Back in August, Steve Nickerson, senior VP of market management at Time Warner (NYSE:TWX) subsidiary Warner Home Video, presented some implausible market projections for consumer uptake of HD DVD and Blu-ray video systems. At the time, he thought we'd see 500,000 set-top boxes, about 2.5 million game consoles, and 3 million computers that could read high-definition discs of one format or another by the end of the year, but various production delays have forced him to cut back those estimates a bit.
Last Friday, Nickerson said that he now expects about $900 million in combined hardware and software sales for the rest of the year, industrywide. That's about half of the earlier forecast, but I still think he's aiming far too high.
Nickerson is basing his optimistic projections on the assumption that consumers will adopt the new technology faster than they did the original DVD players. That, in turn, was the fastest-ever ramp-up of a consumer electronics platform in history. The Walkman, the VHS player, CDs -- none of these could hold a candle to the early success of DVDs.
The Sony (NYSE:SNE) PlayStation 3 is supposed to ship within a month now, and Sony is hoping that it will elevate Blu-ray to a common household item the same way the PlayStation 2 helped get DVD players into our homes. But reports indicate very low volumes, and we know the console will be very expensive. Microsoft went the other way with its high-definition support and has yet to launch its $200 add-on HD DVD player for the Xbox 360. The Redmond giant doesn't appear comfortable with the HD market prospects just yet.
The question is whether high-definition DVD technology is ready for prime time yet. The main advantage is that you can cram more data onto the disc, producing a higher-resolution image. And, yes, it does look very nice, particularly if viewed side by side with a standard-resolution TV. You can go to your local Best Buy (NYSE:BBY) or Circuit City (NYSE:CC) and try that for yourself.
But is that enough of a difference-maker to inspire millions of us to spend up to $1,000 on a first-generation set-top box that can only play one of the two competing formats? Pick the losing format, and you'll end up buying another player in a couple of years. It's VHS vs. Betamax all over again. That's hardly the stuff of sales-record legend, and I'd be surprised to see more than a few hundred million in high-definition electronics sales this year, even with the holiday season yet to come.
"We as an industry need a new format to grow our business," says Nickerson. But that places the fate of his business in the hands of companies like Toshiba, Samsung, Sony, and Philips (NYSE:PHG), far out of Warner's control. As an alternative, Disney (NYSE:DIS) is planning to drive sales by investing in more and better content, and I'd like to reiterate that I think that the House of Mouse gets the new market realities better than any of its competitors today. Warner might do well to follow Mickey's lead.
Further Foolishness:
- Disney gets it.
- CBS (NYSE:CBS), on the other hand, doesn't.
- Our entertainment sector head, Shruti Basavaraj, surveys her kingdom.
Walt Disney, Time Warner, and Best Buy are all Motley Fool Stock Advisor recommendations. Take a peek over the Gardner brothers' shoulders with a 30-day free trial of our flagship service, and see why they believe in the entertainment industry.
Fool contributor Anders Bylund is a Disney shareholder but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like. Foolishdisclosuregets it, and makes sure that you do, too.
