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Analysts: Xbox One S’s UHD Blu-ray May Not Be Game Changer

The fact that Microsoft’s upcoming Xbox One S video game console will feature an Ultra High-Def (UHD) Blu-ray Disc drive and cost $299 for an entry-level model when it arrives in August stands to only help the fledgling UHD Blu-ray optical disc format, similar to how the Sony PlayStation 3 (PS3) helped drive Blu-ray adoption and the PlayStation 2 (PS2) helped drive DVD adoption.

At the same time, the Xbox One S could potentially cut into the sales of higher-priced standalone UHD Blu-ray players from manufacturers including Samsung, which has the first UHD Blu-ray player in the U.S., priced at $399.99.

CE and video game industry analysts polled by the Media & Entertainment Services Alliance (MESA) said the industry shouldn’t necessarily expect the Xbox One S, on its own, to play a huge role in UHD-Blu-ray adoption. They were, meanwhile, split on how much the inclusion of UHD Blu-ray drives on the Xbox One S and all the coming Microsoft and Sony game consoles combined will help drive adoption of the format. Sony’s upcoming PlayStation 4 (PS4) Neo is also expected to have a UHD Blu-ray drive, but Sony’s been mum on pricing or the timing of its arrival. Microsoft will also follow its Xbox One S with an entirely new 4K console, dubbed “Project Scorpio,” that will ship for the holiday 2017 season. Pricing has yet to be announced.

“For someone really into UHD the game systems are pretty compelling because they offer a pretty low entry price,” said David Cole, a game industry analyst and CEO of DFC Intelligence. “That being said, on new technology like that they tend to have a low overall impact.”

Although the PS3 certainly helped drive Blu-ray’s adoption, the significance of that help can be debated. For one thing, the Wii was the best-selling console in that console cycle and it didn’t support Blu-ray or that format’s rival, HD DVD. And the Xbox 360, which came in second in the last console cycle, initially supported HD DVD (albeit via a separate drive) and never supported Blu-ray.

Blu-ray and DVD before it “started to take off pretty fast on their own with only minimal impact from the game systems,” Cole said. “The issue is that game consumers interested in a new video format are really too small a base to drive significant impact. You still need a consumer with a 4K TV and also a lot of content and that is just going to take time,” he said. Although the new game consoles supporting UHD Blu-ray will have “very little impact on the overall adoption” of the format, “for consumers that are looking for UHD it becomes a pretty compelling proposition early on,” he said.

“Having both major gaming consoles support UHD would be a benefit to format adoption” because it “presents a united front and industry standard that consumers can get comfortable with,” said Vincent Moy, NPD’s entertainment industry analyst. The Blu-ray vs. HD DVD format war split the Hollywood studios and “made it difficult for either side to gain traction” at that time, he said. Sony also had promoted Blu-ray in its laptop computers during that format battle, so “even after Blu-ray won, PS3’s impact in adoption of the Blu-ray format seemed marginal,” he said.

On the other hand, the PS2 played a large role in driving DVD adoption because at that time “there weren’t multiple devices in the household that played discs like there are now,” said Moy. The Hollywood studios counted the PS2 installed base when calculating DVD-capable homes because that “reflected a notably larger universe than DVD … players did by themselves,” he said.

One potential obstacle that UHD Blu-ray faces is that the discs are more expensive, Moy said, adding he was “not sure how eager consumers will be to swallow that higher price tag.” In addition, historically, retailers “struggle” when trying to keep three movie formats per any given title in stock, so consumers “may have trouble finding 4K discs and simply opt to buy DVDs or Blu-rays,” he said. “Availability and price are big factors, especially now that viewers are becoming acclimated to streaming,” he said. However, because internet carriers’ bandwidth “really wouldn’t be able to handle the larger streaming files, the [new] gaming consoles could encourage UHD disc adoption for the discriminating consumers who want the highest possible quality,” he said.

In Moy’s opinion, the “bottom line” is that the new Microsoft and Sony game consoles “will help UHD more than PS3 helped Blu-ray adoption, but less than PS2 helped DVD adoption.”

One other issue worth pointing out is that there is “not likely” going to be a “huge installed base” of the Xbox One S, said Wedbush Securities analyst Michael Pachter. Therefore, that console alone will not have a huge impact on UHD Blu-ray adoption, he said. The Xbox One is, after all, still trailing behind the PS4 in total installed base and there will only be about a year and a half between the introduction of the Xbox One S and Project Scorpio.

However, the inclusion of UHD Blu-ray drives on the PS4 Neo and Project Scorpio consoles will “eventually” help drive UHD Blu-ray adoption, Pachter predicted.

Even if the Xbox One S only attracts a small installed base, it “will likely hurt” Samsung’s UHD Blu-ray player sales because there is “no reason to pay more for UHD,” Pachter said.

But Stephen Baker, a CE analyst at NPD, disagreed, saying the fact that the Xbox One S has a UHD Blu-ray drive and costs $299 for an entry-level model “means nothing” to the ability of Samsung, Philips and other CE manufacturers to sell standalone UHD Blu-ray players that cost $100 more. The game console is “a different product sold to different people” than a standalone UHD Blu-ray player, he said. The UHD Blu-ray player category is “so small” and “in such infancy” at this point, but “there’s going to be plenty of sales for everybody” going forward, he predicted. Samsung declined to comment.

The $299 Xbox One S provides a “great value for consumers to get a piece of hardware capable of outputting 4K video,” said Liam Callahan. NPD’s game industry analyst. But when you look at the adoption of new video formats over time, there are three parts that are needed: Hardware capable of playing the content at that output, content that is created to take advantage of the better visual quality, and TVs capable of displaying the higher output, he said.

Similarly, for 4K adoption to grow, “the entire ecosystem has to come together,” including TVs and other hardware, streaming services, content and physical media, said Shawn DuBravac, chief economist at the Consumer Technology Association (CTA). “That is taking place today,” he said.

Although all the major Hollywood studios played a role in the creation of the UHD Blu-ray format, Disney remains the one major studio that hasn’t released any titles in the format yet and hasn’t even announced specific plans for doing so. “We are part of the UHD Alliance,” a Disney spokeswoman said June 21, but added, “at this time there is nothing else to update.”

Despite the growth of streaming services, “physical media still matters,” DuBravac said. Until only recently, however, “there was little to no 4K UHD physical media content available,” he said. The 4K UHD TV market is “up over 100% from the same time period a year ago,” UHD Blu-ray players recently became available, and “extending that to game consoles is a natural extension and evolution of the marketplace,” he said. “The game console cycle is historically 5-6 years, so households buying consoles today will be using these devices for the next half decade,” he said. “At the same time, nearly half of households have game consoles. This is one of the ways households will get 4K UHD capable hardware into their homes,” he said.

“We fully expect that the Xbox One S with Ultra HD Blu-ray drive will have the same type of positive impact on Ultra HD Blu-ray adoption that Sony’s PS3 had for Blu-ray Disc,” said Victor Matsuda, chair of the Blu-ray Disc Association’s promotions committee. “As we saw with PS3, we anticipate that this launch will kick start the Ultra HD Blu-ray market and enable more consumers to enjoy the best 4K Ultra HD movie watching experience at home.”