DVD format war starts to get ugly

Hollywood is gearing up for an ugly war over rival DVD formats, but the real battle may be in keeping customers hooked on physical discs at all.

"The irony of this format war is that it comes at the tail end of the century-long era of physical media," said Ted Schadler, analyst with Forrester Research.

"While a high-definition video format does bring benefits over today's standard-definition discs, in movies as in music, consumers are moving beyond shiny discs."

Providers of online video and video-on-demand on television are tapping into this trend, while Apple Computer has raised the stakes with its new portable iPod video player that downloads content from the computer.

But two camps, led by Toshiba and Sony, are still firmly placing their bets on physical discs and players that offer sharper pictures and more interactive features. An all-out disc format war is brewing after efforts to settle on a unified standard have failed.

"Consumers are getting more comfortable with alternative ways of accessing content and there's a sense of urgency to get the content out [on high-definition DVDs] as soon as possible for that reason," said Mark Knox, spokesman for HD DVD, the new format that Toshiba expects to launch around February.

But in the latest twist, Warner Bros, a long-time supporter of HD DVD among Hollywood studios, threw its weight behind Sony's rival Blu-ray format, following a similar move by Paramount.

One format will ultimately triumph, industry members say, as in the high-stakes home video battle between VHS and Betamax in the 1980s. But this time, the real casualty could be physical DVDs.

"Every month this battle wages, more people are getting used to getting video in other ways. That's the real enemy of this indecision," said Richard Doherty, analyst with Envisioneering.

If the six largest movie studios release films on both formats, consumers rather than studio bosses may get to decide which they prefer. But the longer the battle drags on, the greater are the chances of digital content providers winning over buyers with video-on-demand services, internet video and portable devices like iPods and cell phones.

One in six cable subscribers either watches or is interested in watching video-on-demand, says Forrester Research. This number should grow as cable operators like Comcast and Time Warner Cable expand their video-on-demand libraries and adopt an ad-supported business model.

Moreover, internet video is spreading rapidly with 46 per cent of online consumers watching it and 9 per cent saying they would pay to watch it, says Forrester.

Strong growth is likely to come with advances in video search and as broadband penetrates more households. Broadband is expected to be available in 62 per cent of US households by 2010, up from 29 per cent today.

While only 8.8 per cent of US households have a home network, this will expand to 40 per cent of households by 2010, Schadler says. One in five such consumers streams audio from the personal computer to a stereo and they are likely to want to stream video from PC to TV as well.

Apple's recent launch of the video iPod also has Hollywood studios thinking about how to make money by providing their content on these devices, executives say.

Schadler said about 27 per cent of online consumers aged 12 to 21 said the device they could not live without was a PC, while only 17 per cent said they could not live without their TV.

Internet-delivered video would continue to make that true.

Microsoft chairman Bill Gates backs HD DVD and has called Sony's Blue-ray format "anti-consumer" due to a protection scheme.

"The inconvenience is that the [movie] studios got too much protection at the expense of consumers and it won't work well on PCs." Still, Gates said he regarded the debate over the formats almost as an afterthought.

"Understand that this is the last physical format there will ever be. Everything's going to be streamed directly or on a hard disk," he said. "So, in this way, it's even unclear how much this one counts."

- REUTERS

Streaming

* Broadband is expected to be available in 62 per cent of US households by 2010, up from 29 per cent today.

* While only 8.8 per cent of US households have a home network, this will expand to 40 per cent of households by 2010.

* One in five such consumers streams audio from the personal computer to a stereo.

* They are likely to want to stream video from PC to TV as well.