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Perspectives on building technology businesses and AcceleratorIndia from Cartezia

Film studios trigger Blu-Ray DVD win

Tuesday, February 19, 2008

Blue-ray is now set to become the industry standard for High Definition DVDs after Toshiba withdrew its HD-DVD format following decisions by the majority of the Hollywood studios to back Sony's format. The industry hopes this will lead to a surge in DVD sales but High Def currently accounts for less than 1% of global sales, which have been flat for the last three years.

DVD sales have stalled in all the main markets over the last three years and the DVD rental markets have also grown very slowly. Hopes that new high-definition DVD sales would drive growth in the market have been dashed by competition and confusion between two rival formats, Sony's Blu-Ray and Toshiba's HD-DVD standard, which has delayed consumer take-up.  Sony Pictures, Walt Disney, 20th Century Fox and MGM had all signed up to Blu-Ray while Warner, Universal, Paramount and Dreamworks animation had gone with HD-DVD. Warner produces more DVDs than any other studio and has the largest film library in Hollywood. 

The US market accounts for just over 50% of the global DVD market, with revenues of around $45 bn. To put this in context, US box-office revenues last year were only $9.6 bn, which demonstrates how important DVD sales are to the studios.

Faced with the need to kick-start serious High Definition DVD sales quickly , Warner jumped ship last week to announce it's support for Blu-Ray, followed by Universal and Paramount. Walmart, Netflix and Blockbuster also announced exclusive backing for the Blu-Ray format in their retail and rental services. Toshiba decided to cut its losses and announced that it will stop making HD-DVD discs, players and recorders. 

So why did the studios back Blu-Ray over HD-DVD?  Both standards provide equivalent quality (unlike the battle a generation ago, when the technically inferior VHS format beat Sony's Betamax standard), but Blu-Ray outnumbered HD-DVD by about 4:1 in terms of the installed base of high definition DVD players in the market. One important reason for this was Sony's decision to integrate Blu-Ray players in its Playstation 3 products, while Microsoft and Toshiba merely provided an HD-DVD interface with the Xbox 360.

The studios must now be hoping that this will kick-start High-Definition DVD sales.

Sources: MPAA, Digital Entertainment Group, Cartezia