What does Ken Graffeo know that the other home video execs don’t?
Executive vice president of high def strategic marketing (worldwide) for Universal Home Entertainment, Graffeo is one of the studio’s – and probably the world’s – strongest advocates for the cause of https://hd-report.com/hd-glossary/HD-DVD. While other operations (Sony, Fox, Disney) are strictly backing the rival https://hd-report.com/hd-glossary/Blu-Ray format, or are espousing a “why-can’t- we-just-coexist” neutrality by putting out discs on both formats (the Warner Bros. and Paramount position), Universal is sticking strictly with the Toshiba-developed and Microsoft- finessed HD-DVD format.
And given that Universal produces about 30 percent of the movies people watch (and rent and buy) , that loyalty has become a major reason to buy an HD-DVD player. Okay, so maybe we can live without Universal’s recent HD issue of “The Jerk.” But can you say the same for other recent releases? Like “Children of Men”, “The 40 Year Old Virgin,” “Lost in Translation,” “Eternal Sunshine of the Spotless Mind,” “Smokin’ Aces,” “Dragon Heart,” ”Midnight Run”. . . well you get the idea.
We recently got to jabber with Ken Graffeo about his company’s mindset. Readers of my syndicated newspaper column (originating at the Philadelphia Daily News) have already seen excerpts. But for ATHD, the editing gloves come off and we can really dig in with the questions, and Ken’s informed responses.
Q: Many people wring their hands over this format war, saying that it keeps consumers sitting on the sidelines waiting for a “winner” to emerge, in the way VHS eventually triumphed over Beta. What’s your response to that?
Graffeo: I can tell you this much. It’s been a little over a year since HD-DVD was introduced, a little less for Blu-Ray. The recent promotions taking place with a $299 bottom price for an HD DVD-player – versus $799 for the original model – that’s really the result of a format war. To have the price dropping so hard in such a short time, and the announcements from Sony and Panasonic of Blu-Ray players coming at $599 – down from $1000 and up – that’s unprecedented. DVD took much longer to drop in price. The format war is driving pricing down at an accelerated rate. So the consumer is benefitting.
Q: What sparked you to support the HD-DVD format in the first place?
Graffeo: Universal knew, several years ago, what was optional and what was mandatory in both formats. We knew with HD-DVD, every player manufactured from day one would meet all the specs that were required for interactivity and on-line connectivity, with a built in Ethernet port. Look at Blu- Ray. That’s still not the case. That’s been a real point of contention, to have players that can’t support BD-Java (interactive software). The two “Pirates of the Caribbean” movies just out on Blu-Ray won’t play on a lot of players (editor: including first gen Samsung, Philips and Sony disc spinners, but reportedly will do so after firmware upgrades.) In fact, the Blu-Ray format’s BD-Java and online interactive features won’t be set until October 31. After that, any new Blu-Ray models that are introduced have to meet the specs (ed: including the ability to generate dual, stream picture-in picture) , but manufacturers can continue to make and sell older models that don’t. We at Universal have always wanted the consumer to have the best experience, to have a player with all the features and specs, and at a price that’s affordable. We put interactivity (billed as “U-Control”) on many of our titles. All so we can get the early adopters on board, and achieve a high attach rate (software sales per player).
Q: But what about the argument, widely expressed, that if this war isn’t over soon, both formats will fail, as consumers look elsewhere for their high def content – like the internet, or their pay-TV provider. Even Microsoft chief Bill Gates has gone on record as saying both of these disc formats are short lived.
Graffeo: I’m involved in a lot of digital media, more than just packaged goods. The idea that streamed digital media will take over in a short time is what the analysts write about, but the truth is, it’s not there for the average consumer who wants to have the best picture and sound. Look at video on demand. It’s an attractive product. You can stop, pause, play, rewind. But the buy rates haven’t gone up. It’s so insignificant in sales. If you look at the video packaged goods rental market, that’s good for $7.4 billion a year. The sell through market is $15 billion. With video on demand, the majority of the business is in prize fights and wrestling specials, and it’s not even a billion dollar business.
Meanwhile, look at all the consumers who’re sitting on the fence. Today you have 35 million HDTVs in the home. Given that some consumers have more than one set, there are maybe 25 million households with HD. When the majority brings home their sets, there’s a confusion factor. They attach their regular DVD player, put in a disc and think they’re watching HD. They don’t even change the set top cable or satellite box to get the HD channels.
Back on the price point. We know it’s a driving factor in getting adoption. The DVD didn’t take off until the Chinese makers came in and the price for players plummeted. We’ll see that first with HD-DVD, because the DVD Forum which sets the specs for HD-DVD has shared technology with Chinese makers.
Q: Of course, to achieve those under $100 price points for DVD players, the Chinese companies “forgot” to pay the $20 in patent royalties due for each player, and the patent holders let them slide for a really long time, but continue.
Graffeo: We’re already at the point where the consumer is ready to make a choice. With players at $799 to $999, the percentage of adoption is going to be low single digital. When you get it under $300, you open it to the masses. It becomes a no-lose proposition. Because even if the other format were to triumph eventually, you’ll still be able to use the (HD-DVD) player for DVD, with very good up-conversion of the standard definition discs.