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With a marked lack of fanfare, Microsoft (Nasdaq: MSFT) lowered the price of its Xbox 360 add-on HD DVD player from US$179 to $129. Microsoft has also bundled five free HD DVDs with the player.
The price cut comes just a few weeks after Toshiba dropped the price on its three HD DVD standalone players to $149 from $299. That move followed a Warner Bros. announcement that the movie studio would distribute films on the Sony-backed Blu-ray format exclusively.
At this point, it might appear that HD DVD's price cuts are the final, desperate twitches of a doomed format. Will price cuts bring the format back from the brink?
"The HD DVD format seems to have been declared dead by most followers of the Blu-ray/HD-DVD battle. It started with Warner Bros. announcing that they were going exclusively with Blu-ray. Market share seems to be dropping substantially for dedicated HD DVD players. Toshiba and now Microsoft have both announced substantial HD DVD player price cuts," Brian O'Rourke, an In-Stat analyst, told the E-Commerce Times.
All in the Numbers
Dropping the price of the HD DVD Xbox 360 add-on made sense for Microsoft given the reduction in the price of the standalone players, said Elizabeth Curtis, an IDC analyst.
"The HD DVD add-on didn't catch on at the higher price and would continue to see minimal pick-up at higher prices than that of standalone HD DVD players," she explained.
That is especially true given that Microsoft's price cut followed independent reductions by retailers that had already begun offering the item at $129 for Internet shoppers.
"Not only has Microsoft dropped the price, but other retailers are selling the add-on at lower than announced prices. To have the HD DVD add-on remain relevant, Microsoft needed to make this price cut," Curtis continued.
For Toshiba, Microsoft's pricing move is as close to a win-win situation as it could hope for. As millions of Xbox 360 gamers rush out to snatch up the add-on, it increases the format's installed base and keeps it breathing.
"It is more a business side play than what technology is dominant," said Ian Lao, another InStat analyst.
Still Need Content
Adding users isn't the only task HD DVD will have to compete to stay alive. Without enough content, the technology will go the way of Betamax. With only two major movie studies -- Paramount and Universal -- remaining in the HD DVD camp, the format struggles to offer viewers enough content to see with their cheaply acquired players.
"The issues involved in this battle go well beyond Microsoft's ability to affect the market one way or the other with this price cut. It's really up to the studios now as to whether HD DVD prospers or disappears," O'Rourke pointed out.
"Ultimately, content will determine which format wins the format war. While low prices on standalone players and free movie giveaways with purchase help Toshiba in the short term they will need more studio support to remain relevant in the long term," Curtis echoed.
One major content area that has remained neutral thus far is adult video producers. If makers of X-rated movies, currently focused on distributing their content online, come out for either format, then the war is all but over, Lao told the E-Commerce Times.
"Until one side capitulates it's hard to see a winner. But the interesting aspect to this is the market I would have expected to be the dominant pull has not made a statement yet. That dominant market is the adult entertainment market," he continued.
"Rather than go after the primary movie studios, whoever goes after and wins that segment may ultimately wind up the winner. It's not a sure thing, but looking at it historically, VHS won over Betamax [for that reason]," Lao stated.
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