The HD DVD format is reeling from another body blow.
The nation’s largest retailer, Wal-Mart Stores Inc., said Friday that it would sell movies and players only in the rival Blu-ray format at its 4,000 discount stores and Sam’s Clubs.
Wal-Mart said it would continue to sell its HD DVD inventory over several months, then devote more shelf space to Sony Corp.'s Blu-ray. The announcement from the country’s biggest seller of DVDs comes amid a growing number of defections from the Toshiba Corp.-backed HD DVD camp.
Earlier this week, online movie rental service Netflix Inc. said it would exclusively stock Blu-ray discs, and electronics retailer Best Buy Co. said it would “prominently showcase” Blu-ray hardware and movies as a way of steering consumers to the format.
“Up to this point, it’s been death by a thousand cuts,” said Ross Rubin, director of industry analysis for NPD Group, a market research firm in Port Washington, N.Y. “This one may be the unkindest of all.”
The HD DVD format has been losing momentum since January, when the last major studio to support both formats, Time Warner Inc.'s Warner Bros. Entertainment, announced it would sell its high-definition movies exclusively on Blu-ray discs. The shift gave the Blu-ray camp about 70% of the home video market, with Warner, Walt Disney Co., 20th Century Fox, Lions Gate Entertainment Corp. and Sony Pictures.
Toshiba has deals with Universal Pictures and Paramount Pictures and DreamWorks Animation SKG Inc. Toshiba could not be reached Friday to comment on Wal-Mart’s announcement. In a sign of the high stakes in this format war, the Tokyo-based Toshiba said in a December earnings call that it anticipated losing $370 million on its HD DVD equipment this fiscal year, which ends in March.
Before Warner’s defection, Toshiba had been in active discussions with Fox and Warner to secure support for the format. It sought an exclusive content deal with Fox similar to one it reached in August 2007 with Paramount and DreamWorks in which it reportedly offered $50 million to $100 million for Fox to abandon Blu-ray, according to two industry sources. Fox ultimately walked away from the offer.
Toshiba had hoped to use the lure of a potential Fox deal as a sign of its continued turnaround in an effort to retain Warner’s continued support for the HD DVD format.
Warner’s Jan. 4 announcement that it could no longer support both HD DVD and Blu-ray triggered a major shift in momentum in a format war that has been likened to the epic Betamax-VHS videocassette battle of the 1980s.
Up until January, Blu-ray and HD DVD each accounted for an equal share of dedicated high-definition movie players, according to sales data tracked by NPD. In the week following the Warner announcement, Blu-ray sales skyrocketed -- grabbing 90% of all next-generation hardware purchased, according to NPD.
Toshiba responded with a price cut Jan. 15 on three models of HD DVD players, which helped it regain lost ground. But NPD numbers show that Blu-ray retained the edge, with 63% of sales. In an act that some called a last gasp, Toshiba touted its discounted players in an ad that ran during the Super Bowl, noting that they also worked as high-end DVD players.
This week Toshiba issued a statement saying it was studying recent developments and watching how the market would respond to its recent price cuts.
HD DVD movie sales have declined as well.
At the end of 2007, Blu-ray accounted for 64% of sales. The latest Nielsen VideoScan First Alert sales data show that Blu-ray represented 81% of all high-definition discs sold in the week ended Sunday.
Wal-Mart’s decision, which it said came in response to consumer preference, may make Blu-ray’s lead insurmountable. Wal-Mart accounts for roughly 40% of all DVDs sold in the U.S.
“It’s difficult to see how the format could be viable without access to those movies at Wal-Mart,” NPD’s Rubin said.
Andrew Parsons, chairman of the Blu-ray Disc Assn.'s U.S. promotions group, said Wal-Mart’s news signaled that the format war was all but over.
“People who’ve been holding back because they’ve been afraid to buy the wrong format have absolutely no reason to be afraid anymore,” Parsons said. “There’s absolutely no reason why anyone should be afraid to buy a Blu-ray player at this point.”
Nonetheless, Envisioneering Group senior analyst Richard Doherty predicted that Toshiba would continue to support the HD DVD format, which it has also incorporated in products such as its Qosmio laptop computers. However, it may reduce the number of HD DVD players it manufactures to a single model.
“They will never admit this isn’t working,” Doherty said. “They’ll just trim the inventory.”