In-Stat’s Kaufhold offers unique take on high-definition DVD

If you’ve read this blog or other articles that I’ve written on next-generation DVD, you know how I feel. As I discussed in “The Sony Tax,” I believe the Blu-ray high-definition DVD effort is more about lining Sony’s pockets with royalties than doing what’s best for the consumer. Gerry Kaufhold, principal analyst at our sister In-Stat analyst organization, has a bit of a unique take on the HD-DVD vs. Blu-Ray skirmish. Kaufhold doesn’t focus on strategies or standards skirmishes but rather on how the competing technologies might serve both market demands and the needs of the studios. He sees success for both of the high-definition DVD formats in different regions of the world.

Kaufhold’s analysis starts based on the premise that DVD sales are tanking both in terms of volume and typical retail prices. And since his research reveals than 60% of the worldwide DVD business is in North America, Kaufhold believe the content owners are desperate to jumpstart DVD sales. According to In-Stat, there are 12 million HD-capable displays in use in North America, but only about 4 million of those are used to view HD content. Kaufhold sees high-definition DVD as the way to fill those screens.

But will the DVD players be the HD-DVD format favored by Toshiba and others or the Blu-Ray format championed by Sony? I’ve assumed all along that one must win, and I’ve advocated the HD-DVD as being quicker to market, more backward compatible, and plenty dense – although not as capacious as Blu-Ray. Moreover, the content owners have taken sides as I covered in “Disney to support Blu-Ray” and “Have the studios tipped their hand in HD DVD?” that describe Disney, and their MGM acquisition, against the other major studios.

Kaufhold sees the issues purely in terms of business realities. He states, “HD-DVD was designed to be a playback medium. The fact that the disks are designed to be compatible with existing replication equipment means that you can deliver content quickly.” Kaufhold believes that HD-DVD is at a minimum 18 months ahead of the Blu-Ray camp in delivering players and content. So Kaufhold expects all of the studios to deliver HD-DVD content in North America including the Disney group. Kaufhold states, “They need to move something into the market this year.” Kaufhold sees even the Blu-Ray advocates as unwilling to live with the current decline in DVD revenue.

As for the rest of the world, Kaufhold sees no such immediate demand. He states, “Outside of the US, the existing DVD market is just exploding. Eastern Europe, for example, is just getting into the technology so there’s no hurry for high definition. Overseas, HD displays are just getting started. In Europe no one will care about HD until 2008.”

Still, why wouldn’t HD-DVD conquer the world if it wins in North America? Kaufhold believes that, starting with Japan, PlayStation 3 is the answer. He states, “Assuming that Sony follows through on its commitment to use Blu-Ray in PlayStation 3, by the end of 2006 that console will have moved a lot of Blu-Ray readers into Japan.”

Kaufhold sees Blu-Ray winning in Europe and Asia. In fact, he thinks that the studios may welcome the competing formats. He points out that the different formats will allow the studios to stage release around the world and take more control of the content industry.

Want to know more? You can purchase the In-Stat report "Worldwide Electronic Entertainment: Packaged Goods Value And Network-Connected Households."