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HD Optical Disc Battle Will Heat Up At CES

1/06/2005 02:00:00 AM Eastern

The backers of two competing formats for next-generation optical video disc systems spent the weeks leading up to International CES jockeying for position by releasing a spate of strategic alliance announcements that have apparently left the field in a dead heat.

Now, industry observers are wondering if a full-scale format war — akin to what ensued in the Betamax vs. VHS VCR launch — will further hurt what most expect to be a difficult market launch.

“The way things are going I don't see that either format is something that is going to appeal to the mass market very quickly,” said Michelle Abraham, senior analyst with In-Stat/MDR. The split decision between Hollywood studios, “is not great for the North American market, because U.S. consumers are not going to line up behind a format that can only play back half the movies they want to see. But there is still a little time left [for a merger] before the products reach the market.”

“It looks like we are heading for another VHS/Betamax situation,” said Shyam Nagrani, principal analyst with market research firm iSuppli. “On the other hand, I have a feeling that someone will come out with a product that will manage both the formats, which would help spark demand.”

Nagrani referenced a recent joint announcement from Sony and Nichia on the development of a wholly integrated, dual-wavelength laser coupler compatible with red and blue-violet lasers. The technology will make it possible to playback both red-laser DVDs and Blu-ray Discs.

“They didn't come out clearly and say they were going to make this adaptable to HD DVDs,” Nagrani said, “but I believe this is where they are going. I think Sony will keep [HD DVD compatibility] in their back pocket and if HD DVD becomes popular, they will pull it out, and take the rug out from under Toshiba's feet.”

Sony representatives were not available for comment as this went to press.

Abraham pointed out that both formats face tough odds in making a major impact at launch. Currently, she estimates market demand for hardware regardless of format, at around 20,000 units during 2005, and that will come mostly from Japan, where Blu-ray Disc recorders are already available under the Sony, Panasonic and Sharp brands.

In the United States, sales volume for the launch of players will likely be in the four-figures, coming mostly in the closing weeks of 2005, she said.

Assuming the camps remain divided, In-Stat, based in Scottsdale, Ariz., forecasts sales of about 500,000 units world wide in 2007, with the United States accounting for about 100,000.

Beyond the issues related to a format war, both systems face a dramatically smaller audience than DVD players did at launch. Players and recorders in either camp are designed to appeal to owners of high-definition television sets, and at the end of October 2004, total U.S. penetration of digital television products was listed at just over 14 million units, according to CEA estimates.

In addition, starting at close to $1,000 each, the prices of early HD DVD and Blu-ray Disc players will be vastly higher than progressive-scan DVD players, which today start at well below $100.

The format battle began in earnest back in November, when Universal, Warner Brothers, New Line and Paramount studios had each announced non-exclusive commitments to HD DVD with software at launch.

Politically, Warner Brothers, which has patent interests in the current DVD format, has been seen as a strong ally for HD DVD, due do its use of key DVD elements.

Publicly, the announcing studios said they were attracted to HD DVD's copy-protection system, its image quality, and its greater compatibility with existing DVD replication systems, which offered cheaper upfront adoption costs for disc producers.

In December, the Blu-ray Disc camp defended its position in the high-stakes HD optical disc race by welcoming Walt Disney's Buena Vista Home Entertainment unit as a non-exclusive supporter of the Blu-ray disc system. Disney joined Sony Pictures (Columbia Tri-Star) and potentially MGM, which Sony was in the process of purchasing, in pledging to offer software to back a Blu-ray Disc launch.

Disney announced it was throwing its non-exclusive software launch commitment at the rival Blu-ray Disc format, in part, because of that format's greater disc capacity, which offers the possibility of adding a variety of extra-content features, including interactive applications, on a single disc.

Twentieth Century Fox and DreamWorks remain the only studios to have not announced official support for either format.

The HD DVD format, which was developed by Toshiba and NEC, is based on DVD Forum specifications and calls for using two 0.6-millimeter-thick discs bonded back to back.

A single, dual-layer HD DVD ROM disc will have a 30GB capacity and can hold as much as eight hours of high-definition movie content, according to Toshiba.

Shortly before CES Memory-Tech and Toshiba said they had jointly developed a dual-layer ROM (read-only) disc that could store content in both the HD DVD and standard DVD formats (or various interactive applications) at the same time.

Toshiba is announcing at CES its first HD DVD player, which will play HD DVD video, DVD video and CD audio discs. The player is slated to ship in late 2005 at a $999 suggested retail price, the company said.

Toshiba plans to quickly follow that product with an HD DVD recorder by the end of 2005. However, feature sets and pricing have not been finalized on that model, the company said.

Thomson, which has long been a member of the Blu-ray Founders Group, surprised the industry shortly before CES by announcing it would support the launch of the HD DVD format with a player to be marketed under the RCA brand in the United States and the Thomson brand in Europe, although product details were not disclosed.

According to a Thomson spokesman, the company expects to support both HD optical disc formats with software replication services through Thomson's Technicolor unit, and opted to announce hardware support for HD DVD at this time, because the format appears to be closest to a market launch.

Blu-ray is backed by most major consumer electronics manufacturers including Sony, Panasonic, Sharp, Samsung, LG, Philips, Hitachi, JVC, Mitsubishi, and Thomson among others. It also has the support of PC makers Dell and HP.

Blu-ray discs are thicker than DVDs, but offer more storage capacity than HD DVD. The format is not based on DVD Forum standards.

A single-sided, single-layer Blu-ray Disc provides up to 25GB of capacity and will carry more than two hours of HDTV video and more than 13 hours of standard TV broadcasts. A dual-layer disc will hold up to 50GB of capacity.

Prior to CES, manufacturers were mum on exact plans to introduce Blu-ray Disc players or recorders, although members of the BDA have estimated that the first players could reach market by late 2005. Sony's Computer Entertainment unit, meanwhile, has said it plans to include Blu-ray Disc compatibility into its next generation video game console, the PS3.

HP said it will start selling PCs equipped with Blu-ray Disc drives in late 2005, starting in its desktop PCs, media center PCs, personal workstations, and digital entertainment centers.