Who Is Drawing Out The High-Def DVD Stalemate?

If neither Blu-ray nor high-definition DVD take off as the successor to standard definition DVD, there will be fingers flying from both sides. Each camp will blame the other, with members from both trumpeting the formats’ pointlessness in the face of downloading/on-demand video.

Whatever the reason, the split in HD DVD format has irritated many of those involved and resulted in consumer confusion over both formats.

A format war is doing next-generation DVD no favors, Ross Rubin, director of industry analysis for The NPD Group, told internetnews.com. “I’ve yet to speak to anyone in the industry who believes two formats are sustainable over the long term.”

Formats beget war

The home theater enthusiast market has been aware of the impending format war for years. Both formats first emerged in 2003, and the immediate reaction was to demand a single format and not to split the market.

In late 2005, before the launch of the two formats, both the HD DVD and Blu-ray camps met one last time to try and make peace. Word of the meeting was all over the Internet, and message boards on Home Theater Forum, IGN and DVD Talk were buzzing with hope. But nothing came of it. At the 11th hour, the deal fell apart.

Bill Hunt, editor of The Digital Bits, one of the first Web sites to cover DVD when it launched in 1997, said Toshiba pulled out because an unnamed partner pressured the company to stick with HD DVD since so much time and money had been invested in it. Hunt said he thinks that unnamed partner was Microsoft .

“Everything I’ve been told is a lot of people in the HD DVD camp were ready to throw in the towel in late 2005 and something kept them from doing it,” he said. “Microsoft seems to be the company that is running around crowing the loudest about HD DVD.”

On at least some levels, it would make sense. Blu-ray is a Sony creation and its interactivity is powered by Java. Microsoft has no love for either Sony or Sun. Microsoft and Sony are battling for the videogame console market, and its .Net framework is a competitor to Java. Sony did not return a request for comment.

Kevin Collins, the HD DVD Evangelist for Microsoft , denied his company scuttled any deal. “Microsoft was a neutral company and supported both formats.” At least in the beginning, he said.

Microsoft didn’t want to see a format war, either, and went to the Blu-ray Disc Association (BDA), the consortium behind the format and led by Sony, and said it would support both formats if the BDA would agree to three things: support the same codecs in HD DVD; support the same audio standards; and support the same security standards.

“If everything but the physical layer was the same, Microsoft would have supported both formats,” said Collins. The BDA met and voted the offer down.

And now it seems the physical layer was also an issue. Mark Knox, an adviser to the Toshiba HD DVD division for Toshiba America consumer products, also denied that Microsoft sabotaged the deal, and said that format structure was non-negotiable with Sony.

“I was told the basic presentation from Toshiba and other HD constituents was ‘We’re willing to put everything on the table if you are willing to put everything on the table and have our engineering teams pick everything that makes the most sense,'” he said.

That included disc structure, one of the biggest differences between HD DVD and Blu-ray. “The response we got was short and succinct, that disc structure was not on the table, we [Sony] will not discuss it. That put an end to discussions with them being inflexible at that point,” said Knox.

There’s a reason for Sony’s intransigence on the subject. Back in 1995, there were two competing formats called Super Density CD from Toshiba, Matsushita, Time-Warner and JVC, and MMCD, or Multimedia CD from Sony and Philips. IBM came in and acted as mediator, merging the two technologies into what is now DVD. But to do so, Sony caved on the disc structure, costing it billions in royalty revenue.

“Looking at the history of the original DVD, I can understand why” Sony wouldn’t cave again, said Knox.

Perhaps, but there is real frustration on all sides over a format war that happened despite years of pleas to avoid it. “We are frustrated,” said Best Buy CEO Brad Anderson to Reuters during the 2006 Consumer Electronics Show. “We are going to wind up with some number of consumers probably buying a format that dies, and we are probably going to wind up having to sell it to them. They are not gong to be happy with us.”

Best Buy ended up selling both HD DVD and Blu-ray players and discs. Justin Barber, a spokesman for Best Buy, said the decision was “all about customers. It’s ultimately their decision as to whether they would choose HD or Blu-ray. We do our best to be up front about the differences between the two and let them decide.”

Down to some HD DVD/Blu-ray basics

High definition DVD was supposed to be the next step in evolution from the standard DVD format, which was one of the most successful consumer product launches in history thanks to its rapid ramp up. Unfortunately, greed got in the way.

Toshiba began to work on a format it called Advanced Optical Disc (AOD), while Sony and several other consumer electronics vendors started working on Blu-ray Disc. The DVD Forum, the official consortium that shepherded the original DVD format to the market, chose AOD as the next-generation and dubbed it HD DVD. Sony thumbed its nose at this snub and continued with Blu-ray (deliberately misspelled so it could be trademarked) development.

While there are structural differences between the two, there’s only one aspect that matters to the consumer: storage.

Standard definition DVD holds 4.7GB of data on a single layer, HD DVD holds 15GB per layer, while Blu-ray holds 25GB per layer. With most discs mastered in dual-layer format, that means 30GB for HD DVD vs. 50GB for Blu-ray, and the Blu-ray camp makes no bones about its higher capacity.

High-definition DVDs have six times the resolution of a standard DVD and have the same resolution as HDTV transmissions. DVDs display the video in 720×480-pixel resolution, while HDTV and high-definition DVDs display the video in 1920×1080 pixels.

Because a standard CRT television can only display 525 pixels of resolution, the success of high-definition DVD is inextricably linked to HDTV. The 480-pixel resolution of DVD works on a CRT tube, but there is no gain for the consumer to display HD movies on a CRT. Last year was a great year for HDTV, too. More than 13.6 million sets were sold, according to the Consumer Electronics Association, doubling the installed base.

Next page: behind the formats

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Understanding the tech

However, consumers aren’t quite up to speed on the technology. A recent survey by Leichtman Research Group found half of the 24 million households with HDTVs don’t actually watch high-definition programs because they don’t have an HDTV feed, either by cable or satellite. It also found a quarter of those surveyed didn’t even realize they weren’t watching non-HDTV transmissions.

If that many people haven’t figured out they aren’t getting HD transmissions, they aren’t going to rush out for an HD player. Numbers are hard to come by; Toshiba estimated it sold around 70,000 units of its HD DVD players, with another 100,000 add-on HD DVD drives for the XBox 360. Microsoft would not say how many drives it has sold.

The Blu-ray installed base is considerably higher, thanks to the PlayStation 3. While the PS3 has been labeled stillborn by the press because of its poor launch, it still managed to pass the 1 million sold mark, and the PS3 has Blu-ray movie playback capabilities.

HD DVD got off to a solid start. For instance, consumers and reviewers took to Toshiba’s HD-XA1 ($499) more so than Samsung’s LG BH100 ($899) Blu-ray player. Plus, Microsoft came out with a $199 add-on HD DVD drive for the Xbox 360 that proved popular and earned kudos for good video playback and low price.

However, Blu-ray battled back. It had many more movie studios lined up, the PS3 launched — however badly — and more Blu-ray players hit the market, although they are not cheap. Toshiba’s second-generation HD-XA2 sells for $399 and the XBox add-on drive is $199, while Sony’s PlayStation runs for $599; Sony’s Blu-ray deck is $999; the Panasonic player is $1,049; and the Pioneer Elite player costs a princely $1,899.

Both the HD DVD and Blu-ray camps are planning to release ROM drives for computing platforms. Dell and Apple are in the Blu-ray camp while HP is in the HD DVD camp with Microsoft. So far, Sony has a rewritable Blu-ray drive that sells for almost $1,000 while Toshiba has a HD DVD ROM drive only available in Japan for slightly more than $300.

Studio input

Universal Studios remains the sole major studio to produce movies only for HD DVD. Warner Bros., an initial backer of HD, now releases movies on both formats, as does Paramount Pictures.

But Sony Pictures, 20th Century Fox and perhaps most importantly, Walt Disney Pictures are exclusive to Blu-ray. This is starting to make a difference.

According to Nielsen VideoScan, Blu-ray discs outsold HD DVD by more than a 2 to 1 margin in January, and that was a slow month, with only two high-definition DVD releases. Also by January, Blu-ray had closed the gap of total discs sold by both formats.

A report from Sony released this week claims 549,730 Blu-ray discs have been sold in 2007 and 844,000 total since launch, compared to 249,451 HD DVD discs in 2007 and 708,600 total since launch. For the week ending March 18, nine of the top 10 high definition DVDs were Blu-ray.

Warner’s decision to support both formats was considered surprising, since it was such a strong supporter of HD DVD in the beginning. It’s the leader of the HD DVD market with 47 percent of the market and second in the Blu-ray market with 19 percent of the market. Sony leads the Blu-ray market with 32 percent.

Hunt said it was a pragmatic move. “I think Warner did not want a format war,” he told internetnews.com. “They’re not stupid. When they realized there’s going to be two formats, it made sense to get into the game early on both formats so you’re ready to go when one takes off.”

Disney and Fox, on the other hand, have said the technical advantages of Blu-ray are just too great, said Hunt. Disney’s forthcoming Blu-ray releases of Cars and Pirates of the Caribbean: Dead Man’s Chest will be on two dual-layer discs, meaning 100GB of content. That’s the equivalent of 10 standard DVDs, or four HD DVDs.

Two not always better than one?

Conspiracies aside, Rubin said the split is “eerily similar” to the split in high-end audio. The DVD Forum came up with a format called DVD-Audio, but Sony went its own way with Super Audio CD. In the end, neither format sold, digital distribution gained legitimacy and iTunes sent DVD-Audio, SACD and Tower Records to the grave.

“So if you want a conspiracy theory, there’s one for you,” Rubin joked. “Microsoft could want to hasten the demise of storage media so we can move to digital downloads via XBox Live.”

Unreleased data from NPD shows Blu-ray picked up a lot of momentum in standalone players toward the end of last year, not counting the PS3. Part of the problem is that the Xbox add-on drive aside, the only OEM making HD DVD drives is Toshiba, while Sony, Philips, Matsushita, Samsung and Pioneer all have Blu-ray players out, with more to come.

As of now, the HDTV penetration is still too low for either to emerge as a mainstream successor to the DVD, said Rubin. He does not expect things to be decided by the marketplace until possibly the end of 2008. Until then, the two will limp along with marginal customer interest and bleeding money.

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