Why Sony-backed Blu-ray Will Rout Rival Format HD-DVD (PIO, SNE, MC)

by: Yankee Group

By Carl Howe

From hearing the press accounts, you'd think that that the battle for the next generation of video disks would have been a cage match in the main hall of CES, with executives from Sony and its supporters on one side, and marketers from Toshiba on the other. In reality, while the two booths actually were within about 100 yards of each other, there hasn't been much of a battle. The biggest story has been posted by David Pogue of the New York Times, namely that Toshiba is planning on shipping $500 HD-DVD drives in March, while the Blu-ray camp is claiming $1,000 drives this summer. Further, Microsoft's Bill Gates emphasized Vista's HD-DVD support in his keynote. So HD-DVD is winning, right?

Simple answer: it's a rout, but it's Blu-ray that is winning. Yes, Toshiba has announced pricing and delivery that sounds very favorable. But I did a lot of scouting around on the floor of the show, and whenever I lifted cloths and looked under tables to see what was feeding a particularly amazing high-definition signal to panels, it was almost always a Blu-ray drive or a proprietary hard disk system. Add this to the fact that I heard about commitments to deliver Blu-ray systems from CE manufacturers Pioneer, LG, Panasonic, Samsung and Sony, while HD-DVD drives only seem to be available from Toshiba and some Chinese manufacturers like Sampone and Sunnytek. And then when I looked at movie content planned, again, most of the companies appear to be lining up behind Sony (although most studios will support both formats as the marketplace shakes out).

The price difference? Andy Perkins, senior vice president of Pioneer had a very coherent explanation. Pioneer has targeted its initial drive production for professional mastering operations because they need drives to test their pre-packaged movies. Consumer product pricing wasn't announced at the show because all the manufacturers want to know the final feature set before announcing pricing. So claims of the $1,000 Blu-ray drives are based on business-to-business pricing, not prices targeted for consumer products.

And what about Bill Gates' keynote? Remember that Microsoft just launched its XBox 360 gaming platform that competes with Sony's Playstation line. Microsoft doesn't want to give Sony any licensing or marketing leverage that might impede the 360's momentum, particularly as Sony launches the Blu-ray based Playstation 3. So Microsoft committed to HD-DVD to avoid that marketing conflict.

There have been a lot of stories claiming that this is just like VHS versus Betamax all over again, and that the low priced product will win. But people forget that Betamax was first to the market with VCRs, and that VHS won because of broad support by a variety of manufacturers. In the battle for next generation DVD's, the broad support is behind Sony's standard this time. And with HDTV mostly in the hands of well-heeled videophiles, higher pricing for higher quality may simply be smart pricing strategy. This is a battle that marketing, licensing, and content -- not technology -- will win, and unless something changes dramatically soon, Blu-ray already has won.


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