An apparent war for market share between two proposed high-definition DVD formats has both the electronics and entertainment industries buzzing, with numerous observers believing this could be the biggest home entertainment format battle since the videotape wars between VHS and Betamax.
Blu-ray and HD-DVD look to hit the marketplace next year, with both backed by powerful and well-known Japanese manufacturers (Toshiba is the principal backer of HD-DVD, while Sony backs Blu-ray), with each staking their claim to an industry worth billions of dollars yet facing a home video market believed unlikely to support competing formats.
The bad news is that the format that isn't chosen as the standard will almost certainly cost its backers millions of dollars worth of research, development, and marketing – which may also sound disturbing considering that both HD-DVD and Blu-ray are built on the same basic technology, using blue lasers and their shorter wavelengths to store data at higher densities on DVD-sized optical discs, the better to record high-definition films and television programs.
Both parties want to prove the superiority of their product, and the race is already joined. Blu-ray recorders are already on sale in Japan, and Toshiba planned to roll out consumer HD-DVD models by 2005. Analysts say a protracted dispute between the two formats could damage the industry as a whole, increasing production costs for DVD manufacturers and making buyers nervous about investing in a format that might well become obsolete, as Betamax was made by VHS.
Sony knows it only too well: They were the masterminds of Betamax but were shoved aside when a wider selection of pre-recorded movie titles was made available in the VHS format. This time, however, they're hedging their bets with Blu-ray. They've already drawn Panasonic parent Matsushita to their corner, and, perhaps on the principle of business itself generating more business, they've adopted Blu-ray as the format for PlayStation 3, due to hit the market in 2006. But perhaps most critical in any war between Blu-ray and HD-DVD, Sony recently bought a movie studio – MGM, which has a considerable and legendary back catalogue.
Could Blu-ray and HD-DVD cancel each other out, in the sense that a market seemingly well prepared for high definition content ends up “stagnating” over the debate surrounding the two formats, causing consumers to prefer to support standard-definition DVD?
In late October, Buena Vista Home Entertainment president Bob Chaprek told the North American DVD Forum, an industry association of 220 electronics and media companies, that launching two formats simultaneously risked "potentially crippling the next generation format" and "utterly confusing or aggravating the customer."
Chapek, who also heads the Digital Entertainment Group, told the Forum that any further "tussles" between HD-DVD and Blu-ray could lead to paralysis. "We can't have two groups screaming disparate messages to consumers; this could make for a disappointing launch where neither side dominates," Chapek told the conference. "Maybe we should be asking ourselves not how big our piece of the pie will be, but how big the pie will be."
Chapek himself has one idea of the size. He thinks 30 million homes will be HD-ready by 2006. In-Stat/MDR senior analyst Michelle Abraham sees and raises Chapek, saying over 15 million more will arrive two years later. And Chapek told the NADF Conference that with that kind of acceleration, the HD industry has to handle a consumer world "information starved and hungry" to buy high-definition DVD players, with only a very few tech savvy enough to be early adopters willing to break down the information on competing standards and the rest likely to rely on cable, satellite, and other media for their HD cravings.
To those who believe HD-DVD is closer to market, they have a comforter in former Warner Home Video chieftain Warren Lieberfarb, who has in common with Chapek a sense that a quick decision is urgent enough. "Time marches by very fast in the digital world," Lieberfarb told the conference. "Companies are missing opportunities and creating disasters for themselves."
"Waiting to make a decision until 2005 means that product is not in the market at a mass price point until 2007," and by then the industry could be facing flat standard-definition DVD sales, widespread piracy with methods like file-swapping, and houses full of big-screen HDTV sets that make standard DVDs look bad, Lieberfarb said. To head off such a scenario, he believes that mass market price points must be achieved by 2006.
Beyond the format war issue, consumer education was deemed essential to the success of high-definition DVD. "This is a battle that will be determined on the marketing front," said Chapek. He said that it is important to convince some consumers that any high-definition DVD format is something they want.
Jodi Sally, assistant VP at Toshiba, has said that communicating the benefits of high-definition DVDs is the top priority. She said that richer user interfaces and interactivity will be major draws to a population that doesn't embrace new technologies as fast as the industry expects. The increased storage capacity of the new discs will make it possible for people to do more than just watch DVDs, Sally said.
If consumers aren't presented with an appealing, single-format high-definition DVD offering, they might decide to stick with standard-definition DVD, said Steve Weinstein, executive VP at Macrovision. He worried that they might just take their money and use it to buy another plasma TV.
For now, Panasonic AVC Networks is marketing a Blu-ray machine, model DMR-E700BD, in Japan only. Panasonic AVC home business unit director Etsuji Shuda said in July that the new machine will be able to capture 4.5 hours of digital satellite high-definition TV, when used with dual-layer Blu-ray rewritable format DVD discs that can store up to 50GB. Recording times extend to six hours for digital terrestrial HDTV and nine hours for standard definition satellite TV. Analog video, he said, could be recorded for 10.5-63 hours, depending on the quality mode the user chooses.
The retail price for the DMR-E700BD is said to be about $2,780, with 50GB discs going for around $69. Matsushita is the second company after Sony to bring out a commercial Blu-ray recorder. Sony's BDZ-S77 launched in April 2003 and now costs about $3,000.
Blu-ray users will also be able to use single-layer discs holding 25GB for half the recording time, with DVD-RAM and DVDR discs used to capture analog television, the company said. Panasonic is set to bring out single- and dual-layer Blu-ray discs when the new recorder launches. The 25GB disc is expected to retail for about $32.
Standard DVD capacity is between 4.7-9.5GB per disc – enough for just an hour of high-definition video.
Whether the Panasonic DMR-E700BD launches outside Japan depends on the HDTV market's development in other countries, Shuda told the press conference. A third company, LG Electronics, is said to be planning to bring out their own Blu-ray recorder with a built-in hard drive in the U.S. by year’s end.
HD-DVD received a boost November 29 when four major studios – Warner Bros., Paramount, Universal, and New Line Cinema – approved the HD-DVD standard for their next-generation DVD releases.
"After extensive research and careful consideration... we have determined that HD-DVD has the highest quality of performance and offers key advantages in the areas of durability and reliability," Warner Bros. said in a statement.
"We think this carries a great impact," Toshiba senior vice president Yoshihide Fujii said at a news conference. "There is a strong desire in Hollywood for a single format [for next-generation DVD]. Support from studios whose DVD sales account for nearly half of the market means, in our view, Hollywood has started moving toward [HD-DVD]."
Time Warner, which owns both Warner Bros. and New Line Cinema, is long believed to have had a big interest in HD-DVD, since its an extension of current DVD technology from which Time Warner pulls down big royalties. But they failed to buy MGM for almost $5 billion, losing out to Sony, which itself almost missed the MGM boat when both they and the legendary lion let a two-week negotiating window close, thus opening a path for more competing bids, including one believed at the time to be coming from Universal.
But Sony sweetened its own bid to close to $5 billion, prodding Time Warner to back away as a possible suitor for MGM. "As we pledged to our shareholders, we approach every potential acquisition with strict financial discipline," said Time Warner chief Richard Parsons. "Unfortunately, Time Warner could not reach agreement with MGM at a price that would have represented a prudent use of our growing financial capacity."
What makes MGM such a catch is its film library, a platinum cache for media companies with interests in home entertainment and Video-on-Demand. Renowned for The Wizard of Oz and the most popular film musicals of all time, including Academy Award winners like West Side Story, the MGM library includes 4,000 feature films and 10,000 television episodes.
"You can bet your asteroids that Blu-ray Disc and HD-DVD are a big part of the reasoning behind the scenes for both Warner and Sony's interest [in MGM]," Bill Hunt, editor of DVD news site TheDigitalBits.com, wrote during the bidding war. "Whoever gets the MGM catalog instantly gets a big leg up for their format."
Warner Bros. is no slouch when it comes to a film catalogue – not a studio which can boast such legends as The Jazz Singer (credited as the first talking film), Casablanca, and the fabled Looney Tunes cartoons, not to mention a rich television history as one of the first major studios not only to accept but produce television programming. But neither is 20th Century Fox – and they're in the Blu-ray camp, too. They joined the Blu-ray Disc Association board recently, and Sony is said to be counting on Fox to continue and even amplify that support.
Toshiba and Sanyo each are expected to launch the first HD-DVD players into the U.S. and Japanese markets together by the final quarter of 2005.
