Survival of the fittest

Warner Bros' announcement that it would issue content exclusively on the next-generation Blu-ray DVD format dealt a fatal blow to the aspirations of the technology's archrival, HD DVD.
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Warner Bros' announcement that it would issue content exclusively on the next-generation Blu-ray DVD format dealt a fatal blow to the aspirations of the technology's archrival, HD DVD.

When the end came, it came quickly for HD DVD. The once seemingly unstoppable next-generation DVD format, which at one point boasted sales three times that of its Blu-ray counterpart, imploded spectacularly in mid-February, leaving its maker Toshiba facing billions in lost revenues and the unenviable prospect of commercially embracing the rival technology created by its bitter rival Sony.

The odds of survival had been stacking against HD DVD for some time, despite assurances from supporters, which included Microsoft, Intel and three of the eight major Hollywood studios, that they were committed to a long and bitter fight against the might of Sony, which was battle-hardened from its own disastrous experience with the Betamax video format during the 1980s.

Sony had realised from the outset that the key to success in the packaged media market was content, and without the support of high-profile content providers, next-generation technologies would be doomed to failure, just as the technically superior but costlier Betamax format had lost out to its cheaper, compact VHS counterpart.

Hence, when Hollywood major Warner Bros announced it was jumping ship to the Blu-ray camp in early-February, HD DVD's fate was sealed.

In the proceeding weeks, some of the world's largest retailers, including Wal-Mart and Best Buy in the US, confirmed that they would no longer stock HD DVD titles.

Faced with a situation that was rapidly spiralling out of control, Toshiba decided to pull the plug - literally - on the technology on February 19.

In contrast to the bitter brawling of the rival factions over the preceding years, the format's demise ultimately proved something of an anti-climax.

Blu-ray supporters, which include industry giants Sony, Apple and HP, and HD DVD proponents Toshiba, Sanyo and NEC, had been waging a battle of attrition for the better part of the previous two years.

HD DVD, which was technically inferior but a comparatively cheaper format to manufacture, was essentially a substantially revised upgrade of the existing DVD standard. Blu-ray also boasted advanced copy protection capabilities - a factor which reportedly swayed Warner Bros' decision to embrace the technology.

In recent months, Blu-ray's sphere of influence had continued to grow unabated. Manufacturing costs for Blu-ray players and discs - once estimated at being twice its archrival - had declined substantially over the previous six months, largely as a result of improved economies of scale, while consumer take-up of the technology had been aided by the improving sales performance of Sony's PlayStation 3 (PS3) gaming console, which includes a Blu-ray DVD drive.

With Blu-ray now set to quickly consolidate its position as the ubiquitous packaged media format, industry pundits argue the development will have a hugely positive effect in driving consumer demand for high-definition (HD) content.

Jim Bottoms, co-managing director of UK-based market analyst, Understanding & Solutions, agrees with this notion, arguing the conflict had largely served to hobble the true commercial potential of HD.

"There is significant evidence to suggest the conflict had created a general sense of confusion about high definition technology among consumers," he claims.

"The ongoing availability of the rival formats had almost certainly discouraged a large number of consumers from embracing either technology. Those that had were typically early-adopters of most first-to-market consumer technologies."

Understanding & Solutions research consultant Jack Wetherill also points to the discrepancy between the massive uptake of HD-ready television displays worldwide and the comparative lack of HD broadcast services as an indication of the potential for Blu-ray to now plug the 'content gap'.

"For example, more than 20% of Western European households boast HD-ready displays, but only one million of these currently have access to regular HD broadcast services," he says. "By 2010, we estimate there will be 115 million homes in this region equipped with HD displays, but only 17 million will have access to HD broadcast services, which will result in a 'content gap'.

"This is where we believe manufacturers of Blu-ray DVD devices can capitalise on consumer demand for HD content."

Despite Blu-ray's assured dominance of the packaged media market, another potential rival is looming on the horizon which could challenge the technology's overall market share.

HD DVD-proponent Microsoft is consoling itself in the knowledge its Xbox Live Marketplace download service is achieving considerable success delivering HD content to subscribers in selected markets worldwide.

The company signed a deal with fellow HD DVD supporter Paramount Pictures just days before the technology's demise was confirmed, which will see it offer the studio's back catalogue of HD titles online.

Bottoms claims Microsoft was "actually quite happy" to see the format battle prolonged, "because it just encouraged consumers to download content rather than buy in to either format".

"Microsoft had been selling an HD DVD drive for its Xbox, but sales were very disappointing," he claims. "Its HD content download service has been achieving strong commercial gains by comparison."

Despite this, Bottoms argues that online HD content distribution has some way to go before it can seriously challenge packaged media formats in the marketplace.

"There's an awful lot of activity in terms of promoting the web as a legitimate content delivery platform," he says.

"The harsh reality is that there's a significant gap between the amount of money being invested in broadband infrastructure and the amount of revenue being generated from these types of visual media download services. Blu-ray really has the market to itself for the foreseeable future."

 

How Hollywood rolled out the red carpet for Blu-ray

By the beginning of February, six of the eight major Hollywood studios had pledged their support to the Blu-ray standard. They were:

• Warner Bros

• New Line Cinema

• Disney

• Fox

• Sony Pictures

• Lionsgate

• MGM

The demise of the HD DVD format leaves formerly staunch supporters Paramount and Universal Studios with bruised egos and facing millions in lost revenues.
 

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