Retailer to offer only one format upon expansion

The Blu-ray camp received a big vote of confidence from Blockbuster on Monday, but HD DVD rivals were quick to downplay its significance in the format war.

The Dallas-based rentailer, which had been stocking both high-def formats at its stores, decided to roll out Blu-ray only in its next expansion to 1,700 stores, citing a 70/30 rentals split in Blu-ray’s favor in recent months.

Blockbuster had initially stocked 250 stores with both Blu-ray and HD DVD discs but found that more customers preferred Blu-ray once PlayStation 3 consoles hit the market late last year. The chain will continue to carry both formats in those stores and online, but the next 1,450 stores to receive high-def discs will receive only Blu-ray versions.

Expansion’s slated for next month.

Matthew Smith, Blockbuster senior VP of merchandising, cited the greater availability of new release titles on Blu-ray — Sony, Disney, Fox and Lionsgate only release discs on that high-def format — and the PlayStation 3 factor. Warner and Paramount release in both formats; Universal is the sole major to back only HD DVD.

“Where we saw the big leap was with the introduction of PlayStation 3,” Smith said. “It was at Christmas and the beginning of this year that the two lines of rental diverged.”

However, the actual volume of high-def rentals is still very low — in the single digits of the rental pie both overall and at Blockbuster. The vidtailer commands some 40% of the annual $8.4 billion generated from disc rentals Stateside and is a much smaller player in DVD sales, which generated $16.5 billion last year.

Backers of the HD DVD format said sales, not rentals, will ultimately drive the format war. The HD DVD camp touts its lower cost of entry — players tend to be lower priced than Blu-ray counterparts — as a main inducement. Gamers can also view movies on high-def with an Xbox attachment that plays HD DVD titles.

“I think this fundamentally reflects that PlayStation 3 owners who are finding a dearth of games are renting movies,” said Warren Lieberfarb, a consultant for Toshiba, one of the HD DVD manufacturers. “In my opinion, there are shoes left to be dropped.”

Other observers cast Blockbuster’s decision as more of a marketing boost than one with huge revenue implications. Hit titles available on both formats tend to perform better than those available on one format only, suggesting support isn’t as lopsided as Blu-ray supporters would suggest.

Sony homevid execs, who have been the most vocal proponents of the format, offered a considerably more bullish interpretation of Blockbuster’s move. They agree that there are shoes left to be dropped — but contend that they will be in Blu-ray’s favor.

Sony homevid topper David Bishop suggested mass merchants would follow suit in reallocating more space for Blu-ray discs.

“There’s a natural tendency to dedicate more space to a format that’s selling well,” Bishop said. “And that’s a good message to the consumer. We really need to put the format war to rest.”

But even Blockbuster was quick to back away from casting this move as an endorsement of one format over another. If consumer demand for HD DVD rental discs heats up, the chain will quickly add them to stores, Smith said.

At this point, the number of discs going into stores isn’t huge. According to Smith, each store will carry around 170 titles, with most stocking between two to five copies each — an outlay smaller, he confirms, than that for vidgames in those stores.

He had no timetable for a chainwide expansion; Blockbuster has 4,100 corporate locations.

“It all depends on what rents,” he said.

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