Posted by Gravity on 01/22/08 07:23

http://forums.highdefdigest.com/showthread.php?t=38252

http://www.betanews.com/article/Interview_Universal_EVP_Ken_Graffeo_says_HD_DVD_is_here_to_stay/1200951636

Universal and Paramount staying HD-DVD only. HD-DVD is here to Stay.
Compromise might be in the works.


In an exclusive interview with BetaNews, Ken Graffeo, executive vice
president for Universal Studios and also the co-president of HD DVD,
provided a behind-the-scenes look at the high-def industry and said that,
despite the rumors, HD DVD is here to stay. But he does leave the door open
to ending the format war by coming to some sort of an agreement with
Blu-ray.

Nate Mook: Let's start with a little background. You work for Universal, but
you are also the co-president of the HD DVD Promotional Group. Does this
create a conflict of interest?

Ken Graffeo: I am the executive vice president of high-def strategic
marketing. So my role at Universal is in the high-def format, and being that
we're in HD DVD exclusively, that's where I'm concentrated. We setup the
Promotional Group in the early summer of 2006, and board members include
Microsoft, Toshiba, HP, Intel, Paramount, Universal and Warner Bros. It's
very similar to the Blu-ray Disc Association -- we have committees and our
goal is to work together educating the consumer and our retailers on the
format.

Nate Mook: How does it change things in the Promotional Group now that
Warner Bros. has stated its intention to go Blu-ray exclusive once its
contract obligations end?

Ken Graffeo: Well, we heard about the whole move when everyone else did --
when a lot of us were on planes flying to CES in Las Vegas. To be very
honest with you, we have not addressed that yet -- Warner is still releasing
HD DVD titles up until May. Warner has always been in two formats, and prior
to Paramount's switch, they had been in two formats, so now that Warner is
exclusive... we just haven't addressed it yet.

NM: There was a lot of surprise when you canceled the CES press conference
and meetings after Warner jumped ship. It appeared to many that you were
simply giving up. Two weeks after the fact, do you regret canceling
everything?

KG: It's very easy to look back and say "I could have" because you always
know the result. But at the time... imagine the orchestration of a press
event with the presenters, the scripts, the entire presentation, videos that
were produced -- everything. The crew was already setting up and we were on
a plane on Friday, so not being able to get back to everyone to say "how do
we make a change for Sunday" was very difficult. And what are the answers?
We had no idea because we were reading and hearing about Warner's move the
same time everyone else was.

If we had our press event on Monday, it would have been different, but
because it was right there on Sunday and we heard Friday afternoon we
couldn't even get to everybody. If I had to go back, it was probably the
right thing to do. The entire flow of the presentation would have had to
been changed. When we found out at the last minute, we had to regroup and
say "Toshiba, what are you doing?" and we didn't have any answers. I hate to
stand in front of someone and say I don't have an answer, I don't know
what's going on.
At that time, not knowing and being so last minute, we had to make some
changes. I will say that Toshiba went forward with their press event, which
I applaud them for.

NM: After Warner essentially stabbed you in the back, speculation was
rampant that Universal and Paramount would do the same, effectively killing
HD DVD. There was also a lot of talk about the phrase "current" being used
in the statements. Where does Universal stand on this -- are you willing to
say you have an ongoing, future commitment?

KG: First of all, I want to say that none of those rumors were
substantiated. Nobody ever talked to us. I know nobody talked to Paramount
because Brenda, their PR person, sent out a statement immediately. This is
business as usual for us and there are no plans to make any changes. We just
made an announcement of our new HD DVD titles yesterday, with American
Gangster. We also have a lot of other things planned. It's business as
usual.

NM: Sony claims that the PS3 has given Blu-ray the market lead -- is this
just posturing so Blu-ray can tout higher sales numbers? Is the PS3 really
seen in Hollywood as a device that sells movies?

KG: I'll go back to what we've said over and over: the set-top player is the
primary movie device. If you look at the attach rate of how many movies are
bought for dedicated HD DVD players versus how many movies were sold for the
PS3 and the Blu-ray set-top players combined, it's a 4 to 1 gap. Which says
that people who own game machines are not buying at the same rate as someone
who owns a set-top. And on the DVD side, your primary player is a set-top.

If you go to a store -- let's say a Best Buy or a Circuit City -- and buy an
HDTV and then you want to get your movies to look better, you go to the DVD
section -- you don't go to the game section. We have always been believers,
not only historically but looking at a lot of recent research that has been
done, that for the consumer their preference is a set-top.
The one thing that's different now compared with VHS is that when you bought
a DVD player, you could not play your VHS on it. People didn't really have
libraries in the days of VHS, because movies were really rented -- 80% of
the business was rental. Today it's different because both Blu-ray and HD
DVD are backwards compatible, so you have to take that into consideration.
In turn, people want a set-top player that lets them play their current
movies just as they do now, not on a game console.

NM: Price seems to be the major leverage HD DVD has, even with less studios
than Blu-ray. Do you still believe other studios will come around if you
sell enough players? This was the belief when we spoke to Microsoft's Kevin
Collins 8 months ago.

KG: I can't speak for the other studios, because I don't know how they are
thinking. But what was very encouraging is that when we were at CES we met
with a lot of retailers. And the retailers openly said, that as much as they
hate having two formats they are not making any changes, because they want
to wait for what the consumer does. We've always said we want to follow the
consumer.

Consumers right now are buying upconverting players -- they are outselling
the next-gen players combined by 10 to 1 every month. They are affordable
because they are under $200 -- the average price is $85 -- and consumers
want to see their movies better. So pricing is very important. We saw that
on DVD: as soon as price point went under $200 and as soon as it started
getting close to $100 players really started taking off because you're
hitting very consumer-friendly prices. If you want to hit the mass market,
you have to be consumer-friendly in price. If you want to be a niche
electronic, you're going to be high priced.

NM: From a strictly consumer standpoint, HD DVD seems to make the most
sense: players are cheaper, combination discs are possible, which enables a
smooth transition. Blu-ray players are still in flux and current models
except the PS3 won't be upgradable to Profile 2.0. Blu-ray is pitching
players that will be obsolete in a year, and discs that lack the
interactivity found on HD DVD. Why hasn't there been more of a marketing
message on this from HD DVD?

KG: The consumer today is very confused about HD. Only 12% of all households
are getting HD programming, but 35% of households have HDTVs. We have spent
a lot of time, and will continue to try to educate the consumer because
there's a lot of confusion on what this means. When you're watching a TV
show and the logo says in high definition and you don't have your source for
high definition, it further adds to the confusion. People don't understand
this.

People have a library of DVDs, people understand HD and know it looks
better. But they're not thinking about it from a format perspective, they
are thinking "I want my movies in high-def."
I think education has been very important and is something we have to
continue doing. In Toshiba's recent press release, they said they will have
an aggressive marketing campaign that will be launched very soon that will
complement their new pricing strategy.

Nate Mook: Apple CEO Steve Jobs recently said that "clearly, Blu-ray won the
format war," but noted that all next-generation physical media won't serve a
purpose, because consumers will receive content digitally. What are your
thoughts on this? NBC Universal is investing in online delivery of content
and Hulu.com.

Ken Graffeo: First off all, the technology today is not ready to provide
that full experience of getting the high-quality video instantaneously to
the home. You've got broadband issues and things like that. Will that
technology be there? Yes. Can I tell you when? It's not next year. I think
you're beginning to see a lot more open systems and more collaboration,
because right now you have so many unique systems and nothing is compatible.
That's been the biggest problem, but you're beginning to see the walls break
down.
I always look at VOD (video on demand) that goes right to the house, and DVD
buy rates never change. I think what you have to do is look at the consumer
today -- the younger consumer -- and say "where are they going," because
that's going to be the future. Today when you look at who is purchasing
movies, it's those 35 and older -- and they're not as savvy with technology
as the younger audience is. The younger audience is the one that would be
more comfortable with digital delivery.
The DVD player was the fastest selling electronics product ever. In 5 years,
you had over 50% of the market. The reason why is because it was
plug-and-play. You put a disc in and you pressed play. With HD DVD, the DVD
Forum was looking at the future -- that's why you have an Ethernet and USB
port mandatory, because they are thinking of the transition to the next
generation.

But people collect movies like they did records, and share movies, which
isn't possible in digital. And today, in order for the digital world to take
off, it has to be very consumer friendly -- like plug and plug. As soon as
you get complicated, you can't go after the mass market. Once it gets to
being plug-and-play, you could see a shift. People once thought rental would
always be the king, and now you have sell-through.

Over the course of the upcoming years -- the next 5, 8, 10 years -- physical
media is still going to be dominant. That's not to say you're not going to
have digital, because it's going to come, but it won't reach the masses very
quickly.

Nate Mook: Is this format war going to be decided by the Hollywood studios
and the manufacturers, or can the consumers have a voice? Over 1 million HD
DVD owners is not a small number, and those consumers clearly don't want the
format to go anywhere.

Ken Graffeo: Where the consumer has a say is what they do and what they
purchase. That's probably the biggest statement that could be made. Word of
mouth is the most powerful way to communicate. If you walk into someone's
house and watch a football game on their HDTV, you'll want one. Most people
are very happy with their DVD, but when they see a 1080p movie, it blows
them away.

1 million units starts word of mouth -- people get exposed, people see it.
When you're dealing with 200,000, you're at the early adopters and that's
not really going to spread. That's why HDTVs finally started taking off,
because consumers walked into their neighbors' houses and said "Look at that
flat thing on the wall, that's great." You saw in November and December,
everyone was aggressive with pricing. You could see how consumers are
willing to buy HD movies when you get to an affordable price.

We released American Gangster and put it on combo disc (with DVD format on
one side and HD DVD format on the other), because if there was confusion
about the future, you don't lose an investment because you have both an HD
DVD and a DVD. Look at how many machines exist with DVD. We don't want to
limit our customers; we want to be as consumer-friendly as possible. It's
hard to communicate everything, but once you start getting into the mass
world, word of mouth is also very important.

NM: Is there any possibility of coming together with Blu-ray to unify the
standards at this point, perhaps with hybrid players?

KG: Well, I'm never going to say it never can be done. I think everyone
would like to see things work out, and I don't think anyone has any ill
intention in this. It was a year and a half ago when we tried to put things
together and it was unfortunate when it fell apart before. I think anything
is possible, and again it comes back to the consumer who has the final
voice.

NM: A recent report showed Blu-ray with 90% of the DVD recorder market in
Japan. Does HD DVD plan to invest in this market? It seems there is little
demand for DVD recorders in the States.

KG: DVD recorders are very big in Japan. In fact, I think the majority of
DVD hardware in Japan is DVD recorders. There has never been a market here
in the US, even though DVD recorders have been available. HD DVD does have
recorders in Japan, but not in the United States, where most people have
digital video recorders instead.

NM: What's the next step for HD DVD?

KG: I think Toshiba has put a very aggressive program in place not only with
price, but also with marketing. We have been talking to the consumer,
letting them make choices. We also had our big new release yesterday
announcing American Gangster. The film has all of the interactivity and
Internet features, and we're continuing to release titles. When I say
business as usual, it's business as usual in releasing. But Toshiba has
really stepped up with their campaign to the consumer.

NM: Where do things stand on CH-DVD, the Chinese format that's based on HD
DVD. It seems to me that is a huge market with 2 billion people, and it's
compatible with HD DVD. If studios want to sell in CH-DVD in China, wouldn't
it make sense to also sell HD DVDs in the Unites States?

KG: Well, I know that CH-DVD players are in production and their date is in
time for the Beijing Olympics. They are forecasting sales of somewhere
around 8 million HDTVs because the Olympics are broadcast in high-def and
the CH-DVD players are going to be launched in conjunction with that.
When you look at the Chinese market form a studio distribution standpoint,
because of a lot of the past piracy issues it's not a developed market like
most of Europe and US for the studios selling movies. Everybody is working
to try to move forward with that, but I think it's further down the road.
The more important issue than high-def in China right now is how to
distribute without a fear of piracy.

NM: Will all future Universal HD DVD releases be combination discs?

KG: All of our new releases that Universal has made since last September
have been combo discs [with standard DVD on one side]. We have no plans to
change that, and our retail partners are saying if you want to go to the
mass market, you don't want to limit consumers into only being able to play
it on one device.

NM: Thank you for taking the time to speak with us today, Ken. We, and our
readers, appreciate it.

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