Studio to support Sony high-def format

Warner Bros. all but signed the death warrant for HD DVD on Friday, when it dropped its format-neutral approach to back Blu-ray exclusively.

The devastating blow for the HD DVD camp came on the eve of the annual consumer electronics confab in Las Vegas, where backers such as Toshiba, Microsoft and Universal planned to promote the high-def format. The North American HD DVD Promo Group quickly cancelled a Sunday evening event, but banners touting the HD DVD banner as “louder,” “grittier,” “scarier” and “tougher” remained up in the Las Vegas airport on Sunday afternoon.

The HD DVD Promo Group said it was evaluating its next steps in the wake of Warners’ decision. But to most observers, the writing is on the wall in favor of Blu-ray.

Warner’s move to back Blu-ray exclusively is expected to end the format war bedeviling the homevid biz. This would be a sweet victory for Sony decades after Betamax lost the first format war to VHS — and a blow to former Warner Home Video chieftain Warren Lieberfarb, who worked with Toshiba to promote HD DVD after he was ousted from the studio.

Both camps had been lobbying Warners hard to go exclusive ever since Paramount/DreamWorks threw their weight behind HD DVD in August. Warner is the market share leader, and thus its vote of confidence was especially desirable. Its move to the Blu-ray side leaves only Paramount and Universal in the HD DVD camp.

Sony, Fox, Disney and Lionsgate all back Blu-ray. Warners sister companies New Line and HBO will also shift their allegiance to Blu-ray only as well.

Studio, which had hinted it might drop one format after the holidays, said it decided to back Blu-ray to try to reduce the confusion brought on by the high-def format war and better drive mainstream adoption. Although its players are generally more expensive, Blu-ray has enjoyed greater domestic and international sales for some time. It enjoys a further advantage in that it’s included in the PlayStation 3 console, which also plays high-def movies.

Sizable manufacturer discounts by both sides over the holidays narrowed the gap and placed players in mass adoption price range. However, Warners found that consumers still hesitated to buy players due to confusion over the dueling formats.

“The price impediment was going away, but the take-up wasn’t increasing that much,” said Warner Home Entertainment topper Kevin Tsujihara. “The research was making it pretty clear there was still a tremendous amount of confusion among consumers.”

Supporting both formats came with a cost for the studio, which had to maintain dual inventories for its releases. And while the studio had some of the best sellers on high-def when both formats were added together, execs couldn’t help but wonder whether dual support was helping, or hurting, the transition to a next-gen format.

“By us being both, we were playing into consumer confusion,” Tsujihara said. “There’s a window of opportunity with first-time buyers of HD TVs to also buy a high-def player at the same time,” he added.

“The window of opportunity for high-definition DVD could be missed if format confusion continues to linger,” Warner Bros. chairman-CEO Barry Meyer seconded.

Warner execs insist that costs were not the underlying motivation for the shift any more than promotional incentives were. Paramount drew a lot of flak for taking Toshiba incentives, said to be $150 million, to exclusively back HD DVD, but Tsujihara cast such sums as small potatoes compared with the overall size of the vidbiz.

He pointed out that worldwide, the DVD biz brings in $42 billion annually, and his studio draws the greatest portion of that as market share leader.

“That amount far dwarfs any financial incentives,” he said. “This was not a bidding war,” Tsujihara said.

Par, too, said incentives were not a consideration, maintaining it backed HD DVD because it was generally lower-priced and therefore had a greater chance of mass adoption.

Warners’ Blu-ray shift has been rumored for some time, but the studio insisted it would wait to see how both formats fared during the crucial holiday sales period before backing one format exclusively. Indeed, late in the holiday period, the studio took out full-page newspapers ads touting both formats.

Warner’s timing apparently caught the HD DVD camp off-guard. Thursday afternoon, shortly before Warners said it notified Toshiba of the decision, HD DVD backers were making media calls, talking about their plans to promote the format at CES. A few hours after Warners went public with its decision the following day, the North American HD DVD Promo Group cancelled its Sunday event.

At the last CES, Warners threw an event touting Total HD, a hybrid disc that would play on both HD DVD and Blu-ray players, only to later abandon the format as dual format support evaporated (Daily Variety, Dec. 28). By pulling out of the HD DVD event early, the studio avoided another embarrassing situation.

Warners had committed to support HD DVD until May 31, so will continue to release discs on that format until then, albeit at a lag after Blu-ray and standard DVD versions. Last summer, Blockbuster similarly phased out HD DVD discs, offering them only through its online rental service.

Studios and manufacturers have been fighting a pitched battle over high-def because there is so much at stake: Sales of standard DVD have started to decline, and digital downloads are even smaller than high-def at this point.

In the U.S. alone, DVD sales generate roughly $16 billion annually for the studios, with rental biz contributing another $8 billion or so to annual domestic homevid spending.

Warner’s decision to back Blu-ray exclusively reps its third shift in high-def strategy. Initially, the studio said it would back HD DVD; then it shifted toward dual format support in October 2005, several months before the first high-def discs hit shelves (Daily Variety, Oct. 20, 2005).

Paramount made similar moves before settling on HD DVD late this summer (Daily Variety, Aug. 21). That commitment is believed to run through this year.

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