Why Blu-Ray Players Are So Unbelievably Expensive

[Jeremy Charette]

http://www.digitalmediathoughts.com/images/15426586_4f7d78e2af_o.jpg

HD DVD and Blu-Ray have hit the market, more titles are being released every week, and already, Blu-Ray players are significantly more expensive than their HD DVD counterparts. Why? One answer: PS3. Crazy, you say? Think about it. Sony has announced that the PS3 will cost $500-600 USD. It's banking on the PS3 to get a Blu-Ray player into millions of homes (disguised as a video game console). If standalone Blu-Ray players come in below that price point, they may sabotage sales that would have otherwise gone to the PS3 (as a "cheaper" alternative). Keeping the PS3 price point well below an entry-level (sic) Blu-Ray player drives demand up even further than it already is. Sony may be manipulating the price point of current Blu-Ray players so that the PS3 looks like a relative bargain. Might sound far-fetched, but remember that the PS2 sold a huge number of units in Japan at launch because it was less expensive than the standalone DVD players of the day. (Much to Sony's disappointment, as it resulted in a low attach rate, and huge profit losses as a result, but that's another story.)

This is where Sony is making a critical mistake. By the time the PS3 launches, we'll likely be seeing $300 HD DVD players (half the price of the PS3). Microsoft is rumored to be releasing an add-on HD DVD drive at the $150-225 price point, and is also rumored to be offering a bundle package (console & HD DVD drive) for around $400. HD DVD players will have a huge price advantage over competing Blu-Ray players, and the Xbox 360 bundle will look like a bargain compared to the PS3. Sony's strategy might have worked...a year ago. But by November it will be too little, too late.

[Doug Johnson]

This doesn't explain why Blu-ray players from other manufacturers are just as expensive though.

[Jeremy Charette]

Like I said, they're likely manipulating the cost of 1st generation Blu-Ray players to keep the prices high, at least until the PS3 launches. This wouldn't be terribly difficult, just jack up the licensing fees for the first 6-12 months, then drop them incrementally every quarter. Competitors wouldn't be able to sell their Blu-Ray players for less than Sony without having to take a loss on every unit sold. I'd venture to guess that Blu-Ray licensing fees are substantially higher than those of the HD DVD consortium.

[Doug Johnson]

They could do that, but I suspect that the licensing fees aren't THAT high... they'd have to be in the hundreds of dollars to keep the prices inflated by that much.

[Doug Johnson]

If that is what is really going on, it is about the dumbest thing that they could possibly do. If Blu-ray fails it is going to be because of the price of the players. Because it certainly has the technological advantage over HD-DVD.

[Felix Torres]

Being of a contrarian bent...

What if the proper question isn't "Why is BD-ROM so expensive?" but rather "Why is HD-DVD so cheap"?

Historically, new media delivery technologies ramp up slowly and start out as super-expensive boutique items (VCRs, Laserdisc, CDs, DVDS, DAT, etc...) and after a couple of years, the price starts to fall with increasing volume and generally takes off and becomes a mass-market product when it hits $299.

BD-ROM is following the normal curve, but HD-DVD isn't.
I'm thinking it might be interesting to find out why.
Oh, I can think of a few reasons, each of which contributes a small part of the price differential; some by lowering HD-DVD, others by raising BD-ROM, but I'm thinking the main reason may have very little to do with Toshiba and a lot to do with Sony making the wrong people mad. :-)

After all, Sony makes a big to-do over which logos they get to plaster on their powerpoint charts (Panasonic, Apple, Columbia, etc, etc) but the two most conspicuous names missing from the list of "staunch supporters" are two players you really don't want mad at you at the same time: Intel and MS.

Think of the Toshiba HD-DVD player: by now it's no secret that it runs on Intel chipsets and P4 CPUs (Northwoods, apparently) and a form of Windows CE. Given that both MS and Intel consider the final form of BD-ROM to be less than PC-friendly, it would be no shock if both players were greasing the skids for Toshiba with some very friendly pricing. Would not be surprising if MS were feeding some cash to Toshiba, too. (It has happened in the past: MS funded a Toshiba LCD facility a couple years ago.) And Toshiba has, of late, been drinking the MS Kool-Aid on the PMC front, among others.

Add in ties to China, Inc, on the manufacturing side, the fact that HD-DVD drives are inherently cheaper to make that BD-ROM drives (the Spec was conceived as an extension of the current red laser tech, after all), and a willingness to take on early losses on hardware sales and you have a prescription for at least $200 worth of the price differential.

The rest?
Well, BD-ROM relies on Java, which is probably jacking up hardware costs as well as the licensing fees (I doubt SUN is giving Sony's posse the kinds of deals MS is giving Toshiba). And, BD-ROM drives are all-new tech and the spec was barely finalized this spring. I'd bet the learing curve on those assembly lines is steeper than on the HD-DVD side.

And, most importantly of all: Sony itself is scarfing up the bulk of early drive production to put it into the 6 million PS3's it swears it is going to manufacture by the end of the year. That is hardly going to leave much early production for the Pioneer and Panasonic players that have yet to come. Scarcity=high price, of course. Estimates are that bare BD-ROM drives cost anywhere from $300 to $500.

HD-DVD bare drives? Under $200. And, if rumors about the 360 external drive can be believed, maybe under $100.

So, Math time:

Sony is hardly a low-cost builder to start with, so if the bare drives cost a couple hundred more than the competition, and the hardware, firmware and licensing costs adds another couple hundred more, it is easy to see an intrinsic pirce differential of a least $300 and quite possibly as much as $500. Which is what we're observing.

Basically, Sony is playing by the old-school manual of CE tech introduction, while Toshiba has been cribbing notes from the PC and gaming console businesses: the HD-DVD system was designed from day one to be cheaper at launch than BD-ROM and its backers seem willing to take short-term losses in exchange for long-term victory because they don't necessarily see the blue laser wars as a capacity war, but rather as a race to $299.

So the crucial question now is: can HD-DVD get lower before BD-ROM matches their current pricing? I doubt Toshiba is going to continue using Northwood P4s in their players indefinitely; that is not going to get them to $299. Most likely, they are just waiting for custom chips to be debugged and ramped up for the second-generation players. But, relying on Intel and MS got them out the door "firstest with the mostest" and they turned the expected rout into a dogfight.

If they can land a couple more punches on the XBOX360 and China, Inc fronts, this fall, they might actually build up a meaningful lead by next spring. I'm not sure they can get to $299 by XMAS but if the bare drives really are under $100 (we'll know in September when the XBOX drive comes out) they could conceivably force Sony's partners to reconsider how committed they are to Sony's dream. Especially the studios, who are already smarting about paying a competitor for a technology that, so far, isn't living up to their promises.

This could get bloody: I hope the guys from Harvard Business School are taking notes. ;-)

[Jeremy Charette]

I think you'll absolutely see $299 HD DVD players by the end of the year. But I agree with you Felix, it's going to take specialized chipsets to reach that pricepoint. It can be done however. Witness the Xbox 360, which is basically a 6-core 3.0 GHz computer with 512 MB of GDDR3 ram, selling for under $300. Word is that Microsoft will start turning a profit on the hardware manufacturing costs by Q4 '06 or Q1 '07. This sort of horsepower is exactly what's needed for an HD DVD or Blu-Ray player (minus the advanced 3D graphics chipset). If Microsoft can get that kind of power out of the Xbox 360 platform at that price, a CE giant like Toshiba can probably do an HD DVD player for that much or less, especially with help from Microsoft.

This is a classic razor blade business model. Microsoft is backing Toshiba and HD DVD because they want to reap the licensing benefits on the discs. Sony on the other hand wants to make a profit on the player licensing, and minimize losses on hardware at launch, not to mention the fact that they want to push the PS3 as the Ginsu knife of the living room (but wait, it does more!). Act now for the low low price of $599. :roll:

[Felix Torres]

I think you'll absolutely see $299 HD DVD players by the end of the year. But I agree with you Felix, it's going to take specialized chipsets to reach that pricepoint. It can be done however. Witness the Xbox 360, which is basically a 6-core 3.0 GHz computer with 512 MB of GDDR3 ram, selling for under $300.

Actually, I've wondered what would happen if MS, which owns the Xenon processor outright, got yields and production levels high enough to enter the HD-DVD motherboard business. It would help drive down the costs of both the 360 and HD-DVD and put a nasty squeeze on PS3 and BD-ROM.

Figuring that the Core 360 might go for as low as $199 by XMAS, a Xenon-based HD-DVD player should be doable at $299. But, while I'd love to see one this fall, I'm not holding my breath. We'll see soon enough...

For that matter, from the cheap irony department: Toshiba is a backer and co-architect of CELL, the PS3 CPU. Which could get interesting if they start using it in HD-DVD players and in the process help drive down PS3 costs...

[pradike]

If that is what is really going on, it is about the dumbest thing that they could possibly do. If Blu-ray fails it is going to be because of the price of the players. Because it certainly has the technological advantage over HD-DVD.
Almost everything Sony has "forced" on the market has failed.

Sony - Only Baloney

Blue Ray = Failure
Mini-DVD = failure
BetaMax = Failure...and the list goes on and on....

[pacemkr]

What are you guys talking about?

They cant even come up with a single standard and I'm supposed to shell out X Benjamins to gamble on which format survives? Nah, Its ok, I'll stick to DVDs which already look great, and going to the movies once in a while when something comes out thats worth seeing on the big screen, like the CGI packed X-Men 3 I saw recently.

HD DVD? Blue what? Enjoy your format war while I keep my money.

[Crocuta]

If that is what is really going on, it is about the dumbest thing that they could possibly do. If Blu-ray fails it is going to be because of the price of the players. Because it certainly has the technological advantage over HD-DVD.

Wow, does this sound familiar or what? Just drop in a few old names... 'If Betamax fails it is going to be because of the price of the players. Because it certainly has the technological advantage over VHS.' We all know how that turned out.

There are several things that the winners of standards wars have generally had in common. A few that seem pertinent to this discussion are 1) the less expensive technology usually wins, 2) the backward compatible device usually wins and 3) the device that gets out and gets people to invest significantly in media first usually wins. Technological superiority has a very poor track record as a factor in who wins, as long as both competitors are 'good enough'.

I'm not saying that any one such thing is enough all by itself to determine the direction the market will take, but Sony has simply put itself in a position that historically has never been successful. As for myself, I agree with pacemkr. DVD's already look great and I have a significant investment in them. I'll be sitting on the sidelines of this market until it sorts itself out. I'm really in no hurry to go out and buy another box and start collecting a new media all over again when I really like what I already have.