Falling Costs Fuel HD Format Price War

By Danny King, Special to TelevisionWeek

Retailers’ price-cutting on both HD-DVD and Blu-ray disc players may be aided by manufacturing costs that are likely to drop below the $200-per-unit threshold next year.

Amazon.com, the world’s biggest Internet retailer, cut the price of the Sony Blu-ray BDP-S300 disc player to $270 from $500, while Best Buy, the biggest U.S. consumer electronics retailer, dropped the price to $299 from $399. Sony Blu-ray player prices were starting at about $500 six months ago and about $1,000 a year ago.

Meanwhile, Wal-Mart, which also is selling the Sony Blu-ray player for less than $300, cut the price on some of its Toshiba HD-A2 DVD players to as little as $99, said Ross Rubin, director of industry analysis at Port Washington, N.Y.-based NPD Group. (Wal-Mart’s Web site this week was listing the Toshiba at $288, but said it was out of stock.)

Production costs are falling as the price of the blue laser component needed to transmit a higher volume of data in HD players declines because of economies of scale, said Gerry Kaufhold, principal analyst with Reed Elsevier research unit In-Stat. He estimated that blue laser component prices may fall to $30 a unit within “several” years from about $100 per unit today.

Kaufhold said Sony Corp.’s willingness to take a loss on $399 PlayStation 3 consoles, which include Blu-ray players, also keeps prices down.

“Sony’s aggressive pricing has brought the non-game console units to market at prices that are substantially lower than the unit shipments justify,” said Kaufhold. “During 2008, as the shipments of HD-DVD players ramp up, the manufacturing costs will come down.”

Whether falling production costs will help end the format war, however, is a matter of debate. Richard Cooper, analyst with London-based research firm Screen Digest, said in a statement that one format will likely take a commanding lead next year because “it’s only going to take one major player to swap sides and the market will shift seismically.”

Rubin sees an end to the format war as more likely to happen in 2009, however.

“It’s difficult to see things being resolved in 2008, barring a key player switching allegiances,” said Rubin. “In terms of really seeing these products shipping in high enough volumes where one could have a sustainable advantage. That’s likely a holiday 2008 opportunity.”