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    May 2003

    Duking It Out

    Still, the nature of the next-generation rollout itself may force consumers to take sides early. Because of the vastly different physical attributes of Blu-Ray and HD-DVD discs, it's cost-prohibitive for manufacturers to produce next-generation players that can handle both Blu-Ray and HD-DVD formats in one machine. "You would need two pickup heads, and it would be very expensive," explains Stephen Balogh, business development manager at Intel's corporate technology group. So manufacturers have lined up on opposite sides of the fence, ready to produce players that only work with one or the other format. That could spell consumer confusion as buyers fear picking the wrong one and ending up with an obsolete player and content library.

    Each side wants to convince consumers that they should avoid the other side's format. HD-DVD backers are planning a "you want it, and we're here now" marketing strategy, whereas the Blu-Ray camp largely plans to adopt a "we won't be first, but we'll be better" campaign designed to warn consumers away from HD-DVD.

    So what's the breakdown of forces on each side? On the Blu-Ray side is a large group of CE manufacturers, including Dell, Hewlett Packard, Hitachi, LG Electronics, Mitsubishi Electric, Panasonic (Matsushita Electric), Pioneer, Royal Philips Electronics, Samsung Electronics, Sharp, Sony, TDK and Thomson. Some content providers also are onboard. In addition to obvious backing from Sony-affiliated movie studios Sony Pictures Entertainment and Metro-Goldwyn-Mayer, the Walt Disney Company and its home-video division Buena Vista Entertainment offered its non-exclusive endorsement of Blu-Ray in December. In addition, video gaming powerhouse Electronic Arts, along with Vivendi Universal Games, both came out for Blu-Ray at the 2005 International CES in January.

    Most gaming companies have yet to pick sides, although Blu-Ray's larger storage capacity may win some of them over. "If you show Blu-Ray to a game manufacturer and say you can have an extra 20 gigabytes of storage, it's a drop-dead deal," says Blu-Ray backer Richard Doherty, managing director for Blu-Ray and professional AV at Panasonic Hollywood Labs. Of course, most PC-based games haven't even moved up to the current generation of DVDs from CDs, so it's unclear whether most gaming companies will utilize high-definition DVD formats for some time.

    The main backer of the HD-DVD format is Toshiba, which by itself has more market dominance than several CE backers on the Blu-Ray side combined, along with smaller players NEC and Sanyo. Toshiba plans to launch its first HD-DVD players in late 2005. In December, even Thomson—which is actually a Blu-Ray disc backer—announced that it also would sell HD-DVD players by late 2005. And an impressive list of entertainment content companies has thrown their weight behind HD-DVD, including Paramount, Universal Studios and Warner Bros. (along with Time Warner-owned New Line Cinema). All of these studios have already announced a significant amount of titles on HD-DVD to be available at the time HD-DVD players are introduced.

    Toshiba is dedicated to the HD-DVD format and executives staunchly believe they will win the marketing battle for consumers even before Blu-Ray gets its format off the ground in 2006. "The key part of this is going to be driven by content," says Maciek Brzeski, vice president of marketing in Toshiba's storage device division.

    He says consumers won't care whether the disc has 30 gigabytes or 50 gigabytes of capacity—only that the content they want is ready and available at a good price. Brzeski questions the Blu-Ray camp's ability to jazz consumers about a format that he says offers little more than a few extra gigabytes of storage. "They're going to be marketing technology, and we're going to be marketing products," he says. "It's hard to sell technology to consumers."

    "Our rich heritage in the development of DVD technology means that we are well equipped for the market transition from DVD to HD-DVD," added Sally, who also serves as Vice-President for the Digital Entertainment Group. "With proven backwards compatibility and real software titles available at launch, we are certain that we can deliver the very best solution in HD-DVD technology for both consumers as well as the content providers."

    In December, Toshiba and other HD-DVD backers formed the HD-DVD Promotion Group to promote the format, and to ensure early product launches and subsequent market penetration.

    Other pros and cons seem to bleed together as both formats offer similar features. For example, while HD-DVD touts the ability to create discs with red-laser standard DVD format on one side and blue-laser HD-DVD standard on the other, a Blu-Ray Disc Association spokeswoman points out that JVC announced in December a disc that allows both standard DVD and Blu-Ray content on a single side of the disc. The Blu-Ray camp has argued that single-sided discs are more consumer friendly.

    The Pricing Strategy

    In the vital area of picture quality, both formats also have a difficult time differentiating between one another. "Either format can produce a very good image," says Richard Dean, director of technical business development at THX Inc. "To me, it boils down to the price of the equipment and the availability of content."

    Dean, who has helped master the DVD releases of the Star Wars trilogy and other blockbuster movies, says that consumers won't notice any real quality difference between the formats. But he says HD-DVD may end up with an advantage if it can under price Blu-Ray discs and players. "I think that's going to play a very large role." As for Blu-Ray's greater storage capacity, "more space is always an advantage," Dean says, "but the question is how much more space is really needed." Notes Parsons: "If you start doing HD bonus features, it will suck up capacity very quickly."

    Intel executives, who first got involved in the working groups for next-generation DVD formats to help avoid a format war, already are bracing for an era of consumer confusion as a Blu-Ray-vs.-HD-DVD scenario takes shape. "We didn't want two formats coming out," says Balogh. "Now we have an even standoff, so neither side wants to compromise whatsoever." Making matters worse, he says, the entertainment studios also are split between Blu-Ray and HD-DVD, although more big studios have backed HD-DVD at this point.

    "The studios will be the kingmakers here," he says. Ultimately, consumers may struggle to figure out what kind of players and media to purchase during the next couple of years. "The most important benefit to the consumer is that the HD-DVD players that we'll be introducing to the market this year will be fully backward compatible with the current DVDs that are already in consumers' homes. With the Blu-Ray formats' backward compatibility isn't so simple," adds Sally.

    Still, many are wary. "It would be best if we went to market without two formats," says Panasonic's Doherty. "We're very disappointed that we're in a format war." As the battle heats up in 2005 and well into 2006, consumers will decide which format will succeed.

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