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DVD Format War Brews Even As Videos Go Off-Disk

October 22, 2005

LOS ANGELES — Hollywood is gearing up for an ugly war over rival DVD formats, but the real battle may be in keeping customers hooked on physical discs at all.

“The irony of this format war is that it comes at the tail end of the century-long era of physical media,” said Ted Schadler, analyst with Forrester Research.

“While a high-definition video format does bring benefits over today’s standard-definition discs, in movies as in music consumers are moving beyond shiny discs,” said Schadler.

Providers of online video and video-on-demand on television are tapping into this trend, while Apple Computer Inc. has raised the stakes with its new portable iPod video player that downloads content from the computer.

But two camps, led by Toshiba Corp. and Sony Corp., are still firmly placing their bets on physical discs and players that offer sharper pictures and more interactive features. An all-out disc format war is brewing after efforts to settle on a unified standard have failed.

“Consumers are getting more comfortable with alternative ways of accessing content and there’s a sense of urgency to get the content out (on high-definition DVDs) as soon as possible for that reason,” said Mark Knox, spokesman for HD DVD, the new format that Toshiba expects to launch around February.

But in the latest twist on Thursday, Warner Bros., a longtime supporter of HD DVD among Hollywood studios, threw its weight behind Sony’s rival Blu-ray format, following a similar move by Paramount.

One format will ultimately triumph, industry members said, as in the high-stakes home video battle between VHS and Betamax in the 1980s. But this time, the real casualty could be physical DVDs altogether.

“Every month this battle wages, more and more people are getting used to getting video in other ways. That’s the real enemy of this indecision,” said Richard Doherty, analyst with Envisioneering.

If the six largest movie studios release films on both formats, consumers rather than studio bosses may get to decide which they prefer. But the longer the battle drags on, the greater are the chances of digital content providers winning over buyers with video-on-demand services, Internet video and portable devices like iPods and cell phones.

DIGITAL MEDIA ADOPTION

One in six cable subscribers either watches or is interested in watching video-on-demand, according to Forrester Research. This number should grow as cable operators like Comcast and Time Warner Cable expand their video-on-demand libraries and adopt an ad-supported business model for on-demand videos, the company said.

Moreover, Internet video is spreading rapidly with 46 percent of online consumers watching it, and 9 percent saying they would pay to watch it, said Forrester.

Strong growth is likely to come with advances in video search and as broadband penetrates more households. Broadband is expected to be available in 62 percent of U.S. households by 2010, up from 29 percent today, analysts said.

While only 8.8 percent of U.S. households have a home network, this will expand to 40 percent of households by 2010, Schadler said. One in five such consumers streams audio from the personal computer to a stereo, and they are likely to want to stream video from PC to TV as well.

Apple’s recent launch of the video iPod also has Hollywood studios thinking about how to make money by providing their content on these devices, executives said.

THE LAST DISC

Schadler said about 27 percent of online consumers aged 12 to 21 years say the device they can’t live without is a PC, while only 17 percent say they can’t live without their TV.

Internet-delivered video will continue to make that true, he said.

Microsoft Corp. Chairman Bill Gates backs HD DVD and has called Sony’s Blue-ray format “anti-consumer” because of a protection scheme.

“The inconvenience is that the (movie) studios got too much protection at the expense of consumers and it won’t work well on PCs,” Gates was quoted as saying in an interview with The Daily Princetonian earlier this month. “You won’t be able to play movies and do software in a flexible way.”

Still, Gates said he regarded the debate over the formats almost as an afterthought.

“Understand that this is the last physical format there will ever be. Everything’s going to be streamed directly or on a hard disk,” he said. “So, in this way, it’s even unclear how much this one counts.”




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