Competing for DVD Supremacy
IF you thought the battle over videocassette formats - VHS or Betamax - was
the technology war to end all others, think again.
Like that legendary fight, the current battle over the format for the next
generation of digital videodiscs, which will be able to store six times more
data than current DVD's and carry high-definition images, will ultimately
determine who will reap the billions to be generated from royalties and the
sales of new DVD players.
But beyond that, the contest is about no less than competing visions of how
entertainment will be delivered in the coming decades. It is also a vivid
display of competition in an age when devices seem destined to turn quickly
into cheap commodities.
The DVD format war between two powerful camps intensified last week when a
group of investors led by Sony agreed to buy Metro-Goldwyn-Mayer, a move
that many say will give Sony another supporter in Hollywood for adopting
Blu-ray, the new DVD technology it is developing with a coalition of
partners. That move comes as the big electronics and computer companies and
movie studios, which have been coyly neutral on this question for years,
start to pick sides.
The rivalry between the competing coalitions - Blu-ray, led by Sony and
relying heavily on Sony technology, and the HD-DVD format group using
technology from its leaders, Toshiba and NEC - is turning into a fight over
whether the television or the computer will dominate the living room.
The battle lines appear clear enough. On the Blu-ray side are mainly
consumer electronics companies like Panasonic, Samsung and Sharp that have a
strong interest in making sure the television set remains the main device
for watching movies, playing video games and so on. Many of those companies
also have existing relationships with Sony. Samsung, for instance, is
building a liquid crystal display factory with Sony in Korea.
"Consumers need something to play on their new, high-definition
televisions," said Erin Sullivan, the director of planning at Panasonic
Hollywood Lab.
Dell and Hewlett-Packard, two giant computer makers, also joined the Blu-ray
group this year. They, too, see their future as much in the consumer
electronics market as in computers, and have been selling music players,
flat panel screens and other devices.
On the other side, Toshiba and NEC are big computer companies that, broadly
speaking, see the television as a display monitor that in the future will
have a hard drive run by software and be connected to the Internet. In this
vision, home servers will let consumers retrieve digital information
throughout their homes, with DVD's being viewed on computers as well as on
flat panel televisions. They also expect the new DVD discs to sell well to
computer users who want to store more pictures, music and data.
The Toshiba and NEC camp also won an important endorsement in July when
Microsoft said that its next Windows operating system would be compatible
with the HD-DVD format.
"For the Blu-ray group, it is all about entertainment and for Toshiba it's
about computers," said Paul O'Donovan, a principal analyst at Dataquest, a
research firm.
The two camps are also taking different approaches to developing their
formats. Betting that the new DVD players are likely to turn into
inexpensive commodities produced by many manufacturers, and that speed to
market is crucial, Toshiba and NEC have chosen essentially to upgrade the
technology of the current DVD format, which they say would save money and
time, rather than start anew. The discs for the HD-DVD format, which store
less data than the Blu-ray discs, are also cheaper to produce, according to
Toshiba.
"Our concept," said Hisashi Yamada, Toshiba's key engineer in the
development of HD-DVD's and the chief engineer and negotiator for the HD-DVD
group, "is to extend the current structure of DVD's very naturally, very
smoothly."
Sony and the Blu-ray group have taken a different route. They decided to
develop a brand new system because, they say, the jump from standard
definition to high definition requires a whole new technology, and consumers
will be unwilling to pay for something that is just an upgrade of existing
technology.
In this way, the Blu-ray group appears to be sticking to Sony's decades-old
strategy: selling products for a premium based on exclusive technology. This
tactic worked with big hits like Sony's Trinitron television, but it has
faltered in recent years.
Indeed, Sony's go-it-alone style is harder to carry out these days as
discount retailers like Wal-Mart and competition from Chinese manufacturers
drive prices down.
Of course, by teaming up with archrivals like Panasonic to form the Blu-ray
Disc Association, Sony has shared its technology and the cost of developing
it. But the Blu-ray group, which now counts 13 members, is still viewed as
an exclusive bunch trying to create a worldwide standard that they can
control. Blu-ray developers say they kept their group small to make it
easier to develop the new format, and the association is now trying to share
its technology with more companies.
There is another motive, too. In the early 1990's, Sony and Toshiba fought
over the formats for the first generation of DVD's. Sony eventually lost
that battle. The current fight may be an effort by Sony to extract a certain
amount of revenge on Toshiba. Toshiba, of course, would like to build on its
corporate success story.
"Sony is also trying to keep as much for itself," said Mr. O'Donovan, who
added that Sony was headed into a cul-de-sac by trying to defend proprietary
technology.
Toshiba and NEC, by contrast, have sought approval for its format from the
DVD Forum, an international standards group of 220 manufacturers, software
companies and others, including many from the Blu-ray group. By trying to
win over the widest possible audience for its format, the HD-DVD group is
acting more like a computer company advocating more open standards.
Toshiba and NEC appear to have an early jump on the Blu-ray group. In July,
Toshiba said it would start selling next-generation DVD recorders using its
new format next year. Japan's largest distributor of pre-recorded DVD's,
Pony Canyon, will also roll out movies in the HD-DVD format along with
Toshiba's new machines.
Memory-Tech, a disc manufacturer based in Tokyo, has already produced
250,000 of the new HD-DVD discs in test runs, and says its factory lines can
switch easily between DVD's in the current format and the new HD-DVD's.
Those new discs are only 10 percent more expensive to make because they use
the same material and equipment as the current generation of DVD's.
Although Sony started selling Blu-ray DVD machines last year, those machines
initially cost close to $4,000 and can play very little recorded content.
While the electronics and computer makers tussle over the standard, the
first users of the next-generation DVD's may in fact be video game console
makers.
Sony will likely use Blu-ray technology in the next generation of
PlayStation machines, which may be unveiled sometime next year. If
Microsoft, the maker of XBox, wants to beat Sony by putting out its new line
of consoles first, it may be forced to use HD-DVD technology simply because
those discs may be available sooner. More important, Microsoft may be loath
to give its rival, Sony, a market for its Blu-ray technology.
####
IF you thought the battle over videocassette formats - VHS or Betamax - was
the technology war to end all others, think again.
Like that legendary fight, the current battle over the format for the next
generation of digital videodiscs, which will be able to store six times more
data than current DVD's and carry high-definition images, will ultimately
determine who will reap the billions to be generated from royalties and the
sales of new DVD players.
But beyond that, the contest is about no less than competing visions of how
entertainment will be delivered in the coming decades. It is also a vivid
display of competition in an age when devices seem destined to turn quickly
into cheap commodities.
The DVD format war between two powerful camps intensified last week when a
group of investors led by Sony agreed to buy Metro-Goldwyn-Mayer, a move
that many say will give Sony another supporter in Hollywood for adopting
Blu-ray, the new DVD technology it is developing with a coalition of
partners. That move comes as the big electronics and computer companies and
movie studios, which have been coyly neutral on this question for years,
start to pick sides.
The rivalry between the competing coalitions - Blu-ray, led by Sony and
relying heavily on Sony technology, and the HD-DVD format group using
technology from its leaders, Toshiba and NEC - is turning into a fight over
whether the television or the computer will dominate the living room.
The battle lines appear clear enough. On the Blu-ray side are mainly
consumer electronics companies like Panasonic, Samsung and Sharp that have a
strong interest in making sure the television set remains the main device
for watching movies, playing video games and so on. Many of those companies
also have existing relationships with Sony. Samsung, for instance, is
building a liquid crystal display factory with Sony in Korea.
"Consumers need something to play on their new, high-definition
televisions," said Erin Sullivan, the director of planning at Panasonic
Hollywood Lab.
Dell and Hewlett-Packard, two giant computer makers, also joined the Blu-ray
group this year. They, too, see their future as much in the consumer
electronics market as in computers, and have been selling music players,
flat panel screens and other devices.
On the other side, Toshiba and NEC are big computer companies that, broadly
speaking, see the television as a display monitor that in the future will
have a hard drive run by software and be connected to the Internet. In this
vision, home servers will let consumers retrieve digital information
throughout their homes, with DVD's being viewed on computers as well as on
flat panel televisions. They also expect the new DVD discs to sell well to
computer users who want to store more pictures, music and data.
The Toshiba and NEC camp also won an important endorsement in July when
Microsoft said that its next Windows operating system would be compatible
with the HD-DVD format.
"For the Blu-ray group, it is all about entertainment and for Toshiba it's
about computers," said Paul O'Donovan, a principal analyst at Dataquest, a
research firm.
The two camps are also taking different approaches to developing their
formats. Betting that the new DVD players are likely to turn into
inexpensive commodities produced by many manufacturers, and that speed to
market is crucial, Toshiba and NEC have chosen essentially to upgrade the
technology of the current DVD format, which they say would save money and
time, rather than start anew. The discs for the HD-DVD format, which store
less data than the Blu-ray discs, are also cheaper to produce, according to
Toshiba.
"Our concept," said Hisashi Yamada, Toshiba's key engineer in the
development of HD-DVD's and the chief engineer and negotiator for the HD-DVD
group, "is to extend the current structure of DVD's very naturally, very
smoothly."
Sony and the Blu-ray group have taken a different route. They decided to
develop a brand new system because, they say, the jump from standard
definition to high definition requires a whole new technology, and consumers
will be unwilling to pay for something that is just an upgrade of existing
technology.
In this way, the Blu-ray group appears to be sticking to Sony's decades-old
strategy: selling products for a premium based on exclusive technology. This
tactic worked with big hits like Sony's Trinitron television, but it has
faltered in recent years.
Indeed, Sony's go-it-alone style is harder to carry out these days as
discount retailers like Wal-Mart and competition from Chinese manufacturers
drive prices down.
Of course, by teaming up with archrivals like Panasonic to form the Blu-ray
Disc Association, Sony has shared its technology and the cost of developing
it. But the Blu-ray group, which now counts 13 members, is still viewed as
an exclusive bunch trying to create a worldwide standard that they can
control. Blu-ray developers say they kept their group small to make it
easier to develop the new format, and the association is now trying to share
its technology with more companies.
There is another motive, too. In the early 1990's, Sony and Toshiba fought
over the formats for the first generation of DVD's. Sony eventually lost
that battle. The current fight may be an effort by Sony to extract a certain
amount of revenge on Toshiba. Toshiba, of course, would like to build on its
corporate success story.
"Sony is also trying to keep as much for itself," said Mr. O'Donovan, who
added that Sony was headed into a cul-de-sac by trying to defend proprietary
technology.
Toshiba and NEC, by contrast, have sought approval for its format from the
DVD Forum, an international standards group of 220 manufacturers, software
companies and others, including many from the Blu-ray group. By trying to
win over the widest possible audience for its format, the HD-DVD group is
acting more like a computer company advocating more open standards.
Toshiba and NEC appear to have an early jump on the Blu-ray group. In July,
Toshiba said it would start selling next-generation DVD recorders using its
new format next year. Japan's largest distributor of pre-recorded DVD's,
Pony Canyon, will also roll out movies in the HD-DVD format along with
Toshiba's new machines.
Memory-Tech, a disc manufacturer based in Tokyo, has already produced
250,000 of the new HD-DVD discs in test runs, and says its factory lines can
switch easily between DVD's in the current format and the new HD-DVD's.
Those new discs are only 10 percent more expensive to make because they use
the same material and equipment as the current generation of DVD's.
Although Sony started selling Blu-ray DVD machines last year, those machines
initially cost close to $4,000 and can play very little recorded content.
While the electronics and computer makers tussle over the standard, the
first users of the next-generation DVD's may in fact be video game console
makers.
Sony will likely use Blu-ray technology in the next generation of
PlayStation machines, which may be unveiled sometime next year. If
Microsoft, the maker of XBox, wants to beat Sony by putting out its new line
of consoles first, it may be forced to use HD-DVD technology simply because
those discs may be available sooner. More important, Microsoft may be loath
to give its rival, Sony, a market for its Blu-ray technology.
####