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High-def format war still going ... for now
HD-DVD backers stay in fight with Blu-ray; retailers hope for resolution soon
By Dan Gallagher, MarketWatch
Last update: 12:52 p.m. EST Jan. 9, 2008
LAS VEGAS (MarketWatch) -- Blu-ray may have gained the upper hand in the high-profile format war between differing high-definition standards, but the other side is not quite ready to throw in the towel.
Members of the trade group supporting the HD-DVD standard spent their time during the Consumer Electronics Show this week quietly lobbying for support from retailers and other industry players.
This came in response to the group getting caught flat-footed last Friday as Warner Bros. made a surprise announcement that it would back the Blu-ray format exclusively beginning later this year.
Many attendees and industry trade press at CES were writing off HD-DVD as dead following the move by Warner -- one of the largest players in the home-video market.
The HD-DVD Promotion Group compounded the problem by pulling the plug at the last minute on a planned press conference at CES -- touching off speculation that some of the studios remaining in support of the standard may now be considering a move to the other side.
"We are as shocked as anyone else by the decision," said Ken Graffeo, executive vice president of HD strategic marketing for Universal Studios which has been Hollywood's largest backer of the HD-DVD format.
During an interview at CES, Graffeo said the group has been working since the Warner announcement to gauge the degree of backing among retailers, which he said have been "overwhelmingly supportive."
"The consumers are not confused about formats," he said. "Consumers want something that's affordable."
Blu-ray says war is over
Those in the Blu-ray camp, however, see it differently.
At their own press gathering at CES, members of the Blu-ray Disc Association declared the so-called format war to be over, thanks largely to the support of Time Warner.
"The market has decided," said Steve Becks, president of Lions Gate Entertainment , which backs the Blu-ray format. "All forces are pointing to Blu-ray as the clear winner."
Bob Chapek, president of the home-video unit at Walt Disney Co. said studios standing behind the Blu-ray standard can now devote more resources to educating consumers about the benefits of moving to high-definition.
"With a lot of the competitive efforts on the format war now behind us, resources will be freed up," he said.
The evidence from CES, however, is that competition remains. The two groups backing the rival formats set up large exhibit booths right next door to each other in the Las Vegas Convention Center's South Hall, where demonstrators touted each format's advantages -- and openly criticized their rivals.
On the studio side, Blu-ray is now backed exclusively by Disney, Warner, News Corp.'s Fox unit, Lions Gate and Sony Corp.'s Sony Pictures unit. Sony is also the main technical developer behind the Blu-ray format.
HD-DVD counts in its corner General Electric Co.'s Universal Pictures, DreamWorks and Viacom Inc.'s Paramount, though some media reports this week have indicated that Paramount may be considering a move to support Blu-ray.
Toshiba not backing down
Toshiba is the main technical developer of the HD-DVD standard, and the Japanese electronics giant used its presence at CES to tout the format. At a press conference, Akio Ozaka, president and chief executive of Toshiba America Consumer Products, said the company was "significantly disappointed" in the Warner decision but remained confident that HD-DVD would prevail.
Jodi Sally, vice president of marketing for Toshiba, put it more succinctly: "We're being declared dead, but we've been declared dead before."
All the same, backers of HD-DVD now face an uphill battle to make their case, as five of the seven major Hollywood studios now back the rival format.
Many Wall Street analysts are predicting that Blu-ray will eventually win the battle.
"We continue to believe that Blu-ray will prevail," Citigroup entertainment analyst Tony Wible wrote in a Tuesday research note.
Warner's decision to side with Blu-ray "should help eliminate the duality issue that has plagued consumers who have remained reluctant to significantly embrace either format until a clear winner emerges," he told clients.
And while Universal's Graffeo says retailers have expressed strong continued support for HD-DVD, they too are indicating that they would like to see the matter settled before much longer.
"We were very excited to see progress of any kind," said Phil Schoonover, CEO of Circuit City, during a panel discussion of electronics retailers.
At the same discussion, Brad Anderson, CEO of Best Buy, said the format war is making it difficult for his employees to sell high-definition equipment to consumers who don't want to spend several hundreds of dollars on one format if it's not going to last.
"Our employees are frustrated. It's time to get this solved," Anderson said.
