Wal-Mart favors HD-DVD

Wal-Mart may not have an official stance on the respective merits of HD-DVD versus Blu-Ray, but actions speak louder than words. According to a recent report, Wal-Mart will be buying 2 million HD-DVD players at a price of around $50.

Wal-Mart may not have an official stance on the respective merits of HD-DVD versus Blu-Ray, but actions speak louder than words. According to a recent report, Wal-Mart will be buying 2 million HD-DVD players at a price of around $50.00 per unit. Of course, consumers won't see a price that low, and there is some debate as to what the exact price will end up being, but it seems very likely that consumers could see sub-$200 HD-DVD players very soon.

Why did Wal-Mart favor HD-DVD? This article by Rob Enderle offers an explanation. DVDs have served as as great way to drive store traffic, to the extent that they are willing to make almost no money from DVDs, and they would like to do the same thing with HD formats. Unfortunately, a format war has hindered growth in the space. To see just how limited that growth has been, consider these sobering statistics from Eric Bangeman on Ars Technica:

Compared to sales of movies on DVD — by far the most popular format — the numbers for the next-generation discs are a mere drop in the bucket. The top selling DVD for the week ending March 30 was Happy Feet, which moved over 4 million units that week alone. For the week ending March 11, Borat was the big winner, and the number two title, Peter Pan, sold 2.2 million discs.

If you do the math on Happy Feet and the Blu-ray version of Casino Royale, the latter title took three months to sell just under 1.5 percent of what Happy Feet was able to sell in its first week. Another dose of perspective: in the seven days after its release on DVD, Borat sold more discs than all HD DVD and Blu-ray titles combined since the launch of two formats last year.

Wal-Mart saw an opportunity to use its market power to break the logjam, and they chose HD-DVD because of its cost advantages, as Enderle explained:

For Wal-Mart the only real metric is cost. Wal-mart doesn’t really make money off of the movies and do not sell high-end home theater equipment. They are known for aggressive prices and, as mentioned above, they subsidize their DVD sales. They needed something that could sell for under $200 soon and they needed the lowest cost of the new formats. This is where HD DVD shines, not only had Toshiba agreed to license to low cost manufacturers early on, but HD DVDs are pressed on the same lines that regular DVDs are, they require no major equipment change out and the blanks, when compared to Blu-Ray are less expensive as well.

This made the decision simple, Blu-Ray was just too expensive to make this work and any technical advantages were insignificant against Wal-Mart’s need for the lowest cost offering. For them it is about price and that is where HD DVD clearly has the sustainable advantage.

Blu-Ray is clearly the sales leader right now, a status driven almost entirely by sales of PS3 devices, which includes an integrated Blu-Ray drive. As noted before, this isn't a sign of the PS3's raging success so much as the extremely low numbers of players sold which support either format, giving Sony's third-place console the chance to tip the balance in the HD disc war.

However, the PS3 costs $600.00. Granted, you get gaming capability as part of the package, but what happens once standalone HD-DVD players push below $200.00, or if the $50.00 cost to Wal-Mart prove true, even lower?

I have to agree with Eric Bangeman that calling the race with sales as low as they are is premature. The PS3 managed to tip the scales towards Blu-Ray. Wal-Mart and cheap HD-DVD players could easily tip it back in the other direction.