How to cash in on the high-definition DVD format war
By Bill Roberts -- EDN, February 7, 2007
Fed by consumer magazine cover stories and the blogo-sphere, the drums of war are thundering over two high-definition DVD formats – HD DVD and Blu-ray.
Is this confrontation a replay of the death struggle that led VHS to vanquish Betamax, or more like the skirmish between DVD-R/RW and DVD+R/RW, which ended in peaceful coexistence for two reasonably similar formats?
VHS destroyed Betamax three decades ago, leaving many a hapless consumer with an expensive piece of junk in their attic. In contrast, some consumers were confused, and often inconvenienced when they bought the wrong DVD medium, but the industry addressed the problem rather quickly by producing dual format devices to handle both the pluses and the minuses of R/RW.
There’s a growing consensus among analysts that the contest between HD DVD and Blu-ray is likely to fall somewhere in between those two previous wars, but with the long-term outcome resembling the earlier DVD format struggle.
“Unlike Betamax and VHS, where the technologies were totally incompatible, blue laser drives off either format using the same basic technology to read disks,” Paul O’Donovan, an analyst at Gartner Dataquest, told Electronic News. “The only difference is the optics and firmware and, of course, the relevant licenses. Apart from the optics, as far as the disk drives are concerned it's like the difference between DVD-R/RW and DVD+R/RW.”
One Korean electronics company, LG Electronics, has already come out with a universal player that handles HD DVD and Blu-ray. Samsung has announced plans for one, and more consumer electronics companies are expected to follow suit.
Said O’Donovan: “I expect to see a wide range of multi-format players on the market at current HD DVD player price levels by the end of this year.”
Steve Wilson, an analyst at ABI Research concurred. “We believe that universal players will come to dominate the high-definition DVD player market,” he said.
As does iSuppli’s Chris Crotty, who is so convinced he doesn’t bother to segment the market by format in his forecast: “The emergence of dual format devices over the next year will render the war moot,” the analyst said.
The list of Hollywood content providers that have lined up on the side of one or in some cases both formats changes almost monthly. So perhaps the prognosticators are right. Besides, consumers just want to buy movies – why not either format?
This is good news for savvy semiconductor companies.
Due in part to the cost of the new technology and the dearth of content, these analysts believe market growth will remain stodgy for a couple of years, only taking off when prices start to fall, optimistically by the 2008 holiday buying season. Players currently start at around $600. That price point will drop when demand picks up and when OEMs no longer have to acquire expensive separate components.
A teardown of Toshiba’s HD-A1 HD-DVD player by iSuppli several months ago illustrates one of the problems: The market research firm found the device full of expensive brand-name parts, including an Intel Pentium 4 as the main microprocessor, a Broadcom HD video decoder and four programmable DSPs from Analog Devices. iSuppli estimated the total bill of materials (BOM) at $674, not counting the cost of manufacturing, testing, cables, remote control and packaging.
That means the industry has a long way to go to reach the anticipated mass market price for HD DVD, Blu-ray or universal multi-format players. And that is the opportunity for chip companies.
“The BOM price will [only] start to fall once fully integrated chipsets reach the market,” Wilson noted in a recent press release. “ABI Research believes that prices will have to drop below $200 before true mass adoption takes off. That should happen by 2009.”
In a research brief in October, O’Donovan strongly urged semiconductor companies not already doing so focus on producing application specific standard products (ASSP) if they want to capture any of this market and contribute to falling prices.
And a huge market is expected: ABI projects 55 million units by 2011; iSuppli forecasts 33.5 million units by 2010; and Gartner expects 48.5 million units by 2010.
But none of these research houses expects the market to hit 3 million this year, so smart chip companies have some time to react – perhaps for next year’s holiday season?
