Masayuki Kozuka, general manager in charge of storage device strategy, Matsushita
Masayuki Kozuka, general manager in charge of storage device strategy, Matsushita
[Click to enlarge image]

Following Toshiba's withdrawal from its HD DVD business, Blu-ray Disc (BD) has virtually become the standard next-generation DVD format. Will Blu-ray really grow to a huge business that replaces DVD in and after 2008? Nikkei Electronics interviewed Masayuki Kozuka, general manager in charge of storage device strategy, Matsushita Electric Industrial Co Ltd, who can be described as a key person behind the Blu-ray's diffusion strategy.
(Interviewer: Naoki Asakawa)

Q: What were the factors behind Toshiba's withdrawal from the HD DVD business and Blu-ray Disc's victory? Could you please sum up the next-generation DVD war from the second half of 2007 to date?

Kozuka: For us, the year-end sales season in the US at the end of 2007 was the field of our final battle. In the segment of players for consumers, HD DVD had been ahead of Blu-ray on a cumulative unit sales basis until December 2007, in which BD players outperformed HD DVD at a proportion of 6:4.

Of course, since Warner Bros Entertainment Inc joined Blu-ray supporters in January 2008, Blu-ray players have been selling far much better than HD DVD players. Toshiba then reduced the prices of its HD DVD players, but our lead remained solid.

In addition to the competition over players for consumers, the PlayStation 3 (PS3) also contributed to Blu-ray's victory for sure. As Warner insisted that "Unit sales of the PS3 have nothing to do with the format competition" thus far, Sony apparently responded to Warner enhancing the PS3's attractiveness as a BD player by including a remote controller and 10 packaged software discs with it.

I guess what sealed Toshiba's fate was its "US$99" pricing on Black Friday. That pricing must have discouraged every manufacturer from entering the HD DVD player market. I believe Chinese manufacturers' entry to the US market was HD DVD supporters' last hope. Given the market price at US$99, however, it became impossible for any other manufacturer but Toshiba to enter the market.

Q: In the wake of Toshiba's withdrawal, have Blu-ray product sales changed?

Kozuka: Partly because a large number of BD players were sold at the end of 2007, we can only recognize nominal changes in BD sales at present. As for popular Blu-ray recorders in Japan, manufacturers greatly increased their production from 2008 after they fell in short supply at the end of 2007 and, therefore, a considerable number of products must be placed on the market now.

I'm sorry that Matsushita's Blu-ray recorders, in particular, were in extremely short supply because we estimated the demand incorrectly.

Q: How far do you expect Blu-ray Disc will penetrate in 2008 after virtually becoming the standard format?

Kozuka: I'm expecting BD player sales to reach at least 4 to 5 million units in North America in 2008. US movie studios, on the other hand, seem to be intending to boost their sales of Blu-ray packaged media up to US$1 billion.

If they are sold at US$20 per title, the targeted sales represent more than 50 million titles. In comparison with roughly 7 million titles sold in 2007, US movie companies are estimating unit sales of seven to eight times as many.

Movie companies will target a shift from DVD to Blu-ray from now. They say, now that the formats are standardized, they will seriously promote the shift.

In Japan, where recorders sell well, Blu-ray recorder sales will rise to 1.5 to 2 million units, I guess. I'm personally anticipating sales of BD players and recorders for consumers are highly likely to surpass 10 million units including sales in Europe.

Q: Are you feeling threat of the rising Internet-based network distribution businesses?

Kozuka: Some even said that "Blu-ray would be defeated by network distribution," but that's an irrational argument. Our partner movie studios are saying, "Leaving aside Japan, where the broadband environment is established, it takes long before we realize movie distribution via Internet in the US, where data rates are mostly as low as several hundreds of bits per second."

Of course, if the player supports the "BD-Live" network service specification for Blu-ray, its user can receive network distributions through pseudo-streaming (progressive downloads), for example. However, considering capital investment in distribution servers and the difficulty to secure QoS, it can't be described as a business that holds a reality at the present state.

For one thing, network distribution and packaged media belong to different business segments for movie companies. Movie companies earn income by showing movies at theaters first and then by selling them as home video packages including Blu-ray Disc titles. Only after gaining the majority of their sales through these two business channels do they offer their content to video-on-demand, pay-per-view and TV broadcast services.

Network distribution is part of the video-on-demand segment among these three businesses. Network distribution and packaged media are different in terms of service schedules and customer tiers. Our associates in the home video department don't see any reality in the business of "downloading an entire movie." I'm not sure about seven or eight years from now, though.