Industry Tries Again To Reach Agreement On New DVD Format
By SARAH MCBRIDE, PHRED DVORAK and KATE KELLY Staff Reporters of THE WALL STREET JOURNAL April 15, 2005; Page B1
Hoping to avoid a costly war over the next generation of DVDs, Hollywood executives and electronics manufacturers are discussing whether to merge two competing formats that are on a collision course and are threatening to delay the arrival of high-definition movies and games in consumers' homes.
Sony Corp., with its Blu-ray format, is in a knockout battle with Toshiba Corp. and its HD DVD format. Both formats promise better picture quality, more-interactive features and stricter copy protection than do today's DVDs. Each one has the support of several big electronics makers and studios.
Studios are hoping the next generation of DVDs will help stave off piracy while boosting sales and rentals of packaged movies, already a $21 billion-a-year business. Electronics companies, meanwhile, are counting on the new discs to drive sales of a whole new line of players and recorders, as well as garner revenue from patents on technology.
Both camps have the same goal: to extend the DVD bonanza that has revived the movie business in recent years, by offering upgraded DVDs with high-definition content and interactive features. With each side wedded to its own incompatible technology, the industry has seemed headed for a repeat of the brutal format war between Betamax and VHS videocassettes two decades ago.
The two sides have resisted years of pressure from studios and consumer-electronics retailers to reach a compromise. Given the two camps' dug-in positions, the idea of a merged format hasn't gotten much traction, and even now, the chances of an agreement may be slim.
Still, talks recently have gained momentum, people familiar with them say, in part because of Howard Stringer's recent appointment as chief executive of Sony Corp. Mr. Stringer, who has led the U.S. entertainment business at Sony for several years, is known as a skilled diplomat, with close ties to Hollywood. He is said to be less concerned with pushing Sony's proprietary technology than are the electronics-focused executives who have run Sony until now. Sony said Mr. Stringer declined to comment.
People close to Mr. Stringer downplay his role as a ringleader of the talks. Still, brokering a compromise could be an important win for him, sowing valuable goodwill in Hollywood and among consumer-electronics retailers. An agreement on a single new DVD format would help the industry avoid a standoff, in which rival formats sit side by side on store shelves. Such an outcome would probably deter a lot of consumers from upgrading their DVD players and libraries.
One thing seems certain: Consumers will need to buy a new DVD player to experience all the new features of the next-generation DVDs. Whether Blu-ray or HD DVD, the new discs are expected to be the same size as current DVDs. Each camp says the DVD player for its format will be "backwards compatible," meaning it will be able to play today's DVDs, although without a high-definition image or interactivity.
Bob Wright, chairman and chief executive of General Electric Co.'s NBC Universal, said in a recent interview that Mr. Stringer was interested in a compromise even before he rose to the Sony CEO post. He recalls that Mr. Stringer said, "There must be a way to get both sides together." Mr. Wright said he hasn't talked to Mr. Stringer since his promotion but a compromise is in all the entertainment companies' interests. "We don't want to be dealing with two standards....Our issue is to try to encourage them both to get together," he said.
Sony's newly appointed president, Ryoji Chubachi, also has signaled a willingness to be more flexible on Blu-ray. In recent interviews, he said Sony "has not given up" on a single format. "In the area of next-generation optical discs, we continue to be open to discussions with supporters of other formats," a Sony spokeswoman said.
Toshiba, meanwhile, "remains interested in a single standard that would be in the best interest of the consumer," says Warren Lieberfarb, a former Warner Bros. executive who is a consultant Toshiba has hired to advance HD DVD and bring studios on board. This may be the industry's last chance to resolve the conflict: The HD DVD camp is hoping to get both hardware and movie titles such as "The Bourne Supremacy" and "Ocean's Twelve" on the market in time for the 2005 holiday season.
Each side has much at stake. Engineers in each camp have spent years working on their respective formats and don't want to give up the effort, an attitude shared by many of the company executives involved.
Besides Sony, Blu-ray-aligned companies include Matsu****a Electric Industrial Co., which makes Panasonic products, as well as PC maker Dell Inc. Matsu****a in particular has poured money and time into Blu-ray development and is unlikely to support a compromise that would undermine its efforts, engineers from several companies say. Toshiba, for its part, has lined up NEC Corp. and Intel Corp., among others, for HD DVD.
The studios are evenly divided between the two formats. In November, Viacom Inc.'s Paramount, GE's Universal and Time Warner Inc.'s Warner Bros. lined up behind HD-DVD. Days later, Walt Disney Co. said it would join Sony Pictures and Metro-Goldwyn-Mayer, a studio Sony has since acquired, behind Blu-ray.
Retailers want to avoid the returns that are likely to stack up as soon as consumers start buying the wrong DVDs for their next-generation players. "It will be confusing to the average consumer," says Randy Wick, general merchandising manager at Circuit City Stores Inc. If necessary, he says he plans to carry merchandise from both sides, along with plenty of displays explaining the formats' differences.
What makes compromise so difficult, engineers say, is that the two formats' discs are made very differently. HD DVDs -- like current DVDs -- are made like a sandwich, with a layer of data in the middle. Blu-ray discs store data close to the surface, with a thin protective coating over the top. Some electronics executives say that in a true compromise, engineers would be sent back to the drawing board, adding years to the timetable.
In reality, merging the formats is more likely to mean that one side's format with be adopted, with a few minor software changes thrown in to placate the losing side. If so, the deal would be similar to the 11th-hour compromise that produced the current DVD 10 years ago, in which Sony agreed to dump its disc in favor of the one pushed by Toshiba and Matsu****a. In exchange, Sony's technology was included in the final format.
Time is running out: Engineers on both sides say they now are developing and marketing the machines that stamp content onto the discs, making compromise more expensive with each passing week. The HD DVD camp says it plans to have its players out in time for Christmas, and Paramount, Universal and Warner have announced the titles they plan to make available. Blu-ray products aren't expected to hit store shelves until early 2006.