Does Recession Mean Increased Interest in Technology?

I have said many times that, in a recession, consumer electronics is likely the one category that won't suffer as much as the others. Today, a study commissioned by Blockbuster reports the same. Why? When people don't have as much disposable income, they stay home. What do they do at home? Watch TV or movies, play videos game, and surf around on the 'net.

So while the restaurant, vacation, and other like recreational industries are suffering, consumer electronics are becoming more central to people's daily lives. Granted, while people are watching more TV at home (87% of survey respondents said they would be using their home theatre more often in the coming months) they aren't exactly spending more money: your cable/satellite bill doesn't go up if you watch more TV, unless you opt for pay channels. But this means that consumers might become more aware of new technologies as they place more focus on digital entertainment. They might learn about channels they don't have and look into subscribing (I'm saving hundreds of dollars by not eating out every Friday anymore, so what's another $5/mo. tacked onto my cable bill?)

As lagging consumers stare at the old clunker of a TV in the middle of the living room that they didn't spend so much time with before, they might even start thinking of upgrading. If you're watching it more now, that justifies the purchase, right?

Of course Blockbuster hopes that this increased interest in "staying home" will also amount to lots and lots of movie rentals. It probably will. And hopefully once the recession has passed, consumers will look to invest in a fancy new home theatre so that they can enjoy these movies, as well as regular TV programming, and even video games, in all their glory.

Have Partnerships & Acquisitions Become a Necessary Evil in CE?

Looking back at all of the companies that have either partnered up or followed through with a complete acquisition, I'm wondering if this activity has become a sort of necessary evil in the consumer electronics space. Do these companies need to join forces in order to remain competitive within the market, or are the moves made strategically in an effort to boost profits?

The latest company to join the rumour mill of acquisitions and partnerships is D&M Holdings, the parent company to brands like Denon, Marantz, and Boston Acoustics. The company is reportedly auctioning off a major stake, and several sources cite that current bidders include mammoth retailer Best Buy (yes, you read that correctly), Merrill Lynch, the Advantage Partners LLP, and, most recently, a joint bid with Kenwood and Bain Capital. The press section of the D&M Holdings Website states that “recent press reports concerning the potential sale of D&M shares is not based on any information provided by the company.” When contacted, D&M Canada said that the company had “no official announcement to make at this time.”

Although that information is merely based on speculation, Blockbuster's recent bid for Circuit City is indeed true. As mentioned in a previous post, this move was in an obvious attempt to revitalize a business that has been experiencing tremendous pressures as of late. Blockbuster likely hopes that, in combining its DVD rental business with Circuit City's consumer electronics hardware offering, it can become a sort of one-stop-shop for consumers.

Back to the manufacturing side, it appears that many partnerships are forged in an effort to remain profitable rather than gain additional profitability. Take the flat-panel arena, for example, where companies like Toshiba and Pioneer have partnered with Sharp on LCD TV initiatives (with both companies also providing specific technologies and expertise to Sharp). Pioneer also recently announced it would outsource plasma panel manufacturing to Panasonic, while Philips has inked a similar deal with Japanese manufacturer Funai. The reasons for these partnerships are obvious: reduced costs, simplified manufacturing process, and the need to keep up with the increasingly competitive market. Flat-panel pricing has come down tremendously over the years, while new entrants are being added to the foray by the dozens. Will we reach a point where all TV brands eventually lead back to just one or two factories?

In the audio manufacturing arena, Canadian manufacturer API, maker of the Mirage, Energy, and Athena Technologies brands, was acquired by Klipsch Audio Technologies back in 2006. In many cases (like this one) the acquired brand or company remains an independently-operated entity. Was the acquisition made to strengthen the brand? After all, API is one of the biggest speaker manufacturers in the world!

The list goes on and on. In some cases, partnerships are indeed made to strengthen a company/brand by utilizing resources that the other can provide. In others, it's to "take out" the competition. But it appears that, as of late, we're seeing more and more traditionally considered "competitors" looking at one another and saying "I need you and you need me. We can't do this alone."

Whatever the reason, is the competitive nature of this industry in danger?

Blockbuster Won't Give in; Bids for Circuit City

For years, it seemed like the writing was on the wall for movie rental outlets like Blockbuster. First, there was on-demand TV through cable services that essentially let you order a movie right from your couch. Then, there was nifty inventions like TiVo that made it really easy to record a movie at 4 a.m., then watch it whenever you felt like it. As if that weren't enough to put pressure on the traditional DVD rental business, out came Netflix, a company that let you order a movie online, and they'd deliver it right to your door!

Lately, however, it seems like Blockbuster is pulling out all the stops to ensure that the company isn't left in the dust as technology continues to move forward. We've already seen what happened to music retailers like Music World and Sam The Record Man that refused to change their business plans to keep up with the changing ways of music distribution. Blockbuster obviously wants no part in that when it comes to its business, and is making sure the company stays on the cusp of development.

The strangest move came today, when Blockbuster Inc. put in a bid to buy U.S. consumer electronics retailer Circuit City. Huh? You'd think that, if anything, it would be the other way around! But Blockbuster is offering more than US$1-billion for the mammoth CE retailer, stating that a combined company (worth approx. US$18-billion) would be "uniquely positioned to capitalize on the growing convergence of media content and electronic devices." Could we see Blockbuster stores now not only renting DVDs and video games, but also the devices needed to watch or play them? Or perhaps creating promotions whereby you receive a free movie rental with the purchase of a Blu-ray player from Circuit City? It might even be more than that.

Reports all over the 'net claim that Blockbuster is planning to launch its own set-top box that would allows users to stream movies to a connected TV, a la Apple TV. Content would reportedly come from Movielink's massive library, a company that Blockbuster purchased last year.

It looks like Blockbuster has finally bitten the bullet and realized that it needs to make bold moves in order to remain competitive, and not be eaten up by all the new players. In addition to its attempt to buy Circuit City and the rumoured set-top box device, Blockbuster has also been ramping up its Blu-ray DVD offerings to keep in line with consumer demands. It's even putting dedicated Blu-ray kiosks in store, demonstrating the quality of Blu-ray versus standard DVD.

Most people seem puzzled by Blockbuster's moves, but it's better than sitting back and watching other companies take over an area where you were once king. Kudos to Blockbuster for taking steps to improve, and for attempting to find interesting synergies that will add further value to its business. Sure, a consumer electronics retailer is very different from a DVD rental company, as many reports have pointed out. But maybe there's more synergy between the two than we realize. If, as I've argued many times, the content drives the hardware, it makes perfect sense for Blockbuster to grab a piece of the hardware pie to complement its diverse software offerings.

Sex Sells….HD DVD

The rumour mill is buzzing that the adult film industry has opted for the HD DVD high-definition format, leading many to speculate that this could be the deciding factor in the high-definition format war.

Many may recall that, around the time of the International Consumer Electronics Show in Las Vegas (January), word on the street was that adult film folks were leaning toward the Blu-ray format. Supposedly, the change of heart was brought on by Sony, a driving force in the Blu-ray format, being opposed to associating with adult content. Another possible reason is price: HD DVD is reportedly cheaper to produce. Not to mention that, with the HD DVD format, adult film makers will have the opportunity to make discs in the “twin” format, with HD DVD and standard DVD versions on the same side (albeit likely more expensively than a single-sided Blu-ray Disc, but still less expensive than a separate high-definition disc and a standard-definition disc).

The adult film industry might seem like small potatoes when compared to “regular” movies, but you’d be surprised at the power it could hold in this format war: porn is a billion-dollar industry, and many claim that adult films actually outsell regular movie sales! Meanwhile, back in the 1970s, the porn industry’s decision to utilize the VHS format played a major role in VHS prevailing over Betamax.

The pendulum has been swinging back and forth between Blu-ray and HD DVD over the past year, with Blu-ray always appearing to be one step ahead in the race. In the U.S., Blockbuster announced that, while it would still carry HD DVD in its stores, it would only rent movies in the Blu-ray format, citing customer choice as the driving factor toward this decision. Research firm Parks Associates reported last month that Blu-ray is the front runner in the U.S., when taking both set-top boxes and gaming consoles into consideration. And of course when it comes to studio backing, Blu-ray leads the pack with support from more movie studios, while HD DVD titles are only available from Universal, Paramount, and Warner.

If the adult film industry goes HD DVD, will others follow; and will this spell an eventual win for the HD DVD format? Or will this just put a dent in Blu-ray’s perceived lead, and prolong the war? An even more important question: what advantage is there for the adult film industry to produce films in high-definition at all? Don’t get me wrong, I’m all for technological advancement in any sense. But if TV actors are nervous about HD showing their every wrinkle and blemish, imagine how adult film actors must feel!

Blockbuster Backs Blu-ray - Update!

I last posted that Blockbuster in the U.S. decided to offer high-definition movies for rent in only the Blu-ray format, abandoning the competing HD DVD format. A representative from Blockbuster Canada has now informed me that, north of the border, the video/game rental chain will continue to rent out both formats to its customers.

"Blockbuster Canada currently supports both Blu-Ray and HD DVD formats in 75 of its stores across Canada," the firm told me. "Currently, there are no plans to alter the distribution of rentals in Canada."

So Canadians, feel free to visit your local Blockbuster to rent DVDs in both formats!

Blockbuster Backs Blu-ray

The high-definition DVD format war persists, with no clear winner in sight (of course, this is depending on who you ask!) But we’re finally seeing retailers put their foot down, and choose one format over the other. In the case of Blockbuster, it has decided to put all of its eggs in the Blu-ray basket.

Well, not entirely: the movie/video game rental chain says it will still carry HD DVD in its U.S. stores, but will only rent movies in the Blu-ray format. According to BBC News, Blockbuster observed that its customers chose Blu-ray over HD DVD in stores where both formats were available. No exact figures were cited, but it's obvious by Blockbuster's choice to go Blu-ray all the way that it was by a significant enough margin.

This could be attributed to many factors: more choice in Blu-ray movies is one. Blu-ray has the support of seven of the eight major studios; whereas HD DVD only has three. However, the HD DVD format has support from many in the PC arena, like Microsoft, HP, and Intel.

Blu-ray has also had better luck with recent releases: the two huge blockbuster titles (no pun intended) as of late, Spiderman (Sony Pictures) and Casino Royale (MGM), are only available in HD in the Blu-ray format.

PlayStation 3 might also play a significant role: I wonder how many of those rented Blockbuster movies are being played back on a family PS3, and not a dedicated Blu-ray player? (Then again, the competing Xbox 360 console also has an HD DVD add-on option, so this might be a moot point).

On the HD DVD side, retail giant Wal-Mart said back in April that it would introduce “low-cost” HD DVD players to its U.S. stores by the end of the year, which led many to assume that Wal-Mart had made its choice. (A representative from Wal-Mart Canada confirmed that the retailer woud continue to carry both formats in Canada).

What do I think? When it comes down to it, it’s the movie titles that matter. Who wants a fantastic, high-definition player if you can’t use it to watch the movies you want? However, on the flip side, another important factor is price, and Blu-ray players have been much more expensive than HD DVD players; in many cases, by a significant margin. With “low-cost” players being introduced in Wal-Mart, a whole new ballgame could begin.

Who will win the format war? Some say it’s too soon to make a choice between the two. After all, they haven’t been on store shelves for that long. But on the other hand, how long can they co-exist without frustrating customers to no end? Only time will tell.