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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.

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