The New York Times
December 26, 2005
Fiddling With Format While DVD's Burn
By KEN BELSON
The war for control of the next-generation DVD is approaching a critical juncture: next week in Las Vegas at the Consumer Electronics Show, companies championing the two competing high-definition DVD standards - Blu-ray and HD-DVD - will unveil their lineups of new players and movie titles.
There are growing signs, though, that the battle for supremacy in this multibillion-dollar market may yield a hollow victory. As electronics makers, technology companies and Hollywood studios haggle over the fine points of their formats, consumers are quickly finding alternatives to buying and renting packaged DVD's, high definition or otherwise.
"While they fight, Rome is burning," said Robert Heiblim, an independent consultant to electronics companies. "High-definition video-on-demand and digital video recorders are compelling, and people will say, 'Why do I need it?' " when considering whether to buy a high-definition player.
The fight between the Blu-ray and HD-DVD groups is based on different views of what consumers want. The HD-DVD camp, led by Toshiba, assumes that consumers will buy high-definition DVD's and players, but only at the right price. So it is improving existing DVD technology, which can be made cheaply and quickly.
The Blu-ray group figures that something brand new is needed to get consumers interested, so it is developing discs with enough capacity to allow for innovative features in the future.
Both sides agree, however, that now is the time to introduce high-definition DVD discs and players. Sales of high-definition televisions, with their sleek design and superior picture and sound quality, are soaring, and the major networks are broadcasting more programs in high definition.
Game console makers like Sony see high-definition video games as a way to increase sales, and Hollywood hopes that high-definition discs will offset slumping sales of current-generation DVD's in the $19 billion prepackaged disc market.
Yet the alternatives to these new players and DVD's are growing by the day. The most promising is the on-demand programming, both standard and high definition, being offered by cable companies. The percentage of cable customers who watch on-demand television has doubled in the past year, to 23 percent, according to the Leichtman Research Group.
With thousands of free movies available at any time, consumers have fewer reasons to rent a DVD at Blockbuster or buy a new one at Best Buy. They are also likely to think twice before spending $1,000 or more for a new high-definition DVD player, or $25 or so to own a disc of a movie they might already have in standard definition.
Of course, these newfangled ways of watching video are still a small piece of the overall video market, and industry executives and analysts say they expect most consumers to continue buying prerecorded DVD's for years to come. They also say they believe that high-definition programs - and the televisions to watch them on - are the way of the future. The question is how consumers will get that programming.
Even without these alternatives, high-definition DVD's face an unpredictable start. The inability of the Blu-ray group and HD-DVD camp to agree on a standard means that consumers must consider two sets of machines. Except for avid technophiles, consumers are likely to wait out the standards battle, lest they get stuck with an obsolete player.
Machines will also be expensive - $1,000 or more - and consumers will need a television capable of playing high-definition programs, which can easily cost several thousand dollars more. The list of movies available in the formats will be skimpy at first.
Sony, which leads the Blu-ray group, has said that its new video game consoles, due out this spring, will play Blu-ray DVD's. But few industry analysts expect consumers to buy the game machine just to watch movies.
In the meantime, other companies are making it easier to watch and copy high-definition movies. Scientific-Atlanta has a new set-top box with a digital video recorder and DVD recorder built in, so cable subscribers can use a single machine to record programming and burn it onto blank discs.
"Consumers are getting hooked on video-on-demand and the flexibility of moving content around the home," said Ted Schadler, an industry analyst at Forrester. "The battle over the format is silly. For the product to grow, they have to promote the benefits of HD, not battle each other."
Yet the two sides are digging in their heels, not shaking hands. Sony, Panasonic, Samsung and other backers of the Blu-ray format expect to flood stores next year with high-definition DVD players, and half a dozen studios will make movies for them.
Not to be outdone, the HD-DVD camp led by Toshiba has won endorsements from Microsoft and Intel. Hewlett-Packard, a member of the Blu-ray group, agreed last week to work with the HD-DVD camp as well.
These allies say that the wall between computers and consumer electronics is blurring and that the new formats should let users move movies and other content among various devices seamlessly. Not surprisingly, they see computers as the main conduit, not stand-alone electronic devices.
"If PC's don't adopt these technologies, it will be a ho-hum 2006" for next-generation DVD's, said Maureen Weber, the general manager of the personal storage group at Hewlett-Packard. "It all boils down to Microsoft and Sony wanting to dominate the connected home. It's a showdown between consumer electronics and personal computers over convergence."
Ms. Weber, like many other executives, acknowledges that the longer the format battle continues, the higher the likelihood that consumers will find other solutions, including video-on-demand.
Comcast, the country's largest cable provider, already gives its 20 million subscribers access to 3,800 movies and television shows. The 44 percent of Comcast's subscribers who have the set-top box needed to see on-demand programs have watched more than a billion of them so far this year.
There are signs that rising on-demand viewing is denting DVD sales and rentals, a worrying sign for Hollywood executives who increasingly rely on disc sales to offset the rising cost of producing movies. Since consumer electronics makers and Hollywood studios earn much of their profit on sales margins, they will feel the pinch if these new viewing options grab even 5 or 10 percent of video market.
A poll by the Starz Entertainment Group this month showed that 60 percent of those who watch on-demand video buy fewer DVD's, while 72 percent of those surveyed are renting fewer movies.
Starz has also broadened the definition of on-demand with Starz Ticket, which lets users download movies to their laptops or other devices for $12.95 a month. The service includes a rotation of 300 movies that can be watched repeatedly and, like a digital video recorder, can be paused, rewound and fast-forwarded. Like store-bought DVD's, they also include directors' cuts, foreign-language versions and other bonus material.
"We're on the verge of another major shift in terms of how consumers receive video," said Tom Southwick, a spokesman for the Starz Entertainment Group. "What's happening in the video arena is just like what is happening in the MP3 market. Over time, there's going to be so much available with cable on-demand and the Internet that having a library of tapes that you buy or borrow will become inconvenient."
For now, none of the Starz Ticket movies are in high definition because typical broadband connections are too slow to make downloads feasible. The current generation of discs hold up to 8.5 gigabytes, not enough for a full-length movie in high definition.
Consumer habits also die hard.
"You can change technology all you want, but you can't change people," said Andy Parsons, a Blu-ray group spokesman who noted that the vast majority of music fans still buy CD's. "Average folks still want to watch the movie and buy it. It's presuming a lot to think that they will replace the model they've used for decades."
But even average folks may learn fast when they have cheaper and more convenient options.
* Copyright 2005The New York Times Company
