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Strategy Suggestion for Toshiba and Microsoft for HD DVD January 16, 2008

Posted by hdanalysis in HD.
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Problem Statement:

Issues: 1) Not enough mass adoption yet. 2) Not enough studio support.

Goal: 1) Get hardware out to the masses. 2) Gain back studio support. 3) Future proof with digital download capability. 4) GIVE CONSUMER THE CHOICE as it’s always popular when consumers feel they have the choice and power

Advantages: 1) Minimize additional recurring cost for everyone including studios, Toshiba, Microsoft, and other technology companies, and especially CONSUMERS. 2) Utilizing existing infrastructure of movie distribution and HDi technology


Background Information on Core Competencies:

For MS: Software technology. Their Live Marketplace can be used to HD DVD’s advantage and I will explain later on how.

Toshiba: Getting cheap hardware out to people. They are an electronics manufacturer.

Things that needs to be done:

1) Offer a wireless adapter to these Toshiba HD DVD players

2) Enable USB to attach say an NTSF formatted harddrive (since microsoft is NTSF based mostly)

3) Load firmware to all these HD DVD players to allow an additional menu option, which is accessing MS Live Market Place for digital downloads.

4) Since HD DVD player is really like a computer, it can be almost used as one. Use this advatnage and allow downloadable movies. Give it two types.

a) Cheaper version of HD movie without HDi. This will allow non-HD DVD supporting studios to still release their movies on high definition through MS Marketplace for those who still do not want to buy future obsolete blu-ray players. Suggested price of $7.99 (as with BOGO, average HD DVDs cost $9.98 through amazon

b) Allow add on content like HDi enabled Picture in picture for additiona say $2.99. (Must own original movie download to access these additional PiP pictures). This is enabled because of HD DVD’s second video encoder. All the special features can take advantage of toshiba’s remote control and continue to allow Bookmarking of a scene in a movie. These add-ons should be available from HD DVD supporting studios as they have released it on HD DVD already. There’s no recurring cost as the movie is already remastered and HDi is already coded.

c) Toshiba should continue selling HD DVD players at affordable prices because not everyone wants to buy a 360 in order to access Marketplace. Marketplace exists for MS so no additional cost other than initial set up of allowing HD DVD players access. These HD DVD hardware will still play HD DVDs when they are released, upconvert DVDs, and allow consumers to buy digitial download IF THEY WANT TO. Since it’s future proof with ability for digital download, many people do not mind a $150 dollar player with 320gb hard drive for say 69.99. Movie for 7.99+2.99+6.99(320gb say average allow download of 30gig per movie)

Potential problems?:

Price of harddrives, and speed of digital download. But no worries. Technology is only going forward. Harddrives will be cheaper (and USB can be enabled for memory card reader and when these flash memory is cheap enough and has protection, you can store these movies on there for the go. Yes, we’re still a while before we reach there, but that’s why this strategy is future proof). Also, speed of downloads will only get faster as well and encoding of movies will only get more efficient.

Reiteration of Advantages:

Hardware doesn’t make money all the time due to recurring and maintenance costs. It’s technology/movie licensing and software that makes the big bucks. And advertising for others too.

Toshiba: Hardware probably makes no money. Royalties/Licensing fees to their technology is there the $$ is.

Microsoft: They have existing software interface allowing download movies. They get distribution rights from studios but in turn, sell it to consumers. They make money there for that technology and distribution.

Studios: BD only studios: Since they already remastered movies to 1080p, they just give distribution rights to MS for movie with HD video and HD sound. No extra cost; HD DVD only studios: Same. They already did it on HD DVDs, all they have to do is transfer the files to MS for digital download. And the HDi file too. They will get money for both. No additional logistic cost there.

Consumers: Given the choice. If they don’t have 360, they still got cheap HD DVD players that can be expanded to include harddrive for digital download if they CHOOSE. And they have a choice to purchase HDi if they want it. Cheap hardware allows mass market. If enough people demand the HDi on MS marketplace, eventually studios may want to make money off of that too. HDi is not hard to program. Studios have the video for future picture in picture already and all they need to do is dump in the file, and software will output an HDi capable PiP file. Post it, those who want to buy it can pay $2.99. Digital downloads have ALL studios support basically. Yes, people still want physical medium. That’s why we have HD DVD exclusive studios. But if we get mass market through this strategy, eventually studios will start producing HD DVDs again since the install base is there.

Date: 1/16/2008 (Copywright TYK 2008)


WB for Vendetta January 12, 2008

Posted by hdanalysis in HD.
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Here’s Another One For Bill Hunt December 10, 2007

Posted by hdanalysis in HD.
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How in the world does Samsung think it’s ever going to make any money from the BD-P1400? I mean, seriously.

You may have heard by now that Samsung has made an announcement to effectively dump its BD-P1400 starting this now for just $299.99. Supplies are limited, of course, until they announce that profile 1.0 is obsolete and the offer is apparently priced differently in different countries by dumping.

Wikipedia defines dumping as “the act of a manufacturer in one country exporting a product to another country at a price which is either below the price it charges in its home market or is below its costs of production.” Samsung’s move isn’t really anti-competitive, because there are no U.S. manufacturers making BD-P1400. But it’s that “below its costs of production” part that applies in this case. The BD-P1400 arrived in the States with an originally announced MSRP of $549.99 then sold for $499.99. Now, Samsung is letting it go for just $299.99. There’s no way the player cost less than $300 to manufacture. Just. No. Way.

You might wonder: How can Samsung possibly have enough BD-P1400s left to sell at just $299.99 at large, nationwide retailers? Simple. It’s because they didn’t sell originally, so plenty of stores still have them sitting on shelves, gathering dust. Samsung is eager to clear them all out at this point, and Amazon, Circuit City, and Best Buy are happy to help.

The Ignored-All-Too-Much Significance of Attach Rates November 13, 2007

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So what is an “Attach Rate”?  In the case of players and movies, an attach rate is the number of software sold per one player sold.  People always say attach rates do not matter because it’s the quantity that count.  In this case, attach rate is really a factor to tell us how to forecast our business revenues.  It will help us with sales projection.  Before I start, let me clarify why I use the attach ratios I did. 

Say 2.5mil sold by end of Nov for PS3+standalone, and say 3.75M software sold by end of Nov (they were at 2.6 by end of Oct….so I’m overestimating for them.)

For HD DVD, say by end of Nov they sold 500k stand-alones and say 2M software are by then (I’m just taking 1.875:1 sales ratio, the “nearly” 2:1 ratio).  The attach rates are 4:1.5 HD DVD…so at least in N.A, the claims are valid.

So here’s my analysis of the HD DVD vs. Blu-ray attach rates and its effect (for North America only):


-Based on my tracking of PS3 sales, N.A. sales are experiencing around a 7.15% monthly growth rate. Say I add in stand-alone Blu-ray players (which based on engadgethd back in July, growth is actually decreasing), but overall, I assume blu-ray hardware increases by 8% a month.

-Based on engadget, they reported Nielsen that HD DVD stand-alone saw growth of 37% for the quarter = around more than 12% a month. This does NOT include HD DVD 360 add-on drives. Based on first year and half of DVD hardware sales, growth rate were 23% per month in the first year and around 11.6% in the second year. I am assuming HD DVD Hardware (no 360 add-on) has a growth rate of 11% a month.  (http://www.engadgethd.com/2007/07/18/hd-dvd-touts-sales-growth-over-blu-rays-decline/)

-Based on current ratios of hardware and software, I assumed Blu-ray has an attach rate of 1.5 vs. HD DVD’s attach rate of 4. This is high for Blu-ray, but I’m basing it off of North America only. (Attach rate ratio of 4:1 HD DVD as of June 11, 2007 by http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/06-11-2007/0004605296&EDATE=)

Distributions used:
-Normal distribution for Blu-ray and HD DVD attach rates, and PS3/BD player growth rate.
-Log normal distribution for HD DVD hardware growth rate (seeing trend of lowering prices, there’s great potential for higher growth)

To summarize my parameters, here’s the comparison on “sales as of end of Sept. and industry average” vs. what I’m using:
-Blu-ray attach rates – 0.56 : 1.5 (Over estimate for BD)
-HD DVD attach rates – 4 : 4
-PS3/BD growth rate – 7% : 8% (Over estimate for BD)
-HD DVD growth rate – 12% : 11% (Under estimate for HD)

Analysis Starts Dec. 1st 2007. Stats used are:
500k HD DVD hardware
2.5M PS3/BD player hardware
2M HD DVD software
3.75M HD DVD software
Software ratio at start 1.875:1 (BD:HD)

By Dec 1st, 2009, point estimates projections are as follows:
6M HD DVD players (N.A only)
16M PS3s/BD players (N.A. only)
24.5M HD DVD software (N.A. only)
23.8M BD software (N.A. only)
Software ratio here 0.97:1 (BD:HD)

Based on the monte carlo Crystal Ball simulation, HD DVD has a 80/20 confidence level of (80% chance it not sell over) 38.6M copies.

For BD, there’s only 80% chance it may not sell over 29.8M copies only.

This just shows how much more potential in growth HD DVD has if it maintains that ratio of attach rate over BD.

And I did a point estimate for Dec. 1st 2010 assuming everything continues at the current assumed rate:
21M HD DVD players (N.A only)
40M PS3s/BD players (N.A. only)
85.6M HD DVD software (N.A. only)
59.9M BD software (N.A. only)
Software ratio here 0.70:1 (BD:HD)

Here are the Projection Chart, Frequency Chart and Cumulative S-Curve:

Frequency Chart

S-Curve Chart

So not everyone will understand the S-curve.  In this case, it’s basically saying for Blu-ray, there’s a 95% likelihood that software sales will not exceed 40M by Dec. 2009.  This is based on our assumption that current rate, growth and ratios do not deviate from our parameters.  Same for HD DVD, but there’s only a 80% likelihood that software sales will not exceed 40M by Dec. 2009.  Basically there’s more room for HD DVD’s potential in software sales based on the current state of things.

Please, do not mis-interpret the S-curve.  Do some research first before before claiming “Oh! It’s saying Blu-ray has 100% chance of reaching 45-80M in software sales!”  So for those who said attach ratios don’t matter…sorry, but it’s not true. Ratios mean everything for the future since it provides information on growth potential.  And a business who do not measure growth potential, will have a hard time succeeding.  Enjoy~

P.S.  I’m projecting December 2009 to be the tipping point for “format winner of software sales” to switch from Blu-ray to HD DVD, if not sooner.

Playing Around w/ This Article November 1, 2007

Posted by hdanalysis in HD.
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” How in the world does Sony think it’s ever going to make any money from the PS3 (Blu-ray format)? I mean, seriously.

You may have heard by now that Sony has made an announcement to effectively dump its PS3 (aka. Blu-ray player) starting this Friday for just $399.99. You may also have heard that North America followed suit from Europe and Japan. Supplies are limited, of course, until they announce a 120GB PS3 and the offer is apparently priced differently in different countries by dumping.

Wikipedia defines dumping as “the act of a manufacturer in one country exporting a product to another country at a price which is either below the price it charges in its home market or is below its costs of production.” Sony’s move isn’t really anti-competitive, because there are no U.S. manufacturers making PS3s. But it’s that “below its costs of production” part that applies in this case. The PS3 arrived in the States with an original MSRP of $599.99. Now, Sony is letting it go for just $399.99. There’s no way the player cost less than $400 to manufacture. Just. No. Way.  (More like cost $800 to manufacture.)

You might wonder: How can Sony possibly have enough PS3s left to sell at just $399.99 at large, nationwide retailers? Simple. It’s because they didn’t sell originally, so plenty of stores still have them sitting on shelves, gathering dust. Sony is eager to clear them all out at this point, and Wal-Mart and Best Buy are happy to help.

Clearly, the Blu-ray/PS3 camp understands that low price and Profile 1.1 are really the only card they have left to play in this format war. Porn hasn’t won the war for them as predicted, nor have online bells and whistles, or combo discs/players, nor have they finalized the specs of their players. The obvious question would be: Why in the world would any other hardware manufacturer want to join Sony’s foolhardy strategy of constantly changing specs every month? It’s no accident that although PS3 is outselling HD DVD player standalones at a 5:1 ratio (probably lower now) but only outselling software at a ratio of 1.85:1.(and no, BOGO offers should NOT count, but Sony still counts them). Given how dramatically Sony has slashed prices on PS3s over the last year, you have to wonder how long they can keep losing money.

Forget for a moment that the PS3 isn’t capable of promising Profile 1.1 compliant – that doesn’t matter. Why? Because no one will ever expect it to be and majority of PS3 owners are just Blu fanbois trying to troll and promote Blu-ray when they rarely watch movies at home.  Being gamers, they aren’t likely to want to pay $30 for an Blu-ray movie either. I’d bet many of the people who jump on this sale will either be using them primarily as a PS3 console, or they’re already diehard Blu-ray supporters and are buying them as just to try to help Sony boost sales. For those regular consumers who take the bait, I wonder how they’ll feel when they realize they can’t play those big Universal, Paramount, and Dreamwork titles in the “red” boxes due this holiday season.

 Okay, that’s enough fun.  Now I will just comment how lame this Bill Hunt article is:
Speaking of which… a couple weeks ago, when Disney and Sony launched the successful strategy of counter-selling their Blu-ray software titles 2 for 1 the same week Paramount and DreamWorks released Transformers on HD-DVD, we got a few e-mails from HD-DVD fans telling us how lame that was. Well, consider this: Is it any accident that Toshiba didn’t wait for Black Friday to sell their $99 HD-DVD player, instead carefully planning the 3-day sale for the weekend before Disney and Pixar release Cars, Ratatouille and Pixar Short Films Collection on Blu-ray? <Dude, retail is driving the early sale, it’s a new promotion by Walmart, nothing by Toshiba.  Are you stupid?  It’s a war of retailers, not like Toshiba told them to sell it at under $99.  I can’t believe people even listen to you.> Not a chance, folks. So Toshiba is slashing HD-DVD hardware prices to counteract the release of blockbuster Blu-ray software. What does that tell you about the viability of HD-DVD going into a fourth quarter that, by all accounts, is make or break for the format? (Especially with Warner Home Video now hinting that they’re looking at the fourth quarter to “reevaluate” their dual format support)  <Yes, especially since WB always promoted IME and joined Toshiba and Microsoft in this group promoting HDi.  And they stated they will re-evaluate, meaning looking at both software and hardware sales and potential of both Blu-ray and HD DVD.  They even denied they “favored” Blu-ray and said their comment was taken WAY OUT OF CONTEXT.  Well, what do you expect.  Blu’s like to spin things their way, even if it totally changes the meaning of a statement 180 degrees.  It’ll never change.>

Hey – there’s no doubt that thousands of eager consumers <yes, eager MASS MARKET CONSUMERS who will only jump on cheap players, not $399.99 PS3’s even if it claims it can fly> will get a deal on cheap hardware this weekend. But it still isn’t going to be the format war winner for HD-DVD that some would like to believe. On the contrary, it means that Toshiba is getting desperate… and is going even more deeply into the red with this format <You MUST be talking about SONY here going into the red with their PS3s>. Given the strength of their rhetoric this week, it’s a safe bet that the Blu-ray camp will continue to press their advantage in the fourth quarter, and start turning up the heat on HD-DVD in the weeks and months ahead.

It boggles the mind to think that any reasonable person can still believe at this point that the HD-DVD format represents a viable long-term business for Hollywood <Again, you mean PS3 and Blu-ray with their non-finalized specs, issues with playbacks everytime a new BD+ layer comes out, or their ridiculously expensive players?>. Toshiba is effectively paying studios to support them, and now they’re practically giving their hardware and software away. Do you suppose we’ll see free HD-DVD player offers in Cracker Jacks and breakfast cereal next? $50 players? $25 players?

Experienced fighter pilots will tell you that when you dive your aircraft at the deck, you very quickly run out of maneuvering room. Seems like the ground’s coming up awfully fast for HD-DVD <You talking bout PS3 yet AGAIN?  Sony seems like they are struggling to breathe>.

Back with more on Blu-ray Fest later this afternoon. Stay tuned..”

Steve Nickerson’s Stepdown August 24, 2007

Posted by hdanalysis in HD.
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 Notes (everything in (1) from July 2007):

1) Total HD delayed from Q4 2007 to ‘some time’ in 2008

i) Houses HD DVD on one side, and Blu-Ray on the other

ii) Delay due to polar decision making at other studios (too many studios taking sides for exclusivity)

iii) “We need critical mass of titles to go to retail with so they can establish a section” (as quoted by Steve Nickerson)

iv) Paramount just 3 days ago announced to drop Blu-ray and go HD DVD exclusive, leaving WB as the sole dual format provider

v) Prediction that by bringing Total HD to market without industry support, it will confuse consumers even more

2) Steve Nickerson used to work for Toshiba and supported HD DVD but later changed his stance to Total HD

i) Viewed Total HD as best for consumers as they will have a choice

ii) 8/24/2007: Rumored that he has stepped down as VP of Marketing for WB

iii) This news seems so coincidental that it comes after Paramount/Dreamwork’s announcement to go HD DVD exclusive

What I’ve been hearing:

– He worked for Toshiba before and was PRO HD DVD so him stepping down possibly means that WB is more likely to go BD exclusive than to HD DVD

– His decision to step down has nothing to do with the format war

My take on it:

By going dual format to Total HD requires investment in both formats.  Cost of retooling HD DVD may not be as much (white papers said around $150k) vs. a higher cost to retool the manufacturing line to support Blu-ray Discs (someone in Washington invested $12M for a facility set up to support Blu-ray).  Though it was announced at CES 2007 earlier in January that Total HD should reach market by Q4, the news of this delay probably means either cost vs. technical performance has taken a hit, or, there’s something going on behind the scene and we just don’t know the reason yet.

For all we know, they may scrap the project if there’s no consumer market for it.  The HD DVD and Blu-ray right now is a very small niche market compared to the 99% DVD consumers.  To carve a market out from a niche, what do we get?  Probably 0.2%.  On top of it, by having both technology on the same disc, the cost of manufacturing is not going to be cheap.  Currently high definition discs costs between $29.99-$39.99 retail.  So what will Total HD cost?  Don’t be surprised if it’s $49.99 or higher.  For $49.99, some online stores may sell it for $39, but still, that price is steep for one movie for the normal consumer.

So it seems Total HD is doomed for failure.  So how do we explain to the board of directors that we just wasted millions on something that won’t earn us any return?  There’s gotta be something we can do to keep them happy.  Take action and change the management.  That may be the reason Steve Nickerson is rumored to step down.

Currently, WB is still being subsidized by Sony or BDA to support Blu-ray due to the more complicated technology and higher costs, but how long will this last?  Obviously, since they were initially HD DVD exclusive, they have already made the initial investment, did long-term projection, and is ready for it.

Another point to make is that WB is partners with CBS, which is part of Viacom in providing CW.  Universal and WB is partnering up to bring The World of Harry Potter to Universal’s Orlando Resort.  With all these partnerships, I highly doubt they’d dump HD DVD when their business partners in other areas are exclusive there.  There was also a project with FOX earlier on a Halo movie but that was dumped because the costs could not be worked out with FOX.  Success vs. Failed partnership.  You know where I’m headed.

If HD DVD does successfully sale large number of stand-alone HD DVD players at the $199 mark, I wouldn’t be surprised if WB joined them.  Yes, they will piss off the earlier adopters of Blu-ray (well…mostly PS3 owners), but I’m sure they are willing to give up 0.5% of the market (note that not all Blu-ray consumers are purchasing BD exclusively since there are quite a number of them purchasing both formats), to capture the remaining 99% of consumers for the next generation.