HD DVD price cut shakes up format wars

Mere days after a group of Blu-ray-supporting studios orchestrated an event to show off the Blu-ray Disc format in Los Angeles, the HD DVD format achieved a dramatic resurgence with Toshiba's move to a US$100 player. Never let it be said that consumers don't love a bargain--but will price alone decide this format war?

That's a tough question to answer. Clearly, price plays a role. According to a report from market research firm The NPD Group, 62 percent of HDTV owners are waiting for player prices to fall before they buy. There's a historical precedent, too: Conventional DVD players and upscaling DVD players--which convert a standard DVD's 480i-resolution image up to high-definition 1080p for improved playback on an HDTV--both exhibited rapid sales growth as their prices fell below US$200.

Toshiba's flashy, visibility-raising strategy was a success. When the price drop hit, Best Buy and Wal-Mart stores (plus a few other retailers that matched their prices) burned through unsold stock of Toshiba's second-generation HD DVD player, the HD-A2--and in so doing, put HD DVD players into the hands of reportedly 90,000 new users.

The aggressive pricing was somewhat stunning considering that the purchase of an HD DVD player also gets you at least five free movies by mail. The US$100 price point was also right in line with the price of an upconverting DVD player, which made this deal a doubly good bargain. No matter how the format war turns out, having such a cheap HD DVD player at the very least improves your DVD playback, regardless of whether you end up using it to play HD DVDs. At US$100, the buying paradigm changes: Now you're not so much choosing a new format as you are getting support for the new format as a no-risk bonus on top of the purchase of an upscaling DVD player.

"The low price point was, if anything, a test and a precursor," states Paul Erickson, director of DVD and HD market research at DisplaySearch. "The question was: How price-elastic are consumers for next-generation DVD below US$200? Below US$100?

"With this sale, Toshiba found out. Curiously, even Blu-ray owners said they took the plunge into going dual-format because the price was simply so close to that of upscaling DVD players; HD DVD was seen as practically no-risk--especially with five to ten free movies."