As it enters into its fourth year on the market, Blu-ray is still struggling to be accepted by the masses, remaining today a technology that is popular amongst tech enthusiasts and early adopters alone. In the US Blu-ray currently makes up 9% of home video sales while here in Canada it’s just 6%, far lower than expectations. This week the home video industry, comprised of the chiefs of Warner Bros, Walt Disney, Sony Pictures, Fox, Universal, Lions Gate, Panasonic, Phillips, Sony Electronics, Best Buy, Blockbuster, Netflix, and many other influential players gathered in Los Angeles for an industry conference titled Blu-Con 2.0.

I was permitted to sit in and listen to the industry-only meetng through the combined invitations of Walt Disney, Warner Bros. and Sony Pictures, and what could have been a day of self-promotion and marketing spin, turned instead into a starkly honest and soul-searching discussion about the inherent challenges facing Blu-ray and the ways it can adapt for better success.

Perhaps it was a humility gained from dealing with the current recession or an effort to avoid the mistakes of the music industry in their own battle with market changes, but the movie studio chiefs spoke with surprising honesty about their situation, agreeing in unison about what the problems are and how they hope to adapt for them. Although it would be easy to merely gloss over the numbers and attribute them to a prolonged battle with HD-DVD or the current troubled economy, instead they acknowledged that there are barriers with the product itself and painted a clear picture about what those are.

Familiarity is a key issue. Despite the media coverage of the battle between Blu-ray and HD-DVD, the popularity of the PlayStation 3, and years of retail promotion, most consumers have yet to really become familiar with what Blu-ray is about. Research from In-Stat Digital Entertainment Group as well as customer feedback presented by Best Buy show that while most consumers have “heard of” Blu-ray, the majority still do not understand it, can’t say what it really does. This is shocking when compared to the success of High Definition televisions. 62% of US households own at least one HDTV and the hope was that Blu-ray would naturally piggyback on those sales, and yet it hasn’t.

It’s a male market. The majority of Blu-ray owners are male, between 18 and 34 years old. While family titles still reign in DVD sales, the Blu-ray top-sellers include Transformers: Revenge of the Fallen, X-Men Origins: Wolverine, and Watchmen.

“Anything action/adventure is very strong, anything that targets the demographic” explained Mike Dunn, President, 20th Century Fox Home Video Entertainment. “It’s what appeals to males. Action, adventure, sci-fi” agreed Ron Sanders, President, Warner Home Video. Blu-ray has yet to connect with families.

Backwards compatibility. Blu-ray players can also double as DVD players and upconvert them for better quality, a feature that is turning out to be a major hindrance and studies show that Blu-ray player owners still buy a majority of their movies on DVD.

“In the positive the consumer feels comfortable adopting the new format because they don’t have to throw away their libraries,” explained Sanders. “on the flip side there’s less of an incentive for them to trade up to Blu-ray because even the DVDs they have look better on the Blu-ray player than the DVD player”

Blu-ray player owners seem to see the two formats as a different kind of investment, buying DVDs on impulse and choosing to spend extra money on specific titles for Blu-ray because it’s one of their favorites. “60% of our sales are impulse, a consumer walks by and buys it” added Dunn who feels that movies sell best when presented in a way that illicit an immediate personal reaction. “It’s an emotional connection to a film. It sounds silly but in fact they’re emotionally driven and that’s where they buy it.”

Mike Dunn, President, 20th Century Fox Home Entertainment and Ron Sanders, President, Warner Home Video 

Mike Vitelli, Executive Vice President, Customer Operations Group, Best Buy sees two other important barriers; price and portability. In his stores customers are being forced to make a choice. They can buy a movie on DVD for less and play it anywhere; in the family van, a friend’s house, or in other rooms in the home, or they can pay more money to buy it on Blu-ray and only view it in their home theatre. He described it as being akin to walking into a coffee shop and being told that there are two prices, one if you want to drink your coffee to stay, another if you want to take it to go. While it is frustrating that there are different prices, the real issue is being forced to have to make that choice.

As far as Best Buy is concerned, Blu-ray sales will never take-off until the industry comes up with a “standardized affordable portability”. Until there’s a way to play a Blu-ray disc outside of the main living room or den, consumers will stick with DVD.

BD-Live Familiarity. Although the majority of Blu-ray owners are tech enthusiasts, who clearly are very familiar with what Blu-ray can do, research from In-Stat Digital Group finds that the majority of Blu-ray player owners who have home networks have not connected their players to the internet. That, as studios work to add special enhancements and online features to encourage Blu-ray owners to buy their movies on Blu-ray over DVD, there’s still a challenge in educating them that such features exist and are worth trying. A large number of Blu-ray users, for example, perceive Digital Copy, a feature which includes a second copy of the movie for use on portable players, as one that would take a long time to download, despite the contrary.

As always price is still a barrier. Research shows that while consumers maintain an interest in Blu-ray, the majority is waiting for players to reach a price between $100 - $200.

On top of all these issues, Blu-ray still has to face competition from online piracy, digital downloads, online streaming services, and Video-On-Demand creating what Craig Kornblau, President, Universal Studios Home Entertainment described as “The most difficult environments that any of us have seen in our lifetimes”

Despite these challenges, the studio chiefs made it clear that there are real reasons to see this holiday season and the next year as an opportunity to resolve these issues.

“We’re all cautiously optimistic,” explains David Bishop, President, Sony Pictures Entertainment “ the feedback we get from retailers like Best Buy, we’re seeing the trends move in the right direction. People are coming back to the stores and they’re buying.”

Although the technology may have yet to reach the masses, the market is growing with sales of Blu-ray movies up 83 percent over last year. It’s a dramatic change.

“This time last year, we were all depressed and we probably wouldn’t have even showed up here” joked Bishop.

“We know that no electronics item in history has hit ten percent penetration and not gone on to mass adoption” added Sanders.

Price will be the first issue tackled with this holiday season expected to bring to the first Blu-ray players for $100 US, in fact it’s expected Black Friday, the biggest shopping day of the year, will feature the first players for $49.

“We saw an ad last week in the Best Buy circular for a $100 Blu-ray player” remarked Kornblau. “ If they’re running that in the last week of October, what’s going to happen with Black Friday? I think we’re going to have amazing prices that will hit the masses and because they upconvert your DVDs there may be consumers that naturally wouldn’t have gotten into the HD market early, but they’re going to get in early because they’re seeing that the player price is not much different from a DVD and for that favorite movie right now they might stretch and get into HD.”

“The pricing is lower on hardware than we expected at this time” added Sanders.

The hope is that the lower prices will fix most of the current issues, that consumers will now feel free to buy more than one Blu-ray player and that the technology will be able to expand into multiple rooms and into cars the way DVD has in the past.

The studios are also continuing to look at ways to distinguish Blu-ray as a unique format, to get away from the association that it is just a disc like DVD. The desire is to position it not as a competitor to digital movie services, but as part of the digital world moving forward. They have already started this process with the introduction of features like Digital Copy, BD-Live, and in the United States, the inclusion of streaming video services like NetFlix, Roxio, or Amazon Unboxed as basic features of Blu-ray players themselves.

“We tend to try and break the market down into physical and digital, but if you look at how the consumer looks at our content, I don’t think they necessarily make those same distinctions” asserts Bishop. “What they want is convenience, they want to have their content where they want it and if we kind of find a way to meld the two together to give that value, like what we’re doing with Digital Copy or packaged media, the consumer responds in a huge way. “

Craig Kornblau, President, Universal Studios Home Entertainment and David Bishop, President, Sony Pictures Home Entertainment  

Research shows that the majority of those who use the Digital Copy included on Blu-rays tend to do so in order to have a back-up copy of the movie stored on a computer or external hard drive in case the original disc becomes damaged rather than to view the movie on a portable device or computer.

In response to such feedback, the studios are exploring solutions that will give consumers a “Digital Locker” or “Virtual Bookshelf”, an online storage space where they can access digital copies of the movies they have bought on disc. The trend seems to be, that while consumers are interested in having movies in a digital form, they still want a physical element too.

"I think that's job one, to get an effective digital locker" asserted Dunn. "To get to where the consumer can have a place where they have a digital shelf".

"And also flexibility" added Bishop. "so that they know when they buy something on one device they can move it across multiple devices."

The trends the studios are seeing in their own studios show that consumers themselves are already using both physical and digital media together.  

“We’ve had more digital copy transfers than we’ve experienced downloads digitally” said Dunn, comparing Blu-ray to movie sales through online stores such as iTunes or Amazon.

In their efforts to make Blu-ray seems more like a combination of the physical with the digital, studios have explored a wide range of online features. The latest Harry Potter Blu-ray release will include the ability for users in Europe to watch the movie in-sync online with actor Daniel Radcliffe. The next set of episodes of Lost will include an online university where fans can learn about the many themes of the show through the creators themselves acting as online teachers. Julie & Julia will include the ability to bookmark recipes and Fox hints that the interactive elements of the cult hit The Rocky Horror Picture Show will include some of the most advanced online features to date.

Other tricks being researched include the ability for users to insert their voices into the mouths of characters and advanced video-editing that would allow for mash-ups using user-provided content.

But perhaps the biggest card to be played by the studios in their effort to win over families will be the launch of 3D on Blu-ray early next year. The new players, television sets, and glasses will provide 1080p resolution in each eye, have the ability to play movies in both 2D and 3D, and be in a single standard that still supports all kinds of televisions (plasma, LCD, etc.) and the different types of 3D glasses.

Should lower prices and online features fail to help Blu-ray break into families and mass consumer use, the industry is surprisingly confident that 3D will guarantee acceptance. In fact they feel that 3D will become the defining feature for Blu-ray.

“That could be the killer app for Blu-ray, 3D” mused Kornblau.

If it is, consumers themselves are not aware of it. Research by Adams Media Research shows that consumers are barely aware of the prospect of 3D as something they can have at home, while In-Stat Digital Entertainment Group’s surveys show that while most would be interested in having 3D in their homes, they’re not interested in “paying a whole lot extra for it”.

The question then becomes whether 3D will arrive with a whole new range of expensive TVs, players, glasses, and discs, potentially repeating the same issues already at play or if it will be the revolution that saves the home video industry as a whole.

“3D is a revolution” insists Eisuke Tsuyuzaki, Chief Technology Officer, Panasonic North America. “It is here to stay, period. I mean, get over it. Probably, in a period of time it could be 100% of our business. We have been getting a very enthusiastic response. The consumers are saying, every time someone sees one of our demo trucks, the consumer feedback is that it’s a wonderful product, we want it now, we want it on Blu-ray”.

Also from Blu-Con 2.0, Filmmaker Martin Scorsese discussed the challenges of preserving a director's vision on home video. Watch the footage here.