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HDR: The CES Darling the DVD Biz Needs to Survive

Though the annual CES conference has become a showcase for so many different kinds of tech wizardry, screen resolution is arguably the quintessential innovation to emerge from this trade show. Consumer electronics giants reset the bar seemingly every year, and 2016 won’t be any different when a new feature, high dynamic range, takes center stage this week in Las Vegas.

4K — the last major improvement in picture quality, introduced by TV makers at CES a few years ago — quadrupled the number of pixels on screen compared with high definition. But HDR also provides better pixels that employ a broader palette of colors, bringing sharper detail to everything from brighter whites to darker blacks.

Look for HDR to be heavily promoted as a feature of 4K across the latest models of TV sets to be displayed at CES, from Samsung to Vizio. Streaming services like Amazon and devices like Roku also could be touting HDR upgrades.

But while HDR represents just the latest of what will be countless iterations to come from all these technologies, it may well mark the last gasp of the DVD. The next generation of discs will be showcased at CES along with the first HDR-enabled Blu-ray players.

DVD Decline
What a difference a decade makes
$21.2b Disc sales and rentals in 2004 (source: DEG)
$10.2b Disc sales and rentals in 2014

The hope is that HDR can help staunch the double-digit declines across disc sales and rentals that trade org Digital Entertainment Group noted in 2014. What was a $21.2 billion business in 2004 sunk to $10.2 billion a decade later sans digital, which is growing fast but still not as lucrative as packaged media. The multi-year downturn has called into question the idea of content ownership in an era in which streaming makes rentals easier than ever, endangering a high-margin revenue line that propped up profitability at the studios for decades.

Nevertheless, Fox, Warner Bros. and Sony are all expected to announce on Jan. 4 the timing of their HDR-compatible slates. All of the studios will be pushing the new format at CES, where the home-entertainment industry has rebirthed itself more than once in the past, from the introduction of the Blu-ray format a decade ago to the rocky deployment of digital-locker system Ultraviolet.

The biggest barrier to entry: To fully enjoy the new HDR discs, consumers must own both a new disc player and new TV set, the latter of which is priced in the $3,000-$6,000 range. No wonder the new HDR discs also will be packaged with standard Blu-ray versions.

As the industry found out with 3D TVs in recent years, consumers don’t simply sign on for every fancy innovation. HDR inherits not only that challenge, according to Frost & Sullivan analyst Dan Rayburn, but more. “First, there’s whether consumers can even tell the difference between HDR and 1080p,” he said. “And even if they can, that doesn’t mean they’re necessarily willing to pay for it.”

The new discs will be marked both “HDR” and “Ultra HD,” which points up a challenge disc peddlers, as well as the rest of the consumer electronics industry, could face: alphabet-soup fatigue.

“First, there’s whether consumers can even tell the difference between HDR and 1080p. And even if they can, that doesn’t mean they’re necessarily willing to pay for it.”
Dan Rayburn, Frost & Sullivan

Just as they attempt to go mainstream with the rollout of lower-priced TVs, the makers of 4K already are vulnerable to consumer confusion, since the format is referred to interchangeably with Ultra HD and HD, depending on the product. The term HDR carries its own confusion, since smartphone and other cameras commonly use the same acronym — though the TV version has nothing to do with the hyper-realistic, fakey camera images.

Further, it remains to be seen whether all studios will be on the same page for HDR, which could revisit a recurring home-entertainment industry problem: dueling strategies. The sector learned that lesson again when Disney opted to deviate from Ultraviolet and back its own Disney Movies Anywhere solution, a development Warner Bros. CEO Kevin Tsujihara publicly lamented in March.

“It would be my goal to bridge (UltraViolet) with what Disney is doing, so the consumer doesn’t have to guess is that a Disney movie, or is that a Fox, Sony, Paramount, Universal or Warner Bros. movie?” he said.

Ultraviolet was an acknowledgement there’s a digital world beyond TV sets that DVD needed to embrace. The HDR discs and players will come alongside an initiative known as Vidity — what the industry hopes will be an improved solution to enable users to seamlessly migrate the content they buy across devices.

Yet HDR discs’ nod to digital raises the question of why there’s a need for packaged media at all when the notion of streaming or downloading content into homes is firmly entrenched worldwide. Home entertainment companies profit from electronic sell-through, which has found success carving out a window prior to DVD releases with “Digital HD” copies. EST is growing faster than discs are declining, according to DEG stats.

The counterintuitive truth of the matter is that DVD is probably HDR’s best hope for adoption in the short term, because the format is too bandwidth-intensive for average U.S. homes. “The disc experience is the easiest way to get the highest quality on demand,” said one industry insider. “The bigger the TV, the more data it takes, and that’s why we are doing this.”

But the short-term constraints haven’t dissuaded Amazon, for one, from beginning to make its originals library HDR-friendly. Perhaps in addition to its streaming rivals, broadcasters and multichannel distributors will follow, though their futile experiments in 3D should keep them on the sidelines for the foreseeable future.

The home entertainment industry isn’t feeling as gunshy about new initiatives. But as those in Las Vegas know, luck runs out eventually.

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