A silver lining for Blu-ray

LOS ANGELES (Hollywood Reporter) - Blu-ray Disc player sales were strong through the holidays, and even the season's so-so disc sales went well enough to sustain industry hopes that the format can still become a next-gen cash cow for the studios.

That's the broad, instant analysis of how Blu-ray hardware and software fared during the fourth quarter. Industry trade organization Digital Entertainment Group is expected this week to release detailed breakdowns of 2008 Blu-ray and DVD sales as well as projections for the high-def format and its traditional-disc forebear.

Two elements loom large:

-- Industryites hoped holiday gift purchases of Blu-ray players and discs helped the format gain a firmer market hold.

-- The global economic crisis put a crimp on consumer spending.

Happily for Blue-ray proponents, player prices were slashed dramatically for the Black Friday kickoff to the holiday shopping season -- in many cases as low as $200, long considered a key price point for consumer acceptance of such technology. That was a little late in the game to bolster high-def disc sales, but Blu-ray machines fairly jumped off store shelves once retailers dropped prices on the hardware.

On Monday, Adams Media Research said fourth-quarter player sales went so well that the research firm was raising its estimate of Blu-ray households in the U.S. from a previously projected 2.9 million to 3.1 million by year's end.

"On the hardware front, things went exceedingly well," said Tom Adams, president of the Carmel Valley, Calif.-based research firm. "On the other hand, it all happened so late in the year that it didn't drive software sales as much as we had projected."

Adams Media had been expecting studios to sell about 30 million Blu-ray discs during the holidays but ended up selling "probably only in the mid-20s," Adams said.

Studio execs began reining in their own projections at the outset of the fourth quarter, with the pullback in consumer spending already evident. But DEG announced a $25 million marketing campaign to push Blu-ray amid the challenging conditions, and there is a prevailing sense that Blu-ray's holiday campaign went OK, all things considered.

"Blu-ray sales were strong enough throughout the year, and particularly in the fourth quarter, to bolster confidence that this will be the next-gen disc format," said Scott Hettrick, editor of the Blu-ray blog HollywoodInHi-Def. "Set-top player sales were very slow to take off. But in the late third quarter and early fourth quarter, especially after Black Friday, sales of Blu-ray players really took off. That's probably the most encouraging aspect of the Blu-ray market right now."

Meanwhile, Blu-ray disc sales remain a sliver of the overall home entertainment market, contributing perhaps 5% of sector revenue in 2008. Yet with DVD revenue now dipping, studios are desperate to find a replacement for the vital cash flow traditional disc sales have generated.

That would be Blu-ray -- eventually. Blu-ray's current installed base is less than one-fourth what many feel is needed to sustain disc sales and sufficiently replace diminishing DVD revenue dollar-for-dollar.

Adams Media projects 15 million Blu-ray households in the U.S. by the end of 2010, which by no coincidence Adams believes also could be the first year high-def disc sales manage to make up completely for the annual decline in DVD sales.

Of course, there are already titles that do notably well in Blu-ray. Big sellers over the holidays included Warner Bros.' "The Dark Knight," Paramount's "Iron Man" and Universal's "Mamma Mia!"

But overall, no one is rushing to declare a huge victory for Blu-ray software sales this holiday season.

"The studios expected to turn things around in the fourth quarter with some very strong titles, but it didn't happen," Adams said. "We think sales will be down at least in the single-digit percentages when we total everything up."

But there's also no sign of anyone giving up the hope the Blu-ray will develop into a lucrative home entertainment format.

"I don't think any of this impacts the big picture of Blu-ray's taking over from DVD," Adams said. "This is just a sign of how bad things were economically in the fourth quarter." [Source from: Reuters/Hollywood Reporter]