Raging in the backrooms of Hollywood this summer was a battle that will play out in the aisles of Wal-Mart and Target. Until recently, it had...
Raging in the backrooms of Hollywood this summer was a battle that will play out in the aisles of Wal-Mart and Target.
Until recently, it had appeared the two camps vying to set the standard for next-generation DVDs would settle the score this holiday season.
But last-ditch maneuvering has all but assured that the format war will extend well beyond December, keeping many home-movie buffs from laying their money down until a winner is declared.
It’s no wonder that neither rival — Asian consumer-electronics giants Sony and Toshiba — can bear to give in. Licensing fees on equipment that could be worth $10 billion or more over time are up for grabs.
Most Read Business Stories
- Walmart closing an Everett store that locals say was plagued by theft
- The pandemic 'tested' Seattle, but the report card's still out
- Jet pitched wildly, killing 1, amid cockpit warnings: NTSB
- Search on for missing in deadly chocolate factory explosion VIEW
- Think you could land a plane in an emergency? Here's why you can't.
At the moment, Sony’s Blu-ray discs have the edge, thanks to support from Walt Disney and News Corp.’s 20th Century Fox, as well as the sale of 1.6 million Sony PlayStation 3 game consoles that play films in the new high-definition format.
But in an attempt to swing momentum in its favor, Toshiba has struck a flurry of deals aimed at winning studio allegiances and securing prized retail space for the HD DVDs.
Toshiba recently paid a collective $150 million to Paramount Pictures and DreamWorks Animation in a bid to buy their support, according to people with knowledge of the terms of the two transactions.
Toshiba spokesman Keisuke Ohmori declined to comment on possible marketing payments, but said the two studios had picked HD DVD on the merits, as “the optimum platform” for consumers and film distributors.
Toshiba’s expanded partnership, which had already included Universal Pictures, means that many of the summer’s biggest movies, including “Transformers” and “Shrek the Third,” will be released in video this fall exclusively in HD DVD.
The brinkmanship is only intensifying. Another major studio, Warner Bros., is being courted by both camps and is believed to be mulling a lucrative offer that could bring such popular titles as “Harry Potter & the Order of the Phoenix” exclusively into the HD DVD camp, according to Hollywood insiders who asked for anonymity because the talks are confidential.
“Any movement by one of the studios tilts the playing field in one direction or the other,” said David Sanderson, head of the global-media practice at consulting firm Bain. “It’s a bit of jump ball right now.”
What’s more, Wal-Mart, the dominant seller of DVDs, has been contemplating whether to boot stand-alone HD DVD players from its shelves in favor of Blu-ray. Wal-Mart executives would not talk about its conversations with its suppliers, but said it would continue to carry hardware and software in both formats until consumers indicate a clear preference.
Nonetheless, they expressed frustration with the continued format race. “It would be good for the studios or somebody to make the call,” said Kevin O’Conner, Wal-Mart’s vice president and general merchandise manager for consumer electronics.
As in any format war, the stakes for Toshiba and Sony are enormous. Any winner would enjoy market dominance over the home-video market for the next decade, notwithstanding the growing threat to the plastic-boxed DVD from movie downloads over the Internet.
When DVDs replaced VHS, a who’s who of electronics giants collected the royalties. After a fleeting format war, the two camps merged, bringing a consortium led by Sony together with a rival group that included Matsushita Electric’s Panasonic, Toshiba and Warner Bros.
Toshiba and Panasonic collected the bulk of the royalties because they had the most patents, according to Jim Taylor, author of the book “DVD Demystified.” Manufacturers paid between $10 and $20 for every dedicated movie player, game console and computer that incorporated the technology — major money, he said, given the approximately 1.3 billion DVD players worldwide.
“Even if the high-definition formats are only half as successful as DVD, that’s still incredibly successful,” said Taylor, senior vice president at Sonic Solutions in Novato, Calif., whose software is used to produce movie DVDs. “That’s why the format war hasn’t gone away.”
Come the fourth quarter, manufacturers and studios will barrage consumers with promotions that emphasize the improved picture and the new, interactive features of the high-definition discs. Blu-ray discs have greater capacity than HD DVDs, which proponents such as Bob Chapek, president of Disney Studios Home Entertainment, say is important for picture quality and interactive bonus features.
Other factors count
But if the past is any indicator, other factors matter more. Though Sony’s Betamax format was technically superior, it lost out to JVC’s VHS videocassette format in the 1980s, in part because it was more expensive, said Wolfgang Schlichting of IDC, a Framingham, Mass., technology-research company.
Sony was reluctant to license its technology to competing manufacturers, wanting to keep hardware sales to itself.
But JVC made licensing easy, helping to drive down the cost and flood stores with VHS players. Movie studios followed the supply.
That’s why so much cash has flowed in the latest battle for the living room.
Toshiba’s internal market research showed that more consumers would buy HD DVD players if it could level the playing field in terms of the number of titles available in the format, according to people close to the situation. That prompted the courtship of Paramount and DreamWorks.
Without the newcomers, only Universal Studios’ titles, such as “The Bourne Ultimatum,” the high-octane thriller starring Matt Damon, would have been exclusive in that format.
But the additions are probably not enough to win the war. Blu-ray is the leader with seven of the summer’s 15 biggest box-office performers headed for exclusive release in its format, including “Spider-Man 3,” “Fantastic Four: Rise of the Silver Surfer,” “Ratatouille,” “Pirates of the Caribbean: At World’s End,” “The Simpsons Movie” and “Superbad.”
Warner Bros., however, could change the balance of power. The last major studio backing both formats, Warner has the leading market share in high-definition disc sales, giving it clout with retail chains.
Retailers also have contributed to the recent jockeying.
Target, the second-largest U.S. retailer, announced in July that it would sell only Blu-ray players. Its decision followed a bidding war in which Sony and three studio partners reportedly paid Target what one rival described as a “jaw dropping” sum of money for prominent display of its hardware at the end of sales aisles.
It will continue to sell the HD DVD drive for Microsoft’s Xbox 360 game console and HD DVD movies.
Wal-Mart has yet to weigh in. During its twice-a-year review of its space allocation, Wal-Mart, which accounts for 40 percent of DVD sales, had set a mid-August deadline to determine whether it would continue to carry both Blu-ray and HD DVD, according to people familiar with the evaluation process.
In a recent meeting at Wal-Mart’s headquarters in Bentonville, Ark., Toshiba offered details of its new, $299 player and, according to sources, pledged a major cooperative promotional budget to support HD DVD sales.
But Wal-Mart executives say consumer preferences will determine the outcome.
“If they’ve offered big dollars, we haven’t got them yet,” said Wal-Mart’s O’Conner. “The customer will drive what we’re going to do.”
Los Angeles Times reporter
Abigail Goldman contributed
to this report.