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Lions Gate Is Expected to Support Blu-ray Discs

By KEN BELSON The New York Times August 17, 2005

Lions Gate Home Entertainment is expected to announce today that it plans to produce next-generation digital video discs using Blu-ray technology developed by Sony and others. The decision could give the supporters of the Blu-ray format an edge in its continuing battle against backers of HD-DVD technology, who are supporting a competing format for new high-definition discs.

Lions Gate, which controls about 4 percent of the DVD market, is the latest studio to declare its allegiance in the format contest. The Blu-ray technology is being developed by Sony, Panasonic and others, while the HD-DVD standard is backed by Toshiba, NEC and Sanyo.

Sony's movie studio, as well as Disney and Fox, have also said they will produce Blu-ray DVD's, which will include high-definition video, enhanced audio and stronger copyright protections. Lions Gate, Sony, Disney and Fox sell about 45 percent of the DVD's in the United States.

MGM, which was sold to an investment group led by Sony, controls another 4 percent of the DVD market. Many industry analysts say MGM's movies are likely to be produced in the Blu-ray format as well.

Paramount, a division of Viacom, and Warner Home Video and Universal Studios Home Video plan to release more than 80 titles in the HD-DVD format starting as early as the fourth quarter this year. Together, the companies control 45 percent of the market for the current generation of discs.

Lions Gate plans to release 10 movies in the Blu-ray format next spring.

Hollywood's largest studios have grown reliant on the billions of dollars that DVD sales produce and they have spent years weighing the benefits of the two formats.

HD-DVD, which is essentially an upgrade of existing disc technology, is considered cheaper to produce. Blu-ray supporters say that that Blu-ray discs store more data than HD-DVD discs, but they are more expensive to produce because of the newer technology.

Since studios sell tens of millions of DVDs every year, even a few pennies difference in the price of producing a disc can chew into profits. Cheaper production costs also allow the studios to sell discs at lower prices to consumers.

Though Lions Gate said that Blu-ray discs were likely to be expensive initially, it was convinced that the production cost would fall in the coming years.

"All along, our biggest concern was whether these discs could be mass-produced," said Steve Beeks, the president of Lions Gate Entertainment, which sells about 70 million discs a year. "Even though the first Blu-ray discs released will most likely carry a premium price, within three to four years the market is going to change."

Mr. Beeks said that the Lions Gate's agreement was not exclusive and his company could produce discs in the HD-DVD format if needed. However, he said the sooner the industry and consumers settled on a single format, the better.

Blu-ray is likely to become the dominant standard faster, Mr. Beeks said, partly because Sony plans to include the technology in its new PlayStation 3 game consoles that are expected to be in stores next spring. The game machines thus would double as Blu-ray disc players and could potentially increase Blu-ray disc sales.

Like the other studios, Lions Gate has had to balance the benefits of the competing formats against how quickly they could be marketed to consumers. Some industry executives say that growth in the sales of the current generation of DVD's is slowing and that introducing high-definition discs is needed to increase overall sales.

In recent weeks, stocks have declined at several studios, including Pixar Animation Studios, after they reported weaker-than-expected DVD sales of their movies.

Industry analysts expect DVD sales to grow in the high single digits this year, down from more than 20 percent in recent years.

However, some studio executives including Mr. Beeks argue that sales of current DVD's are still healthy enough that there is less need to rush new discs to market simply to stimulate revenue. Rather, they say, it is more important to develop discs that are significantly better technologically to entice consumers to upgrade their machines and disc collections.

Still, the cost of upgrading will be out of reach for average consumers for several years. Most high-definition TV's cost several thousand dollars.
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