Los Angeles (CA) – Blu-ray is strangling itself with high prices and an old fashioned distribution system.  That’s the conclusion we came up with while listening to industry analysts and executives at the DisplaySearch/NPD HDTV conference in Los Angeles.  Sure, Blu-ray effectively vanquished HD-DVD back in January, but people just aren’t switching to the format quickly enough.  The format faces stiff competition from DVDs, DVRs and digital copy and this has forced Blu-ray player.  This has slowed Blu-ray adoption and has forced Blu-ray disc and player prices to remain high, according to Andy Parsons, chairman of the Blu-ray Disc Association.

NPD analysts believe prices are still too high for the average consumer and gave the industry a “D” grade for price.  In an article we published earlier today, Parsons conceded that his coalition hasn’t dropped prices fast enough because Blu-ray still hasn’t reached an acceptable market share.  However, he said people did the same amount of complaining about prices back when DVDs were first becoming popular.

But we don’t think the situation is the same with DVD because unlike the video cassette to DVD era, we now have digital video recorders and the availability of digital downloads.  That combined with the fact that DVDs are entrenched in our living rooms makes Blu-ray a prohibitively expensive option for many consumers.

According to NPD, set top boxes are still dominated by standard definition with 60% of consumers owning an SD box and 29% owning an upconversion player.  Only 11% say they have a next-generation HD player.

DVRs are taking "a lot of eyeballs" away from Blu-ray according to NPD analysts.  An amazing 53% of HDTV owners have a digital video recorder and NPD expects this to rise to approximately 75% in the future.

The rise of digital downloads and digital copy is also hampering Blu-ray sales.  NPD says the average HDTV owner purchased 2.5 digital downloads of television or movie shows in the past three months.  These include shows purchased through video-on-demand services from the cable/satellite company along with so-called “digital copy” downloads.  Digital copy is a hybrid format where someone buys a physical disc(s) and then is given a key to download the same movie for their computer or iPod.  In some cases, the package can contain two discs – one for your set-top box and one for your computer.

Some would say digital copy doesn’t make sense, but Lori MacPherson, North America General Manager of Walt Disney Studios Home Entertainment says it has “exceeded expectations.”  She told conference attendees that people still want a physical copy, but that they also want a computer friendly version to view as they please.  She touted the film “Nightmare before Christmas” which broke previous Disney records for sales and digital copy installations.  Nightmare packages contained an iTunes activation code to download a computer/phone-friendly version of the movie.  MacPherson said the movie had more digital copy downloads than all of their previous pay-for-download movies combined.

But perhaps the most telling statistic was one showing that many consumers just aren’t familiar with Blu-ray.  In mimicking a school report card, NPD analysts gave the industry an “incomplete” for expanding consumer awareness.  One slide showed that 39% of HD consumers say they’ve never even heard of Blu-ray.  28% said they weren’t very familiar with the format.  Only 34% said they were familiar with Blu-ray technology (16% very familiar, 18% somewhat familiar).

So while Blu-ray may have won its battle with HD-DVD, it certainly is having a rough time in fighting a modern war against all the options consumers have these days.  There’s certainly no shortage of quality programming on television for those DVRs to suck up and future bandwidth improvements will make digital copy and downloads much more attractive.  But despite the competition, don’t expect Blu-ray prices to drop dramatically anytime soon.