Will Xbox 360, PS3 determine the victor in the Blu-ray – HD DVD dispute?

Yesterday’s announcement by Microsoft and Toshiba officially extending their alliance to include joint production of an extension to Toshiba’s HD DVD format, may have set the stage for a stalemate in the ongoing battle to produce the next high-definition video disc format, analysts are saying.

In a joint press conference in Tokyo yesterday, Microsoft Chairman Bill Gates and Toshiba President Atsutoshi Nishida pledged for their companies to work together to produce the interactive layer of HD DVD, called iHD, as well as to “investigate development” of Toshiba producing HD DVD players supporting Windows CE. Afterward, Gates reportedly expressed his company’s interest in the future production of an Xbox 360 game console that includes an HD DVD drive. But Gates stopped short of committing Microsoft resources or support for the HD DVD format explicitly; and in a press release, Nishida only characterized their partnership as “extending the scope of our relations to encompass HD DVD.” But although Microsoft may not be officially “behind” the HD DVD format, it may have done just enough to shift the balance of power in its battle with Sony’s Blu-ray, which is expected to play a role in a future edition of Sony PlayStation 3, most likely in its premiere release, which Tom’s Hardware Guide experts predict will be May 2006. Xbox 360 is due for release in November of this year, probably well before HD DVD drives are ready for wide release, and certainly before game manufacturers have had a chance to create compatible content for the format.

Nonetheless, since both competing formats are awaiting the official blessing of support from the major movie studios–whose vote of confidence was critical to the finalization of the DVD and DVD-ROM formats a decade ago–it now appears possible that studios may wait for the next-generation gaming consoles to battle it out amongst themselves, armed with the latest HD videodisc drives, and let the market decide the most suitable format–albeit not their native market.

“It seems like a logical conclusion,” responded Kurt Scherf, vice president and principal analyst of Parks Associates, when presented with the console wars scenario. “I think the subject is obviously so complicated by so many different things, [such as] how are the studios going to continue to make really good margin on DVD movies?” Scherf believes the rapid growth of peer-to-peer file-sharing technologies will help DVD sales to reach their peak much faster than did audio CDs. Today, production costs for DVD videos are so low that studios make a very good margin; but with production costs sure to rise in the wake of HD format adoption, Scherf ponders, studios may not be eager to let go of their cash cow, unless it appears that DVD has reached its peak sooner than anticipated.

“With both of these formats,” Scherf told Tom’s Hardware Guide, “obviously the first generation of releases are going to be considerably more expensive to produce and manufacture. So [the studios] could very well sit back and watch and see what the impact of Sony’s PlayStation 3 has on getting sufficient volumes of content onto Blu-Ray, which in turn would lower overall production costs. That could be considerable for the studios.”

“The movie companies have been very loathe to make a very specific trend in one way or the other,” stated Michael Gartenberg, vice president and research director of Jupiter Research. “At the end of the day,” Gartenberg added, “one way of jump-starting this whole market may be through the game consoles where people are buying [HD videodiscs] as an ancillary feature, and they discover they have it, and [then] go buy the content that way.”

A report released today by Jupiter Research analyst Joni Blecher reveals very low consumer interest in adopting a new videodisc format, let alone upgrading the DVD players consumers already own. According to the report, only six percent of online consumers plan to upgrade their existing DVD players over the next 12 months. Furthermore, only 21 percent of consumers polled cited superior video quality as the reason they purchased their first DVD player. If costs can be kept low, the report says, 57 percent of consumers would be interested in adopting a new HD format, and 54 percent would be interested if new HD discs exhibited some form of downward compatibility with existing DVD players.

“Presence of two competing next-generation video media formats will make either [format]’s success comparatively more difficult to achieve,” Blecher’s report warns. It advises manufacturers to adopt marketing strategies with features that resonate with consumers, such as low entry prices and downward compatibility with existing formats–features which neither format has focused thus far, to any significant degree.

Parks Associates analysts believe a new HD format could sneak into households through game consoles, making them inadvertently become the centers of home entertainment units, if the form factors of those consoles are compatible. Scherf cited Parks analyst Michael Cai, who has noted that the inclusion of DVD players in today’s game consoles has not historically promoted them from the kids’ room to the living room. But if the first generation of HD videodisc players proves too expensive for the market, Cai believes, game consoles could lead the first high-definition wave, reversing the trend: “The DVD players themselves may actually be quite a bit more expensive than the game consoles,” Scherf told us. “So as the consumer is shopping, realizing the benefits of this new format, they might gravitate toward the game console as two things in one. They may be ready for a convergence device at that point.”

“If you can move the game console out of the kid’s bedroom and into the living room,” added Scherf, “then obviously your chances are greater that it’s going to serve more of a primary role as your video player, too.”

“It will ultimately shake out as people buying the dedicated player, not the game console,” argued Gartenberg. “But what may end up happening is, the center of gravity is created initially by the game console, not the stand-alone device, because consumers are going to stay away from these things in droves, over confusion of standards and formats.” Consumers have historically signaled their intention, stated Gartenberg, to wait for formats to become cheaper and more readily available before adopting them. But the game console changes that equation, he said: People will buy a game because they like the game, not because they like the disc. Then if they like the game, they’ll buy the console that plays the game. Later on, he projected, consumers may start dabbling in HD movies whose discs match the format they chose for their game console. “So when the time comes to make a decision for a dedicated player,” continued Gartenberg, “[consumers are] going to be led in that direction. This may be what ultimately shifts the content companies to get on board with one of these standards, as opposed to another.” This may be how Microsoft changed the game, if you will, in announcing its alliance with Toshiba yesterday.

In the end, Gartenberg stated, movie studios want to avoid a repeat of the situation where they’re left holding the Betamax box. “No one wants to be caught with the wrong format,” he said.

News source: TomsHardware

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