemble that of HDTV. These now comprise the vast majority of the home DVD player market.

However, as the price gap narrows between Blu-ray and up-converting DVDs, more consumers are opting for the true high-definition experience, particularly as more movies, such as the breakthrough title "The Dark Knight," become available.

Not all companies have been so enamored with Blu-ray, though. Toshiba, the main backer of the now-defunct HD-DVD format, has not released any Blu-ray players, instead releasing last year a DVD player that it claimed rivaled Blu-ray in quality.

And while many PC manufacturers support Blu-ray readers, and Sony offers notebook PCs with Blu-ray writers, Apple has so far not shipped Blu-ray-based Macs despite being a member of the Blu-ray Disc Association. Apple CEO Steve Jobs referred to the licensing process as "a bag of hurt" last October.

Looking to the Future

Responding to these concerns, Sony, Philips, and Panasonic have agreed to streamline the licensing process, which should result in lower prices for players and media. The timing could be spot-on. The NPD Group has found that big-screen televisions -- where Blu-ray's superior quality is more noticeable-- are increasingly being purchased by less affluent consumers, and wealthier households have moved on to their second or third HDTV and seek something smaller for bedrooms.

And while lower prices will continue to spur the sales of players, they may make it more challenging for companies to introduce more expensive Blu-Ray recorders in the United States, as consumers could shy away from paying a premium to record.

Serious doubt persists as to whether Blu-ray recording of TV shows will become accepted in the United States as it has in Japan. Americans have instead turned to cable-supplied DVRs for temporary recording of high-definition recordings.

Blu-Ray's Reign May Not Be Long-Lasting

Blu-ray has emerged victorious from its competition with contemporary rival HD-DVD and is making progress against its competitor from the past, DVD. What about the future threat of digitally distributed movies over cable video-on-demand systems, though? Such offerings are emerging as a stronger option for renting movies, but Blu-ray is at this point one of the most convenient, compatible and best quality options for purchasing movies.

In February, Vudu, which sells a small box designed to connect to the television for renting and buying movies, recently became the first such company to offer high-definition movies for purchase, but movies are locked to the device.

Even with digital competition in such early stages, Blu-ray will struggle to achieve the near ubiquity and long reign that DVD enjoyed as a movie format. For the next few years, though, many electronics retailers currently in the red will see blue as a key to more green.

Tech on Deck columnist Ross Rubin is director of industry analysis at The NPD Group. He blogs at The NPD Group Blog as well as his own blog, Out of the Box.