The Official Wirewize Blog

It isn’t often that a dead format continues to wage market warfare from the grave, but that’s just what’s happening in the arena for high definition movies on disc.

What’s that you say?  Blu-ray trounced HD-DVD?  Sure it did – at least as far as you’re concerned.  But over on the other side of the world they’re playing a different movie, complete with stock villains that include pirates, mad scientists and monsters that aren’t dead even after you’re sure they’ve been killed.

The fuss is over a new disc technology designed specifically for the Chinese market called – we’re not making this up – China Blue High Definition disc, or CBHD.  The last time we heard the name China Blue it belonged to a prostitute, memorably played by Kathleen Turner in Ken Russell’s loopy Crimes of Passion.  That irony may be too corny even for Hollywood, but let’s follow the plot anyway.

The original China Blue

As you’d expect, the story begins with a crime.  Movie piracy in China is big business; the MPAA estimates that as much as 93% of the movies sold there are bootlegs.  A typical price for a pretty good pirated DVD – easily available in almost any Chinese city – is 6-10 RMB, which is more or less a buck in US terms.  In other words, cheaper than a cup of coffee over here.

If you can’t beat ‘em join ‘em, or so went the reasoning from Hollywood, already up to its keister fighting illegal downloads, never mind pirated discs.  The logic went that if you offered a legit copy that was affordably priced, people would buy the real thing instead of stealing it. Hence the decision to try to sell authentic studio DVDs in China for around $3.00 a pop. It’s a tiny finger in the dike, but a even a few thousand sales (out of a market of many millions) was judged to be better than nothing.

The new China Blue

Cheap and legal has proven to be a reasonably promising strategy in more developed markets; it’s been working for iTunes, to greater or lesser degrees. In emerging markets where consumers are much less affluent but no less eager, it’s wishful thinking to expect similar successes. China’s (and India’s) nascent consumer cultures are already very comfortable with cheap or free bootleg software; just ask Microsoft.

The latest battle moves us from DVD to Blu-ray, which Hollywood hoped would inject new life into the declining market for disc sales, at least on this side of the Pacific.  And it has, to some degree.  But why not simply sell BD discs in China just like here, even if you have to sell them more cheaply?  Because it costs nearly $3 million to tool a disc pressing plant for Blu-ray duplication, as opposed to around $800k for a CBHD plant.

Cheap upgrades to HD for disc pressing plants was the major reason why HD-DVD existed in the first place; that and because Toshiba and Sony couldn’t agree on how to share the new market, thus giving us the last format war.  Once Toshiba cried uncle on HD-DVD, its basic technology was “embraced and extended” by Chinese engineers, who now claim the intellectual property rights to CBHD.  This assertion no doubt produced some guffaws in the boardrooms of Tokyo and Osaka, but with CBHD moving from possibility to reality, nobody’s laughing anymore.

Any physical similarities between this Shinco CBHD player and a Toshiba HD-DVD player are, er, next question...

This is particularly true of the Hollywood studios, which had already tried fighting fire with oil by offering 60¢ movie downloads in China as an “alternative” to file sharing.  Its latest accommodation raises the ante into the HD space, with Warner Brothers announcing that it will support the CBHD format in China, along with Blu-ray everywhere else.  The cost for titles like Harry Potter, The Golden Compass and Speed Racer among others translates to roughly $7-10 per high def movie, or about a third of what we pay here for a Blu-ray disc of the same title.

The idea of paying three times more for something than someone else pays for the same thing because they’re more likely to steal it than you are is certainly a novel commercial concept.  While we don’t expect to see Wal Mart slashing prices in stores that experience more shoplifting, we do expect that the CBHD decision will quickly come back to bite Hollywood where it hurts most – in the wallet.

Any cursory look through the web will offer dozens of DVD (and now Blu-ray) players for sale with region-free disc capabilities.  How long will it be before we see region-free machines that also play CBHD?  Prediction – not very.  Once that happens, what’s to stop Chinese entrepreneurs (or anyone else) from selling them to places they weren’t meant for, like the USA?

When (not if) that happens, American consumers will rightfully ask why they should pay $20-30 for a movie when they can get the same high-def, 1080p presentation for $7-10. Frankly, we don’t think the trivia games and coming attractions you get (but don’t use) with BD Live offer a particularly compelling answer.

At some point in all this, movie executives will be thinking of their counterparts in the music industry, still gamely asking for an $18.98 list price on a CD, and wonder if law school wasn’t such a bad idea after all.  Or international economics.

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