Next-gen disc battle finally heats up

As Blu-ray forces declare early victory

A bust in 2006, the big showdown between two competing high-definition disc standards finally started to look like the “format war” it was billed as.

At the Consumer Electronics Show last month, for starters, there was actually terrain to fight for, with a retail price war for HDTVs over the holidays greatly enhancing the number of target consumers.

There were splashy propaganda parades where, at separate gatherings, both sides explained to their constituents “why we will win.”

At the HD DVD camp’s Sunday night event at CES, format denizens touted an impending flood of inexpensive set-top players, with Toshiba skedded to deliver 1.8 million boxes by year’s end and three Chinese brands set to release HD DVD players that will be even cheaper.

A day later, a panel of top execs from Blu-ray signatory studios touted software supremacy, noting 19 of the 20 top-selling titles from last year are available in their format, vs. only six for HD DVD.

There were also peace overtures from neutral parties, with Warner Bros. introducing a new disc that combines both formats and LG Electronics bowing a $1,200 set-top that will play back both flavors.

And subsequently, there have been statements — from the Blu-ray side — that are tantamount to victory proclamations: “I characterize it as the beginning of the end of the format war,” says Disney homevid topper Bob Chapek, noting that as of early January, Blu-ray movie titles were selling twice as fast as those on HD DVD. “We’re very rapidly going to see it become a one-horse race over the course of the year.”

“We’re really starting to put some distance between (Blu-ray and HD DVD),” adds Sony Home Entertainment worldwide prexy David Bishop. “We project that ratio will only continue to widen.”

Certainly, to the continued frustration of retailers like Best Buy, which views the twin-format issue as a confusing proposition to sell to consumers, the other side hasn’t quit.

Ken Graffeo, exec VP for Universal — the only studio releasing titles exclusively in the HD DVD format — notes Toshiba couldn’t even put out enough players to meet HD DVD demand during the fourth quarter. He also dismisses Blu-ray’s claim of software supremacy during the month of January, pointing to the fact that U didn’t release any new HD DVD titles during that period.

Indeed, supported by powerful backers including Microsoft, as well as the pornography trade — which can’t get the Blu-ray camp to manufacture discs for it — HD DVD appears far from wilting.

For his part, New Wave Entertainment prexy Mike Meadows — whose shop produces bonus features for both of the new formats — says he would have heard something if someone from the HD DVD camp decided to surrender.

“We don’t have anybody calling us saying maybe we shouldn’t do this or that after all,” he explains. “That would be the first indication that one side has won and the other has given up.”

“For one side to declare victory at this point is laughably premature,” Graffeo adds. “Both formats don’t have (many) players in the marketplace yet.”

He notes the total installed base of Blu-ray and HD DVD playback devices numbers less than 2 million at this point. “When we get to 22, 24 million homes, then we’ll be talking about a mass market.”

Happily for both sides, that market could happen sooner rather than later. According to the Digital Entertainment Group, 5 million HDTVs were sold in the U.S. during the fourth quarter of last year, a sales uptick that should continue in ’07, with many retailers selling plasma, LCD and DLP TVs at — or near — wholesale cost.

With better marketing and fulfillment — besides Toshiba’s HD DVD shipment troubles, Blu-ray suffered in ’06 from the delayed bow of the disc-drive-equipped Sony PlayStation 3 — both sides are poised to greatly exceed the combined $1 million in sales they generated during their fledgling first year.

“There’s no question that the greatest opportunity is the fact that there will be another 15 (million) to 18 million HDTVs sold this year,” says Steve Nickerson, Warner’s senior VP of market management.

Hoping to uncap the potential of this market and spur on consumers who are waiting for one format to display supremacy before making a purchasing decision, Nickerson’s unit unveiled Total HD at CES — discs that support both formats.

“Anything that would help take the pressure off the consumer at this point is good,” notes Kelley Avery, homevid topper for Paramount, which, like Warner, releases titles in both formats. Par is currently exploring the possible use of Total HD discs itself.

Treaty proposal

Even if the Blu-ray camp’s proclamations of dominance bear out, such a dual-format solution has value, Nickerson says, if only to help tap into the small portion of the market that made the other purchasing decision.

“As the installed base for each format grows, it will be harder and harder for the other to disappear,” he notes. “If one side has a dominant market share, but the other has an installed base of 3 (million) or 4 million players, how can we not sell product to those people?”

For their part, however, those studios firmly rooted in the Blu-ray camp show little enthusiasm for compromise.

“Not interested,” proclaims Fox senior VP of corporate and marketing communications Steve Feldstein, discussing the hi-def format issue with Variety, along with Danny Kaye, Fox’s senior VP of research and technology strategy.

According to Kaye, such a combo product — which splits the limited gigabytes of a single disc among two digitally dense formats — would leave little room for next-gen bonus features. These Java-based extras promise — once they’re actually baked — to make the new discs worth buying in the first place.

“If you only have a single layer for each format, you’re not getting the best of either one,” Kaye says.

Besides, with 1 million Blu-ray-drive-equipped PlayStation 3 consoles shipped, and six out of seven major studios supporting the format — vs. only three for HD DVD — Blu-ray adherents say they don’t feel the need to compromise. In fact, Fox officials say they’ll now begin to accelerate their Blu-ray release sked while the wind is in their sails.

The format war, Kaye notes, will be settled by the next holiday season.

While they don’t seem close to admitting defeat, HD DVD adherents concede they missed a golden opportunity in 2006, when delayed Blu-ray hardware was stumbling into the marketplace.

“We missed the holiday season” by not getting enough players into stores,” Graffeo notes. “We were all disappointed by it.”

“No one has won,” adds billionaire media mogul Mark Cuban, whose Magnolia Home Entertainment releases movies in both flavors. “But Blu-ray has done a great job of marketing, and I would say they are in the lead.”

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