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By John Gaudiosi
Sony learned the hard way with its Betamax tape format that consumers ultimately want only one choice when it comes to new movie formats. The DVD format continues on a record pace because it was a unified disc with all of the movie studios and hardware manufacturers on board. The home entertainment industry is in turmoil with two competing formats, one backed by Sony (and others), the other by Microsoft (and others).
This war between Blu-ray Disc and HD-DVD is extremely nasty, as members from each camp throw barbs at each other. Unlike the console wars, which has Microsoft, Sony, and Nintendo actually expanding the overall videogame market, this next gen DVD battle is not helping consumers, retailers or anyone not affiliated with one of the two sides.
Having lost the Betamax war to VHS, Sony placed its new Blu-ray Disc technology in the PlayStation 3 and the majority of movie studios came on board given Sony's track record with getting PlayStations into homes around the world in record numbers. While PS3 has been slow to gain traction thus far, recent hardware price reductions have the home entertainment industry excited.
I spent two days in Los Angeles in Hollywood, Century City and Universal City checking out the latest BR-D movies and new playback functionality for BR-D players, including PS3. Execs from major Hollywood studios as well as Sony and Panasonic took time to talk about the format war.
"We want this to happen quickly because we believe the longer the continued existence of two formats goes on it's not good for the industry," said Gordon Ho, executive vice president of marketing, product and business development, Walt Disney Home Entertainment. "I think we have to have a single disc format because it's what the consumers and the retailers want."
According to those in the Blu-ray Disc camp, the writing's on the wall for rival HD-DV, the only thing that seems to be keeping the format alive is Microsoft. With Universal Studios Home Entertainment and Paramount Pictures Home Entertainment exclusively supporting the format (Warner Bros. Home Entertainment supports both next generation DVD formats), Blu-ray Disc movies are outselling HD-DVD movies by a margin of 2 to 1. (The HD-DVD counters that HD-DVD movies maintains a 4 to1 software attach rate over Blu-ray.) The Blu-ray supports say that HD-DVD should surrender, but instead are taking some "last gasp measures" to continue the consumer confusion.
The reason gamers won't be able to play the Transformers movie on PlayStation 3 is because Toshiba anted up cash to Paramount to lure the studio over to its exclusive HD-DVD camp. Previously, Paramount had released all of its titles on both platforms. According to industry insiders at the event this week, Paramount was paid as much as $150 million to make the exclusive move for an undisclosed amount of time (perhaps as long as 18 months). The studio is rumored to have been paid $50 million alone for the Transformers HD-DVD exclusive, according to executives at the conference who didn't want to be identified for this story.
"Our decision to back HD-DVD was based on having the benefit of fully experiencing and exploring both formats for the past year and after careful analysis deciding to dedicate our resources to support the format best suited for the most compelling consumer offering and the future of our business," said Alan Bell, Chief Technical Officer, Paramount Pictures. "Beyond that, it's our policy never to comment publicly on the details of company agreements."
After the Paramount HD-DVD announcement, Steven Spielberg came out saying his movies would not be released on that format. Sony Pictures Home Entertainment is releasing Spielberg's Close Encounters of the Third Kind on BR-D this fall. Michael Bay has also been outspoken about his movie only being available on HD-DVD.
The other route HD-DVD is taking to encourage consumers to upgrade to their format is lower hardware prices. Kmart is only selling HD-DVD players. Toshiba's HD-A2 player retails for under $200 at Wal-Mart, Target and Amazon.com. Consumers get five free movies with this hardware. On Black Friday, Sears will sell Toshiba's HD-A3 for under $169, which will come with seven free HD-DVD movies. (On the BR-D side, Blockbuster is only selling and renting BR-D movies.) And this Friday Wal-Mart has a limited number of players for under $100.
"With all the retail momentum behind HD-DVD, I've even seen prices as low as $164 for the $179 Xbox 360 player that include a free copy of 'Heroes: Season 1' on HD-DVD, plus the free movie in the box along with five free mail-in offer that comes with your purchase, regardless of where you buy," said Jordi Ribas, General Manager of HD-DVD, Microsoft. "I can't speak to specific numbers, but based on recent NPD data, there have been more Xbox 360 HD-DVD players sold than all Blu-ray standalone players combined. The Playstation 3 simply hasn't been the gamer changer Sony had hoped it would be."
One home entertainment executive, who supports Blu-ray Disc, said if Microsoft was serious about HD-DVD they would put it inside of the Xbox 360. In reality, many home entertainment executives believe Microsoft is doing all it can to continue the format war for as long as possible. For Microsoft, which wants digital delivery of entertainment like its Xbox Live Video Marketplace to become the key form of consumer consumption of entertainment across multiple PC and Windows Vista-enabled devices, having a clear-cut winner in the next gen DVD war is not to its benefit. The longer consumer confusion continues and the longer many consumers remain on the sidelines awaiting a single format to emerge victorious, the more digital delivery-enabled devices are sold into the market.
"There's an 800 pound gorilla trying to confuse the consumer in an effort to get control of online content in the future," said Mike Dunn, worldwide president of 20th Century Fox Home Entertainment. "A lot of people will end up paying money for a format that won't be around in 18 months."
Ribas countered that this is a completely baseless claim.
"Microsoft has a team dedicated to the success of the HD-DVD optical format and we will continue working closely with our partners to provide the best experience and value for consumers," said Ribas. "We are helping bring movie lovers a format which offers a consistent and compelling high definition experience, all at the most affordable price. Superior picture and audio are a given, you have to have this, but interactivity and web-enabled features utilizing Microsoft's HDi technology allow movies to live beyond what was stamped on the disc--this is critical. Ultimately, connected entertainment experiences are the future of our business, and HD-DVD was developed with this in mind."
Bell said this format war is not about who wins or loses. He said that currently, mainstream consumers are reluctant to invest in the next generation formats because they don't want to make the wrong decision.
"We believe the combination of affordable players and a strong slate of films can influence consumers to make an informed and gratifying decision," said Bell. "We feel we're putting our weight behind the right choice for consumers when it comes to the best in high definition home entertainment."
The game industry was once a two-horse race, but Sega and now Microsoft have proven that consumers will support three competing formats. But exclusive games are different than exclusive movies. Gamers have to buy an external HD-DVD drive to watch Transformers or Heroes and use their PS3 to watch Spider-Man 3 and Hostel II. The average consumer is not going to buy both, so in the end, one format will lose. With both camps claiming victories (which are often negated by the other camp), there's no end in sight for this battle. And that's not good for the home entertainment industry or the consumer.
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