Next Generation of DVD Wars Continues

Submitted to SoSF by: Michael Hickerson (SoSF Staff Journalist)
Source: AP

LOS ANGELES — People who own an HD DVD player can forget about watching “Spider-Man 3” in high definition when it goes on sale during the holiday season. The movie from Sony Pictures will be available only in the Bluray DVD format. Likewise, people with Blu-ray players won’t be able to enjoy the action-thriller “The Bourne Ultimatum,” which Universal Pictures will release only in HD DVD.

These exclusive arrangements, plus aggressive price cuts for high-def DVD players, are designed to persuade consumers to finally embrace one format or the other. But analysts wonder if the moves will anger consumers, just as the studios and consumer electronics companies are hoping to boost high-def DVD sales as growth in standard DVDs stalls.

“The frustration for consumers is not knowing what format is going to win,” said Chris Roden, an analyst at Parks Associates.

BETAMAX MEMORIES

“Consumers, many of whom are still smarting from the VCR format battle between VHS and Betamax, need to know their expensive equipment won’t become obsolete if the competing format wins,” said Steven J. Caldero, chief operating officer of Ken Crane’s, a specialty electronics chain in Southern California. “People are still frustrated there is a format war to begin with,” he said. “The studios are making people choose. What consumers want is something that will play everything so they don’t have to choose.”

Until recently, many consumers were able to defer the choice because players have been so expensive. But prices have been slashed by about half — Sony Corp.’s Blu-ray player now sells for $499, and Toshiba Corp.’s cheapest HD DVD player sells for $299, with both likely to include as many as five free movies as an incentive. (Players that read both formats remain expensive.)
Both sides are also releasing blockbuster titles such as the new “Pirates of the Caribbean” movie aimed squarely at the demographic most likely to upgrade to high-def.

The stakes couldn’t be higher for Hollywood, which has seen sales of traditional DVDs, once a reliable profit engine, slow to a trickle. Direct digital delivery online, while promising, is still years away from profitability because current Internet capacity simply can’t handle the enormous high-definition files. Yet consumers remain profoundly confused by the two formats, both of which deliver crisp, clear pictures and sound but are completely incompatible with each other and do not play on older DVD players. Many haven’t even heard of either format.

HD DVD, developed by Toshiba and backed by powerful companies like Microsoft, has the lead in stand-alone players sold because they are cheaper and hit the market first. In the United States, stand-alone HD DVD players have 61 percent market share, while Bluray players have 36 percent share and the few dual-format players have a 3 percent share, according to market research company The NPD Group Inc.

BLU-RAY PLAYSTATIONS

But Blu-ray, backed by Sony and a majority of Hollywood studios, got a big boost when Sony introduced its PlayStation 3 game console, which comes standard with a Blu-ray drive. Counting those machines, there are more Blu-ray players out there.

Although Microsoft’s Xbox 360 can play HD DVD movies, the drive has to be bought separately. Only 160,000 drives have been sold so far, compared with 1.5 million PS3 consoles, according to NPD.

In terms of discs sold, Blu-ray has always had the lead. Time Warner Inc.’s Warner Bros. and Viacom Inc.’s Paramount Pictures release movies in both formats, and in such cases Blu-ray has outsold HD DVD by nearly 2-to-1.

Blu-Ray is getting an even bigger boost as Blockbuster Inc. announced it would stock only Blu-ray titles when it expands its high-def DVD offerings this year. Target Inc., the nation’s second largest retailer, said it will only sell Blu-ray DVD players in its stores in the fourth quarter.

Sony Pictures, News Corp.’s Twentieth Century Fox, The Walt Disney Co. and Metro Goldwyn Mayer are releasing only in Bluray. Universal, owned by General Electric Co., is the only major studio to back HD DVD exclusively.

Nonetheless, Warner Bros. believes both formats can coexist and has been urging Blu-ray backers to begin supporting HD DVD as well. The studio has developed a dual-format disc and has said it would license the technology to other studios willing to back both.

“The fourth quarter is critical for the formats to show growth and momentum,” said Steve Nickerson, Warner Home Video’s senior vice president of marketing.