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Have U.S. Blu-ray Hardware Sales Reach Top of Bell Curve?

Monday April 15, 2013 – Stewart Wolpin

Even as the streaming home video revolution continues to widen, Blu-ray software and hardware sales continue to hold their own.

According to DTC estimates, worldwide Blu-ray hardware sales rose 14% last year, will rise 13% this year and 12% next year. On the software side, DTC projects worldwide packaged media sales grew 43% in 2012, and will grow 32% this year and 29% next year.

But in North America – or at least in the U.S. – 2013 will be the last year in which Blu-ray hardware sales show positive growth. Or, it could be the first year Blu-ray will register the oxymoronic negative growth in the U.S.

In the last couple of weeks, I've had conversations with executives from Samsung, the worldwide Blu-ray hardware sales leader, Panasonic and LG, the numbers 3 and/or 4 Blu-ray deck sellers, depending on what month it is. When asked about Blu-ray sales, all hemmed and hawed Ralph Kramden style – not exactly the reaction one would expect if all things Blu-ray were as rosy as they appear to be worldwide.

Dave Das, Samsung's VP for home entertainment products, allowed that the Blu-ray hardware market in the U.S. was "starting to stabilize," and that unit sales "seemed to have peaked and are already declining." Das is hoping for, at best, flat Blu-ray hardware sales in the U.S. this year, but his current forecasts say there'll be a 3% dip in Blu-ray units by the time the ball drops in Times Square next Dec. 31.

Tim Alessi, LG's new product honcho, was a bit more politically circumspect about negatively projecting this year's Blu-ray hardware sales, estimating small growth but allowing that sales could easily swing in the wrong direction. But his body language didn't exactly exude confidence.

Panasonic's estimates for U.S. hardware sales presented at a recent press event also are officially flat for the first time.

Without saying so, it would seem first quarter Blu-ray hardware sales weren't as robust as these companies would have liked, a downward trend that may be accelerating as streaming becomes more ubiquitous in the U.S.

Soft disc sales

While Blu-ray unit growth/decline seems to be teetering on the sales fence in the U.S., U.S. Blu-ray disc sales growth have already begun to decline, indicating soft demand for software.

For instance, DTC projects packaged media sales in North America declining compared to the rest of the world, steadily dropping from a commanding 48% in 2011 to just 39% this year and 36% next year. By 2017, North American share of pre-packaged media sales is forecast by DTC to drop to 24%, behind both Europe and Asia/Pacific.

In the U.S. market specifically, DEG (Digital Entertainment Group) recently reported revenue from disc sales declined 5.5% from 2011 to 2012, revenue from brick-and-mortar disc rental slid nearly 24% and revenue from subscription disc rentals (i.e. Netflix) dropped a whopping 28%.

Meanwhile, revenue from what DEG calls "electronic sell-through" (EST) leapt 34.6% while subscription streaming jumped a massive 46% last year.

Sexier streamers?

Obviously, streaming media and streaming media devices – dedicated media streamers, videogame consoles and smart TVs – are eating into physical media sales and, by extension, sales of Blu-ray decks.

What's odd about this pessimism surrounding Blu-ray hardware sales is that more than three-quarters of the Blu-ray players sold by the major brands are "smart" decks, packed with media streaming services such as Netflix, Vudu, Hulu, et al.

While Blu-ray hardware marketers know their wares present a high value proposition compared to dedicated streamers, it doesn't appear they've gotten that message out to consumers. Both smart TVs and media streamers seem to be perceived as sexier products, easier to sell than old lady disc players.

Blu-ray hardware and media sales are likely to continue to grow worldwide, albeit less robustly as in years past. But it's clear that Blu-ray sales have reached the top of the bell curve in the U.S. market.

Japan’s TV Empires Have Fallen. Will They Rise Again?

Tuesday April 9, 2013 - Greg Scoblete

All great empires fall, undone by a familiar pattern of hubris, over expansion, internal decay, strategic blunders and the rise of mightier competitors. The consumer electronics industry is littered with its own empires and while their fall doesn't involve pillaging and Earth-salting (at least, not yet), their ebb and flow does remind us of the geopolitical empires of old – with a twist. For unlike ancient empires that succumb to history, electronics empires can come back from ruin.

The most prominent example, of course, is Apple, which stumbled to near irrelevancy only to be rejuvenated by the return of its founder.

Today, all eyes are on the Japanese TV titans Sony and Panasonic. From a position of unrivaled strength in the 1980s and 1990s, these two empires have been crumbling. Fast. The TV divisions of both are bleeding red ink profusely, hampered by an unfavorable exchange rate, a sharp drop in domestic demand, and the surging success of South Korean rivals Samsung and LG. Sony lost 80 billion yen on TVs in 2012, curbing its sales forecast by two million units. It has suffered losses in its TV business for four straight years.

Panasonic, which placed a huge and ultimately losing bet on plasma technology, has fared no better with the company CEO musing openly about dumping its TV business as a “last resort.” 

Yet both firms have insisted that their TV divisions will rebound. Unlike other Japanese competitors such as Mitsubishi and Hitachi, who have shuttered production in Japan and curbed investment in TV technology, both Sony and Panasonic remain committed.

The question is: are they throwing good money after bad or do these once powerful empires have an opportunity to rise again?

There’s reason for, at a minimum, some guarded optimism. For one, the Japanese central bank has embarked on an aggressive move to devalue the Yen, which would make Japanese products more price-competitive with Chinese and South Korean rivals. Second, the TV market is nearing another upgrade cycle with the coming of OLED and 4K/Ultra HD technology.

Both Panasonic and Sony are investing heavily in OLED and 4K display technology and the consumer TV market, while sagging, could be rejuvenated as prices for these displays drop into consumer-friendly territory (likely in 2015 and 2016) and more 4K content trickles onto the market.

Of course, Samsung and LG see this OLED/4K wave coming as well and has been also been ramping up their investment and research into these technologies. Their powerful market positions clearly give them a leg-up as the new technology wave reaches the shore. Still, the transition from HD to 4K and from LED to OLED cracks open a new, and perhaps final, window for once mighty empires to reclaim some lost territory.

Is Pay TV on the Verge of a Shakeup?

Monday April 1, 2013 – Greg Scoblete

In the Abelian sandpile, grains of sand are piled up on each other until the pile reaches a critical state, i.e. the point at which any subsequent grain can cause the entire structure to collapse. In this model, one tiny grain drop can cause a huge cascade out of all proportion to the original size of the disturbance because the sand pile had reached a dangerous threshold of latent instability.

Could something similar be happening to the pay TV industry? Can a drip-drip of news amount to the piling of sand on a structure that is about to, not collapse, but be fundamentally reorganized?

Consider:

• Last week HBO's chief executive Richard Plepler indicated that he saw a possible future in which HBO Go is disaggregated from a cable TV subscription and is instead bundled, for an extra $10 or $15 a month, with a broadband Internet subscription. Of course, Plepler hastened to insist that HBO "had the right model" at least for the time being, but the fact that he floated the idea at all when previously HBO execs had pooh-poohed the idea, seems significant.

• Also last week, the Wall Street Journal reported that Verizon was looking to tie the fees it pays to content holders based on how many people actually viewed their content. The idea, Verizon said, was to "stabilize retail prices" for consumers.

•  In late February, Cablevision announced a lawsuit against Viacom for bundling MTV and Nickelodeon with small channels such as Palladia and TR3s and, in effect, forcing customers to pay for content they don't watch. Cablevision's competitors, including DirecTV, Time Warner Cable and Charter, reportedly "rallied behind Cablevision" when the suit was announced, according to the New York Times.

What stitches these announcements, these grains of sand, together is the growing universe of streaming video services. Just this week, it was rumored that the wildly popular music streaming service Spotify would be jumping into the video streaming market. Intel is reportedly close to unveiling its own virtual cable service. Oh, and YouTube now has one billion monthly visitors.

While these online alternatives haven't led to a rash of cord cutting, they're clearly creating a sense of, not panic per-se, but concern about the trajectory of consumer video consumption habits. Pay TV providers and content owners alike may not have hit upon a new formula for the streaming age, but it's clear there's a lot of movement afoot to find one.

As the HBO and Cablevision news indicates, there are two possible ways the sand pile can tip. First, content owners can cut out the pay TV provider middleman and stream directly to consumers over the Internet. But it's a risky ploy, particularly if pay TV providers respond by dropping those channels and throttling consumer bandwidth. The second, and more plausible, scenario is a proliferation of more bundles. No pay TV provider wants to go fully a la carte, but competitive pressure from streaming services is likely to open the door to a greater diversity of channel groupings, including lower-priced tiers to sway would-be cord cutters.

Suffice it to say, the sand pile is teetering.