In the summer of 2002, the heads of the major home-entertainment divisions convened on the Warner Bros. lot in Burbank, Calif., to kick around ideas for a high-definition version of DVD — and
plan their next boom.
These guys were already on the cusp of a retail sales phenomenon. Shipments of the five-year-old DVD format had nearly doubled in the previous 12 months, surpassing VHS,
and the overall video business was up about 25 percent and set to surpass $20 billion by the end of the year.
These middle-age suits, most of whom had consumer-products sales backgrounds working
for companies like Gillette, could now thumb their noses at the smug theatrical guys across the lot. Conglomerate earnings reports highlighted the performance of their divisions. And filmmakers like
Ridley Scott and David Fincher, who loved how DVD made their movies look, called them up every day to talk bonus material.
Guys like Lieberfarb, Feingold, Bishop and Doctorow had clout:
Hollywood went through them.
They gathered on that late July day in 2002 to keep it that way. HDTV sets were hardly household items — well under 10 percent had them — but adoption
was coming. Eventually, people would want HD packaged media.
As usual, due to their different corporate allegiances and patent objectives, they couldn’t agree on what precise technology
and standards to adopt. But they were confident a consensus would emerge. Just as DVD made everyone want to “own it today” for the first, second or third time, its HD successor would
entice movie consumers to reinvigorate their libraries all over again. And this next-generation format would include interactive features that weren’t even dreamed up yet — stuff that
brought people closer to movies than making-of featurettes and blooper reels ever could.
That was the plan, anyway. Ultimately, the Blu-ray disc format that emerged from those early discussions
has been something less than that.
From the very start, Blu-ray hasn’t been an easy proposition for the public to get its head around. Much of that confusion, of course, came from the
format war against HD DVD — a onetime popular cocktail-party subject that became so dense, so boring that Ben Stiller easily lampooned it in Tropic Thunder.
Blu-ray also suffered from
failed strategy, such as the early decision by Sony, a format group charter member, to make its ultimately unsuccessful PlayStation 3 the primary console for bringing players into homes.
After
18 months of format warring, and all the marketing dollars and price slashing that entailed, Blu-ray finally gained industry consensus at the beginning of last year, just in time for the term
“credit default swap” to go zeitgeist.
By historical standards, Blu-ray sales haven’t exactly been soft. According to the Digital Entertainment Group, a video business research
organization, studios moved about $750 million worth of HD discs in 2008 (a figure that includes a few thousand titles from the dying HD DVD format.) That was about three times as many as they sold in
2007 and, according to noted consumer electronics research analyst Richard Doherty, that growth pace actually exceeds the one set by DVD during its formative years in the late ’90s.
The
studios had hoped that Blu-ray sales would arc up quickly enough to offset the ebb of DVD, but the legacy format is now in steep decline and that expectation doesn’t look like it’s going
to happen. In fact, according to the DEG, fourth-quarter shipments of DVDs fell 32 percent, and overall home-entertainment sales for the year were down nearly 5.5 percent — over 8 percent from a
2004 peak of $24.4 billion.
“We don’t think Blu-ray is the savior,” said Barclays Capital analyst Anthony DiClemente to Bloomberg.
“Investing in Blu-ray, especially in the teeth of a recession, isn’t what the consumer wants.”
Perhaps more than a horrible economy, Blu-ray suffers from a basic lack of
fundamental product mojo.
If you happened to walk into Best Buy over the holidays, for example, chances are the big crowds were in the Nintendo Wii section, where the imagination and fervor that
used to belong to DVD now seem to reside. “If you take away the [players sold through] PlayStation, Wii has outsold individual Blu-ray players by a factor of 10 in North America,” Doherty
notes.
Then there’s the fact that Blu-ray just isn’t that much better. Introduced two decades after VHS, DVD represented a movie-delivery revolution that not only made films look
better, but delivered them in a far more elegant, non-linear package that could hold a lot more things. Blu-ray delivers only a marginal upgrade.
In fact, pretty much any disc player you buy
these days, Blu-ray or standard, upgrades stan dard DVDs to 1080p resolution. To the untrained eye it makes the old format look almost indiscernible from the
new one.
Blu-ray’s audio improvements over DVD’s 5.1-channel capabilities split hairs even further. “If someone tries to sell you on the seven-channel sound, sneer at
them,” concedes Doherty, who is actually bullish on Blu-ray.
And as far as extras go, outside of more elegant menus and a few nifty games, Blu-ray programmers really haven’t come up
with anything that makes the standard DVD cast commentaries seem antiquated.
Meanwhile, competition from digital distribution has become a real factor. Netflix, for example, attributed its 19
percent fourth-quarter revenue bump partly to growing momentum for its new Internet-streaming products, which let TiVo and Xbox 360 users watch streaming digital movies in their living rooms. And Dish
Network recently began offering pay-per-view movies in 1080p resolution.
The imminent rise of digital distribution has already transformed the business power structure. Indeed, few of the
retail-focused executives who convened in Burbank in 2002 to plan DVD’s succession are still calling all the shots.
Even the so-called godfather of DVD, former Warner Bros. home video
president Warren Lieberfarb, long ago ceded his role to Kevin Tsujihara, an executive with an Internet background who leads an all-encompassing home-entertainment division that’s involved in
myriad physical and non-physical distribution formats. Ron Sanders, who’s in charge of Warner’s DVD and Blu-ray distribution, reports to him.
And unless Blu-ray somehow manages to
capture the consumer’s imagination in the same way DVD did — and soon — there will be other key changes on studio lots.
Making a movie just won’t be as profitable as it
once was,” DiClemente says. “There will be a complete bottom-up reconstruction of the economics of the film business.”