Economy grinch may pinch Blu-ray format

LOS ANGELES (Hollywood Reporter) - Executives hoping that the weak consumer embrace of high-definition discs will strengthen during the holiday season thanks to clarity on format and hardware issues suddenly face this rude awakening: It's the economy, stupid.

The format war is over, hardware prices are falling and studio marketing efforts finally are taking hold with retailers. Yet the economic downturn has become a chief reason for fearing that holiday sales of Blu-ray Discs will prove more naughty than nice.

Hollywood is counting on Blu-ray -- winner of a bloody format with now-failed HD DVD -- to become the next-generation format of choice for home entertainment, compensating for a DVD cash cow that's starting to run a bit dry. But consumer concern about the worsening economy couldn't have spiked at a more inopportune time: the cusp of the holiday gift-buying season.

"The economy is the biggest challenge, because there are just so many pieces to the Blu-ray puzzle that consumers face," said Lori MacPherson, GM of domestic home-entertainment at Disney. "You need the high-definition television set, you need the player, you need the cables, you need the software . . ."

MacPherson still believes Disney's seasonal slew of new releases and catalog titles in the Blu-ray format will help stir previously resistant consumers to check out the HD format. But industry colleagues participating in a panel discussion Tuesday at the HD3 conference in Century City agreed that the onset of recession won't help.

"The economy is hitting everybody," said Danny Kaye, executive vp research and tech strategy at Fox. "But we still look forward to a great fourth quarter."

If that sounds a bit like whistling past the HD graveyard, it should be noted that there also are distinctly positive bits of news on the home entertainment horizon.

"I know the economy is tough right now, but the manufacturers are really bringing down the price of their HDTV sets," Paramount vp marketing Chris Saito said.

Blu-ray player prices also are heading south, though perhaps not as quickly a recession-minded consumers might like. Although several manufacturers are flirting with the $200 price point long considered key to platform launches, most Blu-ray players still sell for considerably more.

Then there are the discs. Movie releases on Blu-ray sell for upward of $25, whereas most DVDs retail for $15 or less.

"We're all constantly looking at (disc) pricing," Sony vp business development Rich Marty said. "What it amounts to is that we'll wait until after the fourth quarter and see how it goes."

Blu-ray backers can take heart in the relatively modest negative impact of economic downturns on tech rollouts, said analyst Tom Adams of Adams Media Research in Carmel Valley, Calif.

"It may slow adoption down a little bit if there's a recession brewing," Adams said. "But in the adoption of other successful technologies over the next 50 years, it hasn't been more than a speed bump."

In any event, Blu-ray proponents shouldn't panic over the prospect of a longer slog toward broad consumer embrace than some might have hoped for, Fox's Kaye said. "It never happens overnight," he shrugged.

Contrarians have suggested the spread of HDTV sets might not prompt a corresponding rush to Blu-ray if consumers opt instead to boost DVD image resolution via so-called upconverting technology. But those kind of image manipulations fail to match Blu-ray standards and won't pass muster with the majority of consumers, MacPherson said.

"For me, it's the difference between costume jewelry and a diamond," the Disney executive said. "Costume jewelry is nice, but I still want the diamond."

Still, despite panelists bullishness on Blu-ray, execs said season sales will be carefully scrutinized after Jan 1. Depending on how things go with HD discs and other packaged goods sales, it's possible that the industry's go-slow approach on digital downloads could accelerate.

So far, Hollywood has been experimenting with a bifurcated digital strategy, making some titles available for digital downloading and consigning others to "digital copy" editions of DVD releases. Purchasers of such discs can upload a digital copy of a movie from the DVD to a personal computer.

A third annual event spotlighting high-definition discs, HD3 was co-sponsored by The Hollywood Reporter. The daylong conference, held at the Inter-Continental Hotel, attracted more than 120 attendees.

Reuters/Hollywood Reporter