‘Blu-ray versus HD-DVD: A Standards Battle in High-Definition Video’
1. What factors do you think influenced whether (1) consumers, (2) retailers or (3) movie producers supported Blu-ray versus HD-DVD?
Every party in this standards battle had its own reasons for chosing one standard over the other. For instance, the motives for movie producers to choose Blu-ray were completely different from the motives for consumers to choose Blu-ray.
In our opinion, the main factors that influenced (1) consumers in their decision to support either Blu-ray or HD-DVD were technical differences, complementary goods and the size of the installed base. Supporting one of the standards, from a consumer-perspective, can be defined as buying a Blu-ray- or an HD-DVD-player. Roughly, the consumers can be divided into two groups: Early adopters and the majority. Early adopters gave their support to one of the standards based on technical differences and complementary goods. In this case, early adopters are consumers who are interested in technology and do their own research about what is the ‘better’ standard. The complementary goods are the number of movies released on one of the standards, which obviously is also important. The majority based their decision on the size of the installed base and also the complementary goods. Again, the number of movies is important, but for the majority the size of the installed base of one of the formats is most important. The benefits of a technology can only be observed after a certain critical mass of users has been achieved. (Suarez, 2004). This means that it was a race to the tipping point of the installed base. When this was reached by one of the formats, the race would have been won and this format would become the dominant format. Eventually, the decision from Sony, to incorporate a Blu-ray-player into their Playstation 3, which essentially came down to giving away Blu-ray-players for free, turned out to be an good one. This way, the installed base of the Blu-ray-standard rose explosively, which led a number of movie producers switching to the Blu-ray-standard, increasing the number of movies released on Blu-ray, also known as complementary goods. It’s a self-reinforcing cycle.
The main factors that influenced (2) retailers to support one of either standards were pricing and demand (installed base). From retail-perspective, supporting one of the standards, can be defined as offering it. A lot of retailers, like Wal-Mart and online video rental service Netflix offered both formats in the market introduction-stage. The costs for offering both standards were not higher than the revenue it produced, compared to offering only one of both standards. For consumers, especially for the majority, it would be hard to accept that the exact same movie would cost more on Blu-ray than on HD-DVD. So, retail pricing would be similar for both standards. However, production of HD-DVD’s was cheaper, so with this standard a higher profit could be made for the retailers. When Wal-Mart made the decision to discontinue HD-DVD-hardware and movies, Gary Severson, senior vice president, Home Entertainment said in a press release: ‘We’ve listened to our customers, who are showing a clear preference toward Blu-ray products and movies with their purchases’. This was released on February 15, 2008. At that point, HD-DVD-players were still being produced. The consumers chose the Blu-ray-format and so, all retail stores discontinued the HD-DVD-format.
The main factors that influenced (3) movie producers to support either the Blu-ray- or the HD-DVD-format were technical differences, pricing and installed base. Supporting one of the standards out of the movie producers-perspective can be defined as releasing movies on of the standards. Walt Disney Pictures and 20th Century Fox supported Blu-ray because of the DRM-possibilities Blu-ray offered, which HD-DVD did not. On the other side,...