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Electronics firms brace for DVD war

Two decades after the battle between VHS and Betamax, electronics makers are gearing up for another drawn-out video format war that is likely to confuse consumers and hinder the industry's transition to next-generation DVDs.
/ Source: Reuters

Two decades after the battle between VHS and Betamax, electronics makers are gearing up for another drawn-out video format war that is likely to confuse consumers and hinder the industry's transition to next-generation DVDs.

At stake is pole position in the $10 billion-a-year DVD player and recorder market, and a PC drive market of similar size. The winner would be able to license its technology, meaning billions of dollars in royalty income is also up for grabs.

Sony Corp. and several other giants of the electronics, computer and movie industries are backing a technology dubbed "Blu-ray". Toshiba Corp., Sanyo Electric and NEC Corp. are fighting for a rival format called "HD DVD".

At the core of both formats are blue lasers, which have a shorter wavelength than the red lasers used in current DVD equipment, allowing discs to store data at the higher densities needed for high-definition movies and television.

But Blu-ray and HD DVD have different weaknesses and strengths relating to cost, capacity and speed. Neither side appears willing to throw in the towel, making it likely that products based on competing formats will be on shelves as early as next year.

"I don't think Toshiba will back down. Sony is unlikely to give up either. Inevitably there is going to be some confusion in the market and there's going to be another standard war," said Carlos Dimas, analyst at CLSA Asia Pacific Markets.

A protracted format scuffle would hurt profitability across the industry by making consumers uneasy about buying next-generation products and shortening the window of opportunity for makers to recoup development costs, Dimas said.

HOLLYWOOD SUPPORT

Support from U.S. film studios will probably be the deciding factor in this showdown just as a wider selection of movies in the VHS standard, which was backed by Matsushita Electric Industrial, helped VHS prevail over Sony's Betamax.

Both camps plan to launch blue laser DVD players in time for Christmas next year, meaning studios would need to pick a side by early 2005 if they hope to prepare for mass production and distribution by the year-end.

But it is unclear which side has the upper hand in Hollywood and it appears unlikely the movie industry will rally behind one format anytime soon.

Studios don't want to be burdened by the initial investment needed to produce two types of disc if they can get away with paying for just one.

"We certainly would like to see more efforts at unification," Bob Lambert, senior vice president at Disney, told Reuters recently.

Blu-ray has the support of Sony Pictures and the tacit backing of Metro-Goldwyn-Mayer Inc., recently acquired by a Sony-led consortium. It is also counting on Twentieth Century Fox, which recently joined the Blu-ray Disc Association board.

Toshiba says it is confident that Time Warner Inc. will back the HD DVD format, and pulls no punches when it talks about Sony's chances of luring other studios to the Blu-ray fold.

"If Sony is so sure it is winning the battle, it wouldn't have felt the need to buy MGM," said Toshiba senior engineer Hisashi Yamada, known as the father of the DVD.

Yamada, who has been shuttling between Tokyo and the United States to court studios, said he was 80 percent sure he could rope in the undecided players. Fuelling that confidence is what is considered HD DVD's biggest advantage: lower transition costs.

With the same physical structure as current discs, HD DVD allows makers to use much of their existing DVD equipment, keeping fresh investment minimal and curbing manufacturing costs, Toshiba says.

The Blu-ray firms say their format is better because a single-layer disc can hold about 25 gigabytes, enough to record up to three hours of high-definition TV, versus 20 gigabytes for HD DVDs. Blu-ray says the possibility of even higher capacities in the future would give its technology a longer life span.

CONSUMERS LOSE

"In terms of technology, we have no weak points. Our format is superior on all counts," said Kiyoshi Nishitani, executive officer at Sony and a board member of the Blu-ray Disc Association, in a recent interview with Reuters.

Nishitani acknowledges it will not be easy to win over Time Warner given its capital and personal ties with Toshiba, which holds a 0.1 percent stake in the movie company. The two firms worked closely in the mid-1990s to establish the standard for the current generation of DVDs.

But with the backing of most of the world's top consumer electronics companies and the top two makers of PCs, he does not seem overly concerned.

Blu-ray estimates the electronics makers in its camp have a combined global market share of 90 percent. Dell Inc. and Hewlett-Packard, which control around 30 percent of the global PC market, are members of the Blu-ray board.

"The real question is how many companies are actually going to make products in the format. (In the HD DVD camp) there are only two or three," Nishitani said. "I want them to pull out of the race as soon as possible."

And what if the bickering continues and neither camp swallows its pride?

"In the initial phase the consumer will probably lose. It is a big risk for the people who actually buy products for either format without knowing who the winner is," Dimas said. (Additional reporting by Kunihiko Kichise in Tokyo and Bob Tourtellotte in Los Angeles)