The Format Wars: Sony Proves that It’s the Player, Not the Game, That Wins

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In 2006, when Sony released the much-anticipated Playstation 3, people literally climbed over one another to acquire one. Then the console fell flat. High prices, bugs, a disappointing selection of games, and the Nintendo Wii’s runaway success placed the PS3 at a miserable third place in the console wars.

But Sony had a not-so-secret weapon. Its name was Blu-Ray. If you remember, for a short time there was a format war between Blu-Ray and HD-DVD. Blu-Ray won the war in short order. And many analysts believe this was due to the PS3 along with heavy marketing from Sony. Sure, most PS3 consumers wanted games, not multimedia devices. And because of high prices, PS3 sales slackened for more than a year. People wondered whether Sony had committed market suicide with the player.

Two years and several strategic tweaks later, Sony may be coming out on top. Several key partnerships have ensured that Blu-Ray discs are the format of the future. Though the PS3 has arguably been a console failure (they’ve gone from first place to third place in a single generation), it provided the vehicle through which Sony was able to swing the necessary deals to secure Blu-Ray’s place in history. That’s not all. Due to clever brand repositioning and a Hollywood-savvy CEO, 2008 looks like its best PS3 year since the product’s release. A resurgence of sorts.

Currently, Sony’s Blu-Ray market share in units is 46%. With the PS3, that number is closer to 98%.

According to TG Daily:

Nearly nine million high-def discs were sold during the year, raking in revenues of $260 million. Blu-ray discs accounted for 67% (about $170 million) of all HD movie sales (40% in 2006), despite the fact that these movies were more expensive than HD DVD titles. According to the industry organization, the Playstation 3 may have been the decisive factor to provide Blu-ray with the necessary edge to win over the majority of high-def movie sales.

As one of the primary creators of the format, consider the licensing fees Sony gets from Blu-Ray, the profit potential looks sound.

Six major publishers currently control almost 85% of the home video market – Warner holds 18.8%, followed by Fox (15.3%), Sony (13.5%), Paramount (13.4%), Disney (13.1%) and Universal (10.7%).

Would Sony have been able to land Blu-Ray dominance (a morale windfall after its Betamax fiasco) without the PS3? That’s the missing link. Betamax perished because movie and recording studios went for VHS. Blu-Ray succeeded for industry execs preferred it. Both have superior technology.

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Unlike Betamax, however, the PS3 exploited a dual niche and good reputation. Consider this: Buyers expected the PS3 to live up to the standards of its predecessor, the PS2. It didn’t. But Sony already had the legitimacy it needed to successfully sell Blu-Ray technology to movie executives. Compare these two possible pitches:

NO PS3
Sony exec: Buy Blu-Ray. Here, let me demonstrate our superior technology on our $800 Blu-Ray player. It’s more expensive, we know, but check out the quality.

Movie exec: We didn’t go for Betamax. Why should we go for this?

WITH PS3
Sony exec: Buy Blu-Ray. We acknowledge that the PS3 didn’t perform as well as the PS2, but it’s still in the running. Look how many people have their hands on Blu-Ray players through the PS3. We have a solid existing market to exploit, and at $399, people are going to keep buying. Check out the quality.

Movie exec:
Sony exec has a point. PS3 consumers already have their hands on Blu-Ray players. People don’t get a Wii to watch movies. Sony has distribution in the bag.

The PS2’s wild success gained Sony unquestioned legitimacy in the gaming world. The PS3 came out to high expectations—and disappointment. But there, nestled inside the noncommittal product, was Blu-Ray. Sony’s initial strategy to win the console wars didn’t work out, but its console provided the vessel that sold Blu-Ray to the right people.

It helps that Blu-Ray has just about every major name in technology on its membership list. The groundwork was intact. The PS3 provided the vehicle, the final touch, through which Sony gained dominance.

I look forward to another good show when DVDs go obsolete.

Written by Drea Knufken

Drea Knufken

Currently, I create and execute content- and PR strategies for clients, including thought leadership and messaging. I also ghostwrite and produce press releases, white papers, case studies and other collateral.