May 5, 2006

CORRECTED: Video games a key battlefield in high-def DVD war

Please read in final paragraph... early 2007... instead
of... in the 2006 holiday shopping season...

A corrected version follows:

By Sue Zeidler

LOS ANGELES (Reuters) - Next week's E3 video game
conference could prove pivotal for a multibillion dollar
high-definition DVD standards war brewing in Hollywood.

While most gamers are heading into the Electronic
Entertainment Expo hoping to view the latest and greatest in
video games and consoles, a key subplot will be Sony Corp.'s
plan to use the PlayStation 3, the newest version of its
market-leading video game console due late this year, to get
its Blu-ray high-definition DVD standard into homes.

By offering DVDs with far more capacity than current
standard DVDs, studios hope to breathe new life into the $24
billion home video market. But their failure to use a unified
format has paved the way for a costly battle similar to the
VHS/Betamax war that caused widespread customer confusion.

There are two rival next-generation DVD standards,
including Sony's Blu-ray and HD DVD, championed by Toshiba

While Blu-ray has drawn more support among Hollywood and
electronics firms, HD DVD has garnered an ally in software
giant Microsoft Corp., which plans to offer an external HD DVD
drive for its Xbox 360 game console that will turn it into a
high-definition DVD player.

The Xbox 360 hit stores late last year, and is the first of
the next generation of game consoles offering high-resolution
graphics and more realistic play.

"The next move in the Blu-ray/HD DVD competition will be in
the game industry. What Sony and Microsoft decide to announce
publicly or to dealers at E3 next week will be key," said
Richard Doherty, an analyst with research firm Envisioneering.

Microsoft has not given a ship date or pricing for its HD
DVD add-on disc drive, while Sony has not yet announced pricing
for the PS3, which is due in November.

A widely expected price of $499 for the PS3 would make it
competitive with or cheaper than most stand-alone HD DVD or
Blu-ray players. Toshiba has released an HD DVD player priced
at $499.

"If Sony says it will sell the PS3 for $499, then people
may wait until November to buy a PS3. If it doesn't give a
price, then it might help in the sale of HD DVD players" in the
mean time, said Doherty.

The high-end Xbox 360 package currently costs about $399
without a next-generation DVD.

HD DVD titles have been trickling into stores since
mid-April along with the first HD DVD players, while the
arrival of the first Blu-ray format titles and hardware are now
expected in June.

Video game analyst Michael Pachter of Wedbush Morgan
Securities sees the DVD standards war determining the winner in
the current video game console battle instead of the other way

Sony's decision to allow Microsoft to grab first-mover
advantage with its Xbox 360 launch in November was "almost
certainly" the result of Sony's desire to dominate the
high-definition DVD market, Pachter said in a recent report.

Based on his assessment that Sony will win the
high-definition DVD war, Pachter predicted that the PS3 would
again be the dominant console at the end of this console cycle,
although he predicted Microsoft would capture about 42 percent
of U.S. and European combined next-generation hardware sales
through 2007.

Microsoft's much-anticipated Vista operating system, to be
available in early 2007, is also slated to support HD DVD,
which will boost the installed base of HD DVD technology in