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6M Blu-ray Players May Be No Sure Thing

As the economic storm clouds grow darker, consumer electronics manufacturers are looking at a handful of growth categories — including Blu-ray Disc players — to hedge the industry’s bets, but one major retailer told TWICE that he fears the category is still not the slam-dunk some perceive it to be.

Some manufacturers believe the economy could actually have a positive impact on the fledgling Blu-ray category this year. As consumers hunker down in their homes and avoid expensive nights out, they can become more willing to spend to upgrade their entertainment experience at home.

“We’re still in agreement with CEA’s estimates that Blu-ray decks have the potential to double this year to roughly 5.7 million units,” said Tim Alessi, LG Electronics product development director, who said he sees the cocooning encouraging that adoption. “Also, a new category of Blu-ray-based home theater has begun to emerge which will also add to the installed base. We believe that providing home-entertainment options will be a key to growth.”

Similar to the CEA, market research firm FutureSource Consulting is predicting U.S. stand-alone Blu-ray Disc player sales at 6 million in 2009, up from 2.5 million in 2008. At the same time, sales of Blu-ray-enabled PlayStation3 consoles are forecast to rise from 3 million in 2008 to 5 million in 2009. By 2012, the research firm sees the PS3 in more than 20 percent of U.S. homes and stand-alone BD players in 50 percent.

But at least one retailer wasn’t as optimistic. Jonathan Zupnik, Sears audio/video/TV DMM, told TWICE: “I continue to have concern about Blu-ray. It did not hit industry expectations last year with production issues. I also believe the economy has had more of an impact than believed. The simple reason being the difference is not demonstrable in comparison to VHS to DVD. Standard DVD looks very good on a 1080p TV. Unless you are watching on a 60-inch-plus TV, it is hard to see the impact [of a 1080p Blu-ray Disc]. I do not believe the industry numbers will be hit this year, unless they drop the price.”

Demand was generated in the fourth quarter of 2008, largely through the price promotions and system bundling run by manufacturers and retailers during the critical holiday shopping season, some industry watchers have said.

Major price promotions were offered by leading discount chains, such as Wal-Mart’s $129 special, Target’s $149 special on an Olevia-branded player and Best Buy’s $169 sale on an Insignia-branded model.

Since then, most prices have trended back up to more than $200.

According to a consumer study conducted by SmithGeiger in 2008 for the Digital Entertainment Group, 60 percent of respondents listed higher cost as the largest reservation they had in making a Blu-ray Disc player purchase. Additionally, some of those who do use Blu-ray mentioned price as one important factor when considering the purchase of a Blu-ray Disc title.

Sears’ Zupnik said, “As we are hearing the opening price point is already flashing $149 — it needs to be $99 to really get things going. Even with that, as long as the movies are over $20 that will continue to keep things at a relatively slow pace. The consumer is used to [disc prices of] $13.99 at launch and picking through bins at $3.99.”

From a hardware perspective Reid Sullivan, Samsung digital audio/video marketing VP, said that he is wary of Samsung moving player prices downward too quickly.

“While price will always be an important consideration, especially in a soft economy, we believe there is a great opportunity to improve the consumer experience by offering more value,” Sullivan said. “The biggest opportunity to increase Blu-ray sales is to attach to the large and growing base of HD flat panel TVs. Consumers that may have recently purchased a HDTV now realize that only Blu-ray can deliver a true 1080p experience and bring out the full potential of their HDTV.”

Sears’ Zupnik agreed, saying: “1080p is the only call out that seems to attract consumers to Blu-ray, they are well aware of 1080p due to the TV spec, and matching it up is easy.”

In addition, Samsung, LG and other hardware manufacturers introduced Blu-ray Disc players that add IPTV applications with the ability to download various forms of audio and video content through built-in broadband connectivity as a value-enhancement.

“For LG, new player adoption begins with providing the best access to content for consumers,” Alessi said. “To do this we’ve partnered with the best in the industry, players like CinemaNow, YouTube and Netflix.”

Samsung’s Sullivan said: “We also think more and more consumers will find video-on-demand and other content services appealing as they become easier to use and offer a wider selection of content.”

But Zupnik said the IPTV message has not gotten across to most consumers yet.

“I have not seen much of an impact from IPTV, but the younger generation is comfortable with a significant amount of streaming and this may be part of why Blu-ray hardware’s install base is not as large as we all would like it to be yet. I don’t believe HD on demand, and quality content that is easy for the consumer to download is a threat [go packaged media].”

As for the wider crop of Blu-ray players adding BD-Live as another form of added broadband functionality, Zupnik said he believes retailers and manufacturers need to do a better job of getting the message out.

“BD-Live is not a requested feature,” he said. “Disney has done a good job [promoting it], almost to a fault, where you would think only Tinkerbelle and such titles they have advertised have this feature. If there isn’t a stronger marketing campaign to draw attention to the increasing number of titles that are BD Live, I am not sure it will be worth much to consumers.”

In general, Zupnik said, the industry needs to generate more excitement and awareness for their products.

“Customers don’t get it about consumer electronics as a whole,” he said. “Vendors and retailers do not do a good job building awareness and pent-up demand for new technology — other than the iPhone, the iPod and the last round of video game consoles. If there is no awareness or education before the product is released, the customers do not have any opportunity to apply a value to the benefit the technology will be for them, and determine if they need it right away or are willing to wait. This generally keeps the majority willing to wait until it hits a price, but the price is not based on what the technology is worth.”