Why is Blockbuster Going Exclusively With Blu-Ray?

[Suhit Gupta]

<div class='os_post_top_link'><a href='http://news.bbc.co.uk/2/hi/business/6762621.stm' target='_blank'>http://news.bbc.co.uk/2/hi/business/6762621.stm</a><br /><br /></div><i>"Film rental firm Blockbuster is to rent high-definition DVDs only in the Blu-ray format at 1,450 US stores. The move is viewed as a blow for the rival Toshiba-backed HD DVD format - which has been battling against the Blu-ray format, supported by Sony. Blockbuster said that consumers have chosen Blu-ray over HD DVD in the 250 stores where both were available. The limited choice of titles in the HD DVD format was also a factor in focusing on Blu-ray, Blockbuster said. "The consumers are sending us a message. I can't ignore what I'm seeing," Matthew Smith, senior vice president of merchandising at Blockbusters, told the Associated Press news agency. Mr Smith added that most studios were offering films on Blu-ray, with the exception of Universal which has been supplying films on HD DVD alone."</i><br /><br />"Customers are sending us a message?" Please! That is such a useless statement IMHO. I don't see how it hurts Blockbuster to serve both formats. Honestly, I haven't decided on one format vs. the other, but from a renter/retailer point of view, I don't see why they would want to limit themselves. It is not like they will snub all the Blu-Ray customers by also carrying the HD-DVD disks. As a side-note, 250 Blockbuster stores will actually carry the HD-DVD format (maybe the owners of those stores were able to not be as short-sighted as the Blockbuster exec who seems to be making his decisions based on the recent success of Blu-Ray).

[RichL]

I don't see how it hurts Blockbuster to serve both formats.

I can. Stores have a limited amount of shelf space. With a lot of films now being released on DVD, Blu-Ray and HD-DVD, there's a lot of duplication whilst probably not serving them up much extra profit. The same goes for buying the films - is it really efficient to be buying the same film three times when most people will rent it on DVD anyway?

I can see why they decided to go with only one HD format. However, their choice of HD format is certainly interesting.

[Suhit Gupta]

I don't see how it hurts Blockbuster to serve both formats.

I can. Stores have a limited amount of shelf space. With a lot of films now being released on DVD, Blu-Ray and HD-DVD, there's a lot of duplication whilst probably not serving them up much extra profit. The same goes for buying the films - is it really efficient to be buying the same film three times when most people will rent it on DVD anyway?

I can see why they decided to go with only one HD format. However, their choice of HD format is certainly interesting.
Honestly, how hard is it to put up a label saying "available in HD-DVD. Ask at the front desk"? I am sure they can find a way to store this stuff even if it isn't displayed.

Suhit

[Jeff_R]

I think you're answering your own question. Blockbuster has no reason to support Blu-ray over HD-DVD except for one: it makes business sense for them to do so.

The days are early for both formats, but every objective indicator shows Blu-ray pulling ahead despite HD-DVD starting earlier. Sales numbers are higher, even if you ignore date of inception, and more significant studios are in the Blu-ray exclusive camp than in the HD-DVD camp.

Blu-ray exclusives: Disney (including Touchstone, Miramax), Sony Pictures (including MGM/Columbia Tristar, 20th Century Fox). HD-DVD exclusives: Focus Features, Universal, Weinstein, and I hear noises that Weinstein might hop the fence. I'm actually pretty sure they are now format-neutral, but I can't quote them specifically, so I won't say authoritatively yes or no.

Let's face it; for home video rental numbers, Disney alone is a 800 lb gorilla. Which would you rather have for home rental? Evan Almighty (Universal) or Pixar's latest, Ratatouille? (Disney)? Both will be big; which will be rented over and over and over again? I'll grant you, this is a close one, but then we get to the others. (EDIT: Just got the box office predictions for Evan Almighty. Now I DEFINITELY want Pixar instead.)

How about Focus Features (which is still a division of Universal) vs. Fox (a division of Sony)? That gives you Brokeback Mountain, Eternal Sunshine of the Spotless Mind, and the like vs. Fantastic Four 2, Die Hard 4, the Simpsons Movie. Bear in mind, we're not trying to win Oscars, but rather make sales and rentals.

Weinstein versus Sony? Weinstein has Sicko, 1408, Grindhouse... Sony has the Spiderman franchise, Ghost Rider, Resident Evil...

The Departed was a major title released on both formats. It sold 58,300 copies on Blu-ray and just 35,300 on HD-DVD. There's another barometer.

As of May 31st, Blu-ray had more titles in release (241 with 40 more announced) than HD-DVD (207 with 54 more announced.) A narrow margin, but still surprising considering HD-DVD's headstart. Logically, a lot more titles should be released for a format that started much earlier; this can be looked at as an anomaly, but it could also be a trend that continues, creating ever-increasing gaps in content available (which seems to be supported by the studios on-board).

How about sales? If you grant HD-DVD its headstart and just track numbers sold to date, Blu-ray still has the edge as of May 27. But if you just track 2007 numbers, when Blu-ray and HD-DVD were both in the marketplace, the numbers are 2 to 1 in favour of Blu-ray unit sales.

More sales + more desirable content = the likely winner. Having said that, I hate the fact there is a war at all, but it is here, and if you need to choose, Blu-ray is the choice to make. Right now, the numbers aren't there for EITHER format to make a good business case for paying your rent with it; any solely Blu-ray+HD-DVD rental store would close very fast. However, every indicator out there shows that Blu-ray will win this format war, so establishing yourself early as "the place for Blu-ray" makes sense in terms of mindshare.

As an avid film fan myself (1250+ DVDs in my collection) as well as a filmmaker, I never wanted a format war and was very angry that one occurred. However, the writing is on the wall for this one.

Why did Blockbuster not support both formats, when it would have been relatively easy? Because it didn't make sense to do so.

[retro]

I'm sure that this will be branded as being cynical, but my thought is that the reason they made this choice is purely (or largely in part) due to money. Or more specifically, the cost of the high def DVD's in addition to having to purchase regular format copies of DVDs as well. This comment comes from years working in corporate finance, and some of it at Blockbuster.
Think about it, you as a company are going to have to buy, literally, a ton of DVD's (both high def and regular def) to stock a whole lot of stores (to respond to potential customer demand) and you are worried about getting stuck with the new version of a Betamax tape. Now, you have to do the calculation of how many of these new high def DVD's you want to stock, and how quickly you will have these paid off. Considering the amount of market penetration that both formats currently have, it will take longer to pay off a bunch of high def DVDs versus regular DVDs (slower turnover of rental inventory). With these considerations in place, how do you stock stores with content, and make sure that you aren't going to have to carry a great deal of cost on your books? You cut a deal with the studios to get high def DVDs at a lower cost than you were able to get originally. If you are able to get one of the two format owners (yes, I realize that there are several studios per format, but one would think that each has one big point of contact for these kinds of purchases) to give you a price break on the cost, wouldn't it make sense to go with that format? And from a format perspective, wouldn't it make sense to cut a sweetheart deal with the largest nationwide video rental company in order to get your format in front of as many people as possible? If you were thinking of buying either of the two formats, wouldn't you want to most likely buy the one that has the easiest access to that format's content?
Especially since it is still far from clear which format will win, the faster that each of those copies of a DVD are paid off, the better. I really doubt that Blockbuster really cares if they are a champion of either format, they just want to make sure they aren't left hanging with a lot of slow moving inventory. While the persons that read the information on this site are technically astute, and realize the differences between each of the format, many of the regular consumers don't know (or care) about the subtle differences. They just want to be able to have easy access to rental material. Proof of this can be tracked back to the Playstation vs. Xbox wars over the years.

Just my $ 0.02