By Richard Menta 3/7/08
When a technology format succumbs the story usually ends right there as the marketplace has no need for dead technology. Shortly after the priests gave last rights to Toshiba's HD-DVD format I thought I would monitor that harbor of market fluidity known as eBay to see how low - and presumably how ignored - HD-DVD player units and movies would go. I guess it is a morbid curiosity on my part to watch those who invested in the technology - some as recently as this past holiday season - bite the bullet and dump their once coveted item for the victorious Blu-ray.
I was correct in my assumption that HD-DVD owners would dump the technology. Here is something I did not expect; these players and films are finding many takers.
Huh? Did these people miss the memo that Blu-ray won the war? Considering that high definition player technology is still the domain of the early adopter - in other words the savviest consumer who is purchasing home electronics - I find it hard to believe there are that many naive people out there.
As I thought about a reason to explain this energetic activity for a condemned technology it dawned on me that the post-mortem HD-DVD market may just be benefiting from the rules of a disposable economy. These are consumer actions where if a product is cheap enough it is worth it for the buyer to commit to it for the short run even if all they will do at the end of that run is dispose of it in the trash. I'll explain this logic and why it might offer a possible reason for what is happening on eBay.
At full retail HD-DVD players were always priced significantly less than their equivalent Blu-ray counterparts. The cheapest Blu-Ray units to date run between $300 and $400 with mid-priced units priced at over $500. In November, Walmart and Best Buy sold the Toshiba HD-A2 for $99. Toshiba also released its third generation models for the holidays, the HD-A3 ($299), the HD-A30 ($399) and the HD-A35($499). Lower prices were not enough to pull Toshiba ahead. Brick and mortar shops like Target and WalMart sold HD-DVD and Blu-Ray movies for between $30 and $40 on average.
Post-mortem HD-DVD wares selling on eBay fall into two categories: 1. Sellers who know its over and are just trying to move their units for whatever they can get before they are completely worthless and 2. Sellers who have yet to be hit by reality and have put reserve prices on their items which are near list price. Observation shows that this second group of sellers are being ignored.
Those who are letting the eBay market dictate the price are finding ample bidders. For example, on February 25th a new sealed Toshiba HD-A3 with 5 movies included sold for $78.77. There were 21 bids on this player. A new-in-box Toshiba HD-A35 garnered 20 bids and sold for $154.49. Early March auctions for these two models are closing at around the same prices and "buy it now" prices are starting to reflect this. Used HD-A3x units - players with at most a couple of months use - are selling for less. All of these units play and upconvert standard DVDs. But even if you can get one of these players at near the cost of a standard DVD player, is there really much of a point?
Films and television shows in the HD-DVD are selling quite cheaply on eBay, averaging between $6 and $10 for an unopened disc. That's less than what you can buy the standard DVD version of the same movie for. This is where it gets interesting, because HD-DVD owners now have the opportunity to build themselves a sizeable film library inexpensively.
A key issue with high-def discs that also comes into play here is that the number of available films in both HD-DVD and Blu-Ray are rather enemic. Furthermore, because of exclusive contracts with movie studios, many titles are only available in one format or the other. Sure, it will all move to Blu-ray now, but that will take time, particularly since there are only a relatively small number of Blu-ray users now. Until Blu-ray players hit critical market mass each studio will only offer a modest cross-section of their films in high-def. That means it may take a couple of years before the local video rental shop sports a robust selection of Blue-ray titles. Until then Blu-ray users will find themselves using their pricey units to play a lot of standard DVDs. Of course, so will HD-DVD owners.
Early Adopter Depreciation - Do the Math
The early adopter pays a premium for aquiring the latest greatest now. Even though Both Blu-ray and HD-DVD have been around for a few years now, their battle for supremecy kept all but the early adopter out the market for high-def discs and equipment. For all intents and purposes, Blu-Ray still caters to the early adopter.
The nature of the consumer electronic industry is that two years from now the average consumer will probably be able to buy a Blu-ray unit for $80 that is equal to or better that the model the early adopter buys today for $300. This sets up what I call the early adopter depreciation.
The average adopter chooses to wait until prices come down ($80) before they invest in new technology. The early adopter who buys the least expensive Blu-ray unit gets to enjoy the new technology right away, but pays $300 for the privilege. The early adopter depreciation is the difference between these two figures, $300 - $80 or $220.
The early adopter essentially gets 2 years of Blu-ray for a $220 premium, which excludes the cost of buying or renting movies to play on the device. That's ok with him, because what is important is that he gets it NOW. This is what is most compells him to be an early adopter.
The demise of HD-DVD as a competing format creates a third option. An option where the consumer can get his high-def player now without paying the $220 early adopter premium. That savings pays for the player and more.
Take a consumer with a 42" plasma set who needs to replace a broken standard-def DVD player. He can a) replace it with another standard definition DVD for about $60. b) He can buy a Blu-Ray player for between $300-$1000. c) He can buy an HD-DVD unit for under $80 and then buy ten $10 or sixteen $6 HD-DVD videos.
The total cost of option C is about $180, which unlike options A and B extends the buyers existing DVD library. The cheap HD-DVD videos are critical here, because while it's only twenty dollars more to go to a high-def player, there is little advantage gained without high definition videos to play on it.
This $180 pay-out by the post-mortem HD-DVD adopter is $40 below the estimated two-year $220 early adopter depreciation today's Blu-ray consumer will experience. And this is before the Blu-ray consumer has bought or rented a single movie to play on their device.
As both the Blu-ray and HD-DVD user adds hi-def discs to their collection the HD-DVD consumer will do so at techno-dump prices. True, only Blu-ray consumers will have access to rent and buy the newest feature films, but as we mentioned before this advantage is muted by the fact that not all films will be made available in high definition in the short run.
Assuming that the pundits who are calling Blu-ray's victory pyrrhic are not correct, when the Blu-ray film and video catalog becomes robust two years from now the HD-DVD owner can simply buy that $80 Blu-ray unit and toss the HD-DVD player in the kids room for general DVD use.
And if the pundits are right? Then Blu-ray consumers gain nothing over their defeated HD-DVD brethren as both formats are short-term investments. As MIT professor Pai-Ling Yin told the NY Times:
But are these consumers really thinking about risk and short-term obsolescence when they buy these leftover and unwanted HD-DVD players on eBay. I doubt it.
I think they just came to the realization that the loser of the HD-DVD/Blu-ray war could offer the better interim value, the interim being the time it takes for high-def DVDs to replace standard-def. Yes, they are buying this decade's version of the Betamax, but as Pai-Ling Yin pointed out there is no guarantee Blu-ray will avoid the same fate.
And that's the message here. These consumers are buying, but they not buying Blu-ray. That should concern Sony. Instead, they are raising Blu-ray prices.
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