DVD format war killing consumer appetite — report

11 Aug 2006

The ongoing format war will reduce consumers’ appetites for high-definition (HD) DVD content, a major new report from a UK research firm claims.

Screen Digest has predicted that the most likely outcome from the war is that no clear winner will emerge between the rival technologies Blu-ray and HD DVD. The company also forecasts that by 2010 less than one third of total revenue on video discs in the three major markets of Japan, the US and Europe will be driven by HD formats. These are predicted to account for around US$11bn out of a total US$39bn.

The report, entitled HD DVD, Blu-ray Disc and the future of home entertainment: a strategic analysis, contends that there are four possible outcomes from the latest video format wrangle. The first two posit that either format ends up dominating the market and that supporters of the rival technology will consequently switch sides.

Another possibility is that both formats could ‘lose’ in the sense that neither is successful enough to achieve mass consumer adoption, resulting in a situation comparable to that of the battle between ‘next- generation’ audio formats SACD and DVD Audio.

The third and most likely option, according to Screen Digest, is that neither format will come out on top. Both will coexist until products that are compatible with both technologies become cost effective and eventually dominate, mirroring the current market for recordable DVDs.

Ben Keen, Screen Digest chief analyst, said that given the vested interests on either side, the most likely outcome at the moment is that both formats would coexist until they give way to affordable dual-format solutions. “But none of the other three scenarios can be completely ruled out,” he added. “Overall though, the net result of the format war and the publicity it has generated will be to dampen consumer appetite for the whole HD disc category.”

Graham Sharpless, author of the report, commented: “The success of DVD was due to a single format that offered better quality and greater convenience than the VHS format that it replaced. This time both formats support similar features. Blu-ray discs offer capacities of up to 50GB compared with HD DVD’s 30GB. But Blu-ray is a revolutionary format that is more difficult and expensive to produce than HD DVD discs, which can be produced using modified DVD equipment.”

HD DVD has the support of its original technology developers — Toshiba and NEC — plus three of the major Hollywood studios — Warner, Paramount and Universal — which are releasing movies for this format. Intel and Microsoft are strong supporters of HD DVD and Hewlett-Packard now supports HD DVD as well as Blu-ray.

Microsoft has built support for HD DVD into its upcoming Windows Vista operating system, although Screen Digest noted that opinion is divided on how influential this might be in the format battle.

Few households will opt to replace their existing DVD libraries, Screen Digest said. Instead, growth in the market value will come primarily from the premium prices that will be charged for the new formats. The background to all this is that DVD prices are “in freefall”, according to Screen Digest. Moreover, consumer spending on DVD is beginning to level off, leading to increasing industry pressure for a next-generation video format to dovetail with the move to HD TV.

By Gordon Smith