CES - Warner's Blu-ray Disc move has industry buzzing

The consumer electronics industry is abuzz ahead of CES with the news that Warner Bros has decided to drop HD DVD in favor of Blu-ray Disc.

The decision by Warner Bros. to drop HD DVD in favor of Blu-ray Disc for high-definition movies has set the electronics industry abuzz. Announced on the eve of the Consumer Electronics Show, the move put a single question in the minds of thousands of industry-insiders heading to the show in Las Vegas: Could the high-definition format wars be over?

Since both formats launched they have been locked in a battle that pitted some of the industry's biggest consumer electronics companies against each other. Backing Blu-ray Disc has been Sony, Panasonic and Samsung, while HD DVD's main supporters have been Toshiba, Microsoft and Intel.

The battle also divided Hollywood and left consumers with a difficult choice: their favorite movies were likely split between the two formats and there was a risk the player they bought would become irrelevant. As a result consumers kept away from the formats and sales have been sluggish.

Warner's decision will give Blu-ray Disc an advantage in terms of content. With the move, five of the big seven Hollywood studios now back Blu-ray Disc with only two, Paramount and Universal, backing HD DVD.

The Warner announcement certainly put the HD DVD Promotion Group's CES plans in disarray. Within hours of the announcement, the group cancelled its scheduled Sunday-evening news conference and subsequent media interviews at CES.

"They're definitely regrouping and considering their options at the moment, this could be extremely important," said Tom Coughlin, a storage analyst at Coughlin Associates. "This could be the beginning of a major pivotal turning point in the high-def format war, which if we could define the format which is going to win would be extremely important for the industry because this would free up consumers to start making decisions on the purchase of their systems."

Better sales would help consumer electronics manufacturers increase production and that would in turn lead to lower prices, said Coughlin. Those lower prices would then lead to better sales and that would help the entire industry, he said.

Warner touched on the format battle's impact on the consumer electronics industry in a statement announcing its move.

"A two-format landscape has led to consumer confusion and indifference toward high definition, which has kept the technology from reaching mass adoption and becoming the important revenue stream that it can be for the industry," said Kevin Tsujihara, president of Warner's home entertainment group in a statement.

Whether or not the fight is really over remains to be seen.

Toshiba said it was "quite surprised" by the announcement from Warner "despite the fact that there are various contracts in place between our companies concerning the support of HD DVD."

"We will assess the potential impact of this announcement with the other HD DVD partner companies and evaluate potential next steps. We remain firm in our belief that HD DVD is the format best suited to the wants and needs of the consumer," Toshiba said in a statement.

For some, the Warner decision marks the end of the format battle.

"I think the war is over. HD DVD has lost. It really is game-over for Toshiba and the other vendors," said Robin Harris, an analyst with Data Mobility Group. "The basic issue is not technology. It's about distribution, it's about marketing, it's about content and Blu-ray has been winning the content war for sometime. I don't know why [Toshiba] keeps pouring money into it, it's time to stop."

Harris credited Sony's inclusion of Blu-ray Disc in the PlayStation 3 with being one of the instrumental moves in winning the fight for Blu-ray Disc.

"I think Sony's brilliant move and one of the few they have made in this effort is putting Blu-ray into PS3," he said. "Even though PS3 hasn't sold so well in the console wars, in terms of being a platform for Blu-ray distribution it's been a success for them and I think that's what really put Blu-ray over the top."

The praise comes as Sony has finally started to see PlayStation 3 sales pick-up after a year of sluggish sales. Ironically the company has been often criticized by analysts and the media for the inclusion of Blu-ray Disc in the device as that contributed to a high price that put many consumers off buying the high-def games console.

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Martyn Williams

IDG News Service
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