Next Generation Optical Format War May Be Nearing End

Implications: * Just before the start of the CES in January 2008 Warner Brothers announced that they were dropping support for the HD-DVD format * The company announced that the would begin exclusive new releases in Blu-ray format later this year (after May 2008) * In announcing the decision Barry Meyer, Chairman and CEO of Warner stated that “the window of opportunity for high-definition DVD could be missed is format confusion continues to linger” *The article indicates that Warner gained significant advantages in making this planned conversion * Rumors at the CES indicated that Dreamworks and Paramount were prevented from making similar moves by fast action by the HD-DVD promoters

Analysis: The format war between HD-DVD and Blu-ray high definition video distribution formats has been going on in earnest for about two years now (although it was clear that the two sides couldn’t compromise even earlier).  Many customers have put off decisions on purchases of next generation players due to the high cost of these products as well as concern that if they made the wrong decision their investment would become obsolete quickly.   As customers put off the decision to purchase the next generation players the unit volumes produced has failed to take off and so the unit costs remain high.  This limits purchases further and makes other distribution technologies more attractive to consumer, including on-line downloads.  

A clear victory in the next generation optical format battle will do much to make this product segment grow.  Many people have been buying high resolution LCD, DLP and plasma screen TVs over the last couple of years and they are hungry for content that can make full use of these advanced display devices.  The market is waiting for a decision to be made.  Up to this point Blu-ray drives and media was ahead of HD-DVD (by a ratio of about 3 to 1) due primarily to use of these drives in the Playstation-3.  With the defection of a major studio from the HD-DVD camp we may have reached a critical tipping point in the technology.  Any such definition of the future of optical storage will be welcomed by CE manufacturers and customers alike.  At the CES conference the Blu-ray booth was crowded while the HD-DVD booth had a lot fewer people going through.  Maybe the writing is on the wall.  

On the other hand the HD-DVD folks have not thrown in the towel yet.  They have kept other studios from bolting and there are still some implementation and economic arguments for the format (it is still cheaper to make HD-DVD players than Blu-ray players but that will change as Blu-ray volume continues to climb).  Microsoft also backs the HD-DVD standard and they have a major hand in the HDi programming language used in the HD-DVD players (Blu-ray players use Java).  Microsoft also uses HD-DVD players in their Xbox 360 HD player.  Thus there are reasons why HD-DVD may not go away right away, although I believe that they will steadily lose ground to Blu-ray disc technology over the next couple of years.  Microsoft may be able to keep the HD-DVD format alive in PCs for a while but it is likely that these too will eventually convert to Blu-ray to maintain a common format.  What this means is that the Blu-ray transition may take a couple of years to be complete.  

A win for Blu-ray would be a boost for Sony, who hasn’t enjoyed many wins in recent years.  Blu-ray also provides a path to 50 GB and even 200 GB multi-layer optical disks so there is a clear path to future generations of higher definition content.  Let us hope that the industry is finally settling on the new format and that the transition to this format happens quickly.