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HD Disc War May Be At Crossroads

San Diego — A consultant to a top Hollywood studio said at the DisplaySearch Flat-Panel Display Conference, held here Wednesday, that the format war in high-definition discs could be determined in the next three or four months if backers of the Blu-ray Disc camp get behind the planned imminent releases of last year’s top box-office titles.

Vito Mandato, Paramount Home Entertainment executive consultant, pointed out what Sony and other Blu-ray backers have said since International CES, that the Blu-ray format is about to have the lion’s share of the top box office earners from last year released on Blu-ray Disc. That could be enough to ignite a chain reaction of demand that will settle the format war for good, he said.

Blu-ray will enjoy the benefit of the imminent release of some of the top box office earning titles that comprised $1.4 billion of U.S. box office revenue last year, Mandato said.

“When you recognize the total box office for all of last year was $9.4 billion, people are going to want those,” Mandato pointed out. “If the Blu-ray camp can use the power of these and some of the other new releases over the next three or four months, they could win it all. The reason being — people listen to the opinions of early adopters. If the early adopters say, ‘This is my only choice because I’ve got to have these movies,’ that could sway opinion, generate momentum and Blu-ray could win.”

But he warned, “There is a chance that the Blu-ray camp may not be effective in convincing enough consumers that this is a killer app and it has to be paid attention to. We’ll know soon.”

Mandato said Paramount is currently supporting both camps because “we feel strongly that it is important to let the consumer make the decision, give them the ability to choose from a variety of options and pick the one that suits them. It’s our goal to provide them with the absolute best movie experience possible with Paramount movies.”

“On the selfish side, we are putting ourselves in the best position to make the most money for the studio,” he continued. “So why not pick a winner now? Well, there are risks involved in doing that, if you recall the last [presidential] election. Quite honestly, there is some evidence to suggest now that we may not be ready to pick a winner.”

Through Feb. 25, Mandato said, 694,000 Blu-ray movies were sold compared with 655,000 HD DVD movies.

Alternately, he added that the end of 2007 “could result in a universe of HD movie buyers that are dead even” with 3.4 million households buying movies monthly. This includes sales of HD disc players, and gaming consoles.

HD DVD’s biggest advantage is low price. On the Blu-ray side, their biggest advantage is the best movies, said Mandato.

He added that “brand equity will play an advantage with the early majority buyers, which are much less tech savvy than early adopters,” said Mandato.

He said he expects studios to step up and start promoting their HD disc releases more aggressively.

“The studios have not done a good job coordinating the messaging,” said Mandato. “For the Blu-ray opportunities with blockbuster movie releases over the next three or four months, the first of those will be “Casino Royale,” and we have already begun to see the campaign. In the magazine ad, there is a separate fractional page that calls out specifically that it is available exclusively on Blu-ray. If that hard-hitting messaging starts to appear consistently in all of the exclusive hit titles exclusive to Blu-ray, that will start to move the needle.”

Concerning the threat of the rapidly developing video download market, Andy Parsons, Blu-ray Disc Association U.S. Promotions Committee chairman and Pioneer advanced product development senior VP, said bandwidth remains insufficient to deliver a quality feature-length HD video in a reasonable amount of time.

“When you accept the premise that it takes 25 to 30GBs minimum to download a really high quality, high-definition movie, and you have a 4 to 5Mbps pipe running into your home, being able to download that much data in less than 10 hours is pretty difficult,” Parsons said.

Parsons called the gating issue to the acceptance of high-definition downloading “the Target factor,” explaining that if a user can drive to Target, purchase the movie, drive home, watch the movie and go to bed, in less time than it takes to takes to download that same movie over the Internet, the online sale is not very viable.

Parsons also explained that pay per view movies have been available for a number of years, yet they have never slowed the rate of DVD sales and rentals.

“I don’t see it as an either-or proposition,” Parsons said. “Downloads are there. I think they are another slice of the pie, but I don’t see that as taking over the market any time soon.”

As for the prospects of combo format players sustaining the format war, Mark Waring, a Sanyo Technology Center director and spokesman for the HD DVD Promoters Group, said pricing will make it very difficult to maintain a sustainable business model for hybrid players.

Low player pricing for HD DVD players, and the promise of even lower prices once Chinese and Taiwanese OEMs begin producing HD DVD players, is a major weapon in the battle for HD DVD supremacy, he pointed out.

“I don’t think [a dual-format player] is a good vehicle for new entrants, period,” Waring said. “There is a very brutal price point expectation for consumers. Who paid more than $100 for their last DVD player? The bar is getting lower every month. There is only one example of a combo-format player to date and it is well over $1,000. I think that is a real limitation, just in terms of the price elasticity of that product.”

“All of the presentations are operating on the premise that there will be a single format when this is all done,” said Pioneer’s Parsons. “Everybody is waiting for the format war to end, so that the business can take off under a single format. A dual-format player does not really solve the issues of why we have a format war in the first place. In fact, you can even provide a false sense of security for consumers if they go out and buy a dual-format player and then stacks of both discs. When one format goes away and the dual-format player breaks, then that consumer is stuck with a stack of unplayable discs.”

“It’s not a panacea. It doesn’t solve the problem,” Parsons continued. He pointed out that Pioneer’s introduction of a dual-format DVD-Audio/SACD player years ago, did not end that format war, either.

“The player, at the tail end of the entire process of getting movies distributed to consumers, isn’t where the problem is,” said Parsons. “It’s about distributing content on a single format because that is the most efficient way to get it done.”

Similarly, Warner Brothers’ proposed Total HD dual-format flipper disc is not likely to solve the problem, said Paramount’s Mandato, adding that Paramount is not likely to adopt the hybrid disc “until the capacity issue is solved.”

“The capacity issue they laid out at CES was the equivalent of a single-layer on both formats,” said Mandato. “The guiding rule we use for going to dual-layer on Blu-ray is that when the running time for a movie is beyond 105 or 110 minutes, it is pretty much pushing the envelope to needing a BD-50 disc. The average running time for our last 20 or so movies was 124 minutes. So, unless a flipper disc from Warner can accommodate that, I don’t think there will be that much interest.”

As for the possibility of both formats co-existing in the market, Mandato pointed to the recent release of “The Departed” in six different disc format SKUs, saying, “Nobody wants that. The studios don’t want it because it costs money to make all of those different SKUs, ship them and inventory them. The retailers really don’t want that, and we’ve all heard an earful from them.”

“The fact is, the movie business is just not like the video game business,” said Mandato. “Somehow the video game business has been able to peacefully coexist with multiple formats, but part of the reason is there is a lot of cross-ownership of multiple platforms. It’s hard to explain why it’s not going to be a successful model, but it’s not going to be successful in the movie business. It’s too expensive. It eats up money that we could all turn to profit. We are very motivated to get past this. The hardware manufacturers are as well. I think both sides are spending an inordinate amount of money to get to the winners circle, and it would be a lot more profitable to just try to make one format do well.”