Originally Posted by Amir of Microsoft
If you want to take this thinking further, you have to wonder why the discs are not even more expensive than they are (in both formats) since studios don’t make money on hardly any titles in HD!
So what we have is not a proper economic system yet so we can’t judge it that way. You have companies subsidizing production of discs and not passing on the true cost to their consumers. You have small market where companies are investing strategically instead of economically. You have consumers not being price sensitive, buying $80 HD DVD/BD packages, etc. pushing a documentary and HD DVD test disc ahead of Hollywood titles in Amazon DVD rankings.
But as we look at this market, I think we all care about the time the format becomes mainstream. At that moment, you have to think of big numbers. I think I heard Warner alone stamps out close to half a billion DVDs a year! On that day, competition will be fierce forcing lower retail prices and cost of production will be a key factor.
On top of that, you have to look at where the supply comes from. HD DVD is not cheaper to produce because its plastics cost less than the same plastic used in BD . It costs less because it is possible to deploy it in existing DVD lines and as a result, just about any DVD line purchased in the last two years or so can, and many are making HD DVDs. This volume availability will invariably lead to lower cost due to higher level of competition for the business. You know, the old supply and demand rule in economics .
In addition, a typical BD line is $1.5M to $3M. Someone has to go and buy this line and dedicate it to making BD discs. And that cost will be passed on to people. Companies will not subsidize this business forever and certainly not through their competitors (i.e. one replicator helping the other). This is different again from HD DVD where the same line is already bought and being amortized on the backs of DVD business. So every day, we get more HD DVD capacity online, without having to lift a finger, or write a check.
Net, net, when we step out of the niche/artificial environment we live in, the strength of HD DVD comes into play strongly and result in lower cost to consumers. And yes, higher profits for some companies if the consumer/competition allows it.
Finally, on combo pricing, that has not hurt the sales of the discs as compared to other HD offerings in the eyes of studios. In the grand scheme of few titles making money, it is hard to argue the point strongly to the studios when a disc sells as well as non-combos. But again, once the market expands and true economics set in, the studios will get a better picture of whether they should charge the premium. But one thing is for sure. Combo discs are an incredible technical accomplishment and solve key consumer adoption problems. If we ever have hope of making these formats mainstream, we have to deal with the other “format war”: that of DVD and HD. The combo is the true “universal” format in that sense. So while like you, I am not happy that a premium is charged for it sometimes, I salivate at the thought of seeing DVDs being replaced one day with combo HD DVDs and consumers not even blinking. Connecting this with the BlockBuster discussion, combo HD DVDs can be shipped to them as DVDs and wind up in all of their stores, whether they make a conscious decision about carrying HD DVD or not. See how powerful of a card this is?
Oops, this became kind of long. Hopefully you didn’t expect a short answer.