[MLUG - DISCUSSION] Warner Backs Blu-ray, Tilting DVD Battle

[Mike Miller <EMAIL:PROTECTED>]

It looks like I may have guessed wrong on this one.  History might not be 
repeating itself.  --Mike


http://www.nytimes.com/2008/01/05/technology/05disc.html

N.Y. Times
January 5, 2008

Warner Backs Blu-ray, Tilting DVD Battle

By BROOKS BARNES

LOS ANGELES -- The high-definition DVD war is all but over.

Hollywood's squabble over which of two technologies will replace standard 
DVDs skewed in the direction of the Sony Corporation on Friday, with 
Warner Brothers casting the deciding vote in favor of the company's 
Blu-ray discs over the rival format, HD DVD.

In some ways, the fight is a replay of the VHS versus Betamax battle of 
the 1980s. This time, however, the Sony product appears to have prevailed.

"The overwhelming industry opinion is that this decides the format battle 
in favor of Blu-ray," said Richard Doherty, research director at the 
Envisioneering Group, a market research firm in Seaford, N.Y.

Behind the studio's decision are industrywide fears about the sagging home 
entertainment market, which has bruised the movie industry in recent years 
as piracy, competition from video games and the Internet, and soaring 
costs have cut into profitability. Analysts predict that domestic DVD 
sales fell by nearly 3 percent in 2007, partly because of confusion in the 
marketplace over the various formats.

HD DVD, however, is not dead. Two major studios, Paramount Pictures and 
Universal Pictures, have deals in place to continue releasing their movies 
exclusively on HD DVD, as does DreamWorks Animation.  Warner Brothers, 
part of Time Warner, will also continue to release its titles on both 
formats until the end of May.

But by supporting Blu-ray, Warner Brothers, the largest player in the $42 
billion global home entertainment market, makes it next to impossible for 
HD DVD to recover the early momentum it achieved.

While the specifics of the Blu-ray and HD DVD skirmish might be of 
interest only to insiders, the consequences of deciding a winner are not. 
Consumers have been largely sitting on the sidelines, waiting to buy 
high-definition players until they see which will have the most titles 
available. Retailers have been complaining about having to devote space to 
three kinds of DVDs. And the movie business has delayed tapping a 
lucrative new market worth billions. High-definition discs sell for a 25 
percent premium.

"Consolidating into one format is something that we felt was necessary for 
the health of the industry," Barry M. Meyer, the chief executive of Warner 
Brothers, said in a telephone interview. "The window of opportunity for 
high-definition DVD could be missed if format confusion continues to 
linger."

In addition to Sony, a consortium of other electronics makers back 
Blu-ray. For Sony, Warner's decision is a chance to rewrite history: the 
company faltered in its introduction of Betamax in the consumer market in 
the 1980s. Many analysts say the HD DVD players now risk becoming the 
equivalent of Betamax machines, which died out in large part because it 
became harder for consumers to find Betamax movies as studios shifted 
allegiance to VHS.

With Warner on board, Blu-ray now has about 70 percent of the market 
locked up; Walt Disney, 20th Century Fox, MGM, Lionsgate and, of course, 
Sony are all on Blu-ray's team. Warner Brothers has some of the bigger 
releases in 2008, including "Speed Racer," the Batman sequel "The Dark 
Knight" and the sixth Harry Potter installment.

"This doesn't necessarily kill the HD DVD format, but it definitely deals 
it a severe blow," said Paul Erickson, an analyst at the NPD Group's 
DisplaySearch. "When a consumer asks a store clerk which format to buy, 
that clerk is now going to have a hard time arguing for HD DVD."

In a prepared statement, Toshiba said it was "quite surprised" and 
"particularly disappointed" by Warner's decision. "We will assess the 
potential impact of this announcement with the other HD DVD partner 
companies," the company said. Universal Pictures declined to comment.

Warner Brothers has been courted for months by both sides. Toshiba 
dispatched Yoshihide Fujii, the executive in charge of its HD DVD 
business, to the studio three times in recent months, according to Time 
Warner executives who were granted anonymity because the negotiations were 
confidential. Sony has aimed even higher: Howard Stringer, the 
conglomerate's chief executive, has leaned on Jeffrey Bewkes, the new 
chief executive of Time Warner.

Money was an issue. Toshiba offered to pay Warner Brothers substantial 
incentives to come down on its side -- just as it gave Paramount and 
DreamWorks Animation a combined $150 million in financial incentives for 
their business, according to two executives with knowledge of the talks 
who asked not to be identified.

Kevin Tsujihara, president of the Warner Brothers Home Entertainment 
Group, declined to comment on whether any payments were offered for 
support of Blu-ray. "This market is absolutely critical to our future 
growth," he said in a telephone interview. "You couldn't put a number on 
that."

For his part, Mr. Meyer said, "We're not in this for a short-term 
financial hit."

Which high-definition technology is better has been the subject of intense 
debate in Hollywood and electronics circles for years. HD DVD players have 
been much cheaper than Blu-ray machines, but Blu-ray discs have more 
storage space and more advanced protections against piracy. Both versions 
deliver sharp resolution.

Consumers were inundated with marketing from both sides during the recent 
holiday season. Wal-Mart, as part of a temporary promotion, offered 
Toshiba players for under $100. Sony and its retailing partners, including 
Best Buy, responded by dropping prices on Blu-ray players, although not to 
the same level. Blu-ray players can now be purchased for under $300.

Still, Blu-ray was emerging as a front-runner as early as August. Blu-ray 
titles have sharply outsold HD DVD offerings -- by as much 2 to 1, 
according to some analysts -- and some retailers like Target started 
stocking only Blu-ray players. Blockbuster said last summer that it would 
carry Blu-ray exclusively.

"We've been monitoring the situation with consumers for a while now and 
they have clearly made their choice," Mr. Meyer said. "We followed."


Copyright 2008 The New York Times Company

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