As HD DVD & Blu-ray battle, rivals gain foothold

Was peace possible in the Blu-ray vs. HD DVD war?

In the world according to Warren Lieberfarb, the schism between the two next-generation disc formats shouldn’t have happened.

Before standard-definition discs were introduced a decade ago, Lieberfarb, the former president of Warner Home Video, was instrumental in the negotiation of a truce between two rival groups promoting incompatible formats. This, of course, created billions of dollars in disc-sales revenue for the entertainment business and a healthy stream of royalty revenues for his parent company, Time Warner.

In Lieberfarb’s view, the right aggressive moves could’ve prevented Blu-ray and HD DVD from befuddling consumers when those formats hit store shelves last year with two separate offerings.

Lieberfarb says he first sensed Blu-ray was gaining momentum in January 2002, at the annual Consumer Electronics Show, when tech concerns Matsushita and Philips joined forces with Sony.

“It was clear to me that a cartellike consortium was being created for the purpose of forcing a de facto standard on other manufacturers,” Lieberfarb says.

Lieberfarb had hoped that all of the parties working on next-generation DVDs would continue collaborating on standards within the DVD Forum, a group that had been created in 1995 to foster discussions among studios and electronics makers.

Lieberfarb was so concerned about the activities of Sony, Matsushita and Philips that he asked Time Warner’s outside antitrust counsel to explore strategies for getting the U.S. Dept. of Justice to launch an inquiry. But Time Warner had other priorities, and at the end of 2002 Lieberfarb was axed.

For their part, Blu-ray supporters take issue with Lieberfarb’s characterizaton. “‘Cartel’ suggests that there’s this combative exclusivity involved,” says Andy Parsons, chair of the U.S. promotion committee of the Blu-ray Disc Assn. and an exec at Pioneer.

But Parsons acknowledges that “the three leading companies (Sony, Philips and Matsushita) did not have any particular interest in presenting the Blu-ray format through the DVD Forum. They believed they had something very different from the DVD format,” with more storage capacity.

Since 2002, Lieberfarb has been a consultant to Microsoft and Toshiba, two members of the HD DVD camp.

He says that if the studios had been less focused on creating bulletproof copy-protection and more fixated on getting the discs into the market more quickly, the work being done on HD DVD within the DVD Forum would’ve proceeded more quickly.

And with that, HD DVD might have beaten Blu-ray to market by an even wider — and perhaps definitive — margin. (As it was, HD DVD rolled out in the spring of last year and Blu-ray during the summer.)

“The studios were in denial or ignorant as to when DVD was going to reach maturity and when the growth rates would significantly slow down,” Lieberfarb says.

Though peace talks did take place between the Blu-ray and HD DVD camps, Lieberfarb says that “the negotiations never got beyond the preliminary stage.”

Parsons agrees, noting, “The different physical structure of the discs meant someone had to give up everything.”

One other reason for the mutual distrust: Given Microsoft’s involvement with HD DVD, studios had concerns about the tech company dominating the so-called “digital living room,” according to one studio homevid exec

Back in 1994-95, when the Warner/Toshiba-backed Super Density disc was fighting it out with Sony/Philips’ Multimedia CD, notes Envisioneering Group senior analyst Richard Doherty, “The media were smart and savvy about goading the players toward an agreement. … I don’t think we’ve had that with the high-def discs.”

Doherty says he tried to bring together HD DVD and Blu-ray supporters for a debate two years ago at the National Assn. of Broadcasters convention in Las Vegas. “Neither side seemed to want it,” he notes.

Now that Blu-ray equipment is duking it out with HD DVD equipment in the market, Lieberfarb sees only one potential solution to the conflict: aggressive price discounting.

But consumers’ confusion could prevent high-def discs from ever gaining the kind of foothold DVD has enjoyed.

“The longer these guys battle now, the more that Bill Gates, networked media, personal video recorders and satellite become the rival format to high-definition DVD,” Doherty says. “Hard disc drives and fast network connections win in that scenario, not HD DVD or Blu-ray.”

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