Studios Strike
HD-DVD Deals
For Holiday 2005
By SARAH MCBRIDE and PHRED DVORAK
Staff Reporters of THE WALL STREET JOURNAL
November 29, 2004; Page B1
With holiday shoppers gobbling up millions of popular DVDs over the weekend, Toshiba Corp. and three major movie studios are expected Monday to announce plans to make new high-definition DVDs available by Christmas 2005.
According to people familiar with the matter, the studios -- including Viacom Inc.'s Paramount, General Electric Co.'s Universal Studios, and Time Warner Inc.'s Warner Bros. -- are planning to release up to two dozen titles each in time for next year's holiday season in the so-called HD-DVD format that is backed by a group of Toshiba-led partners.
The move shows that Hollywood is getting serious about moving ahead with the "next generation" DVD format, which it so far has been reluctant to embrace. The new discs promise super-sharp resolution and bonus interaction features when played on high-definition televisions and via new high-definition DVD players. But the discs are especially appealing to the studios because they use super-secure copy protection that makes them less vulnerable to piracy than today's easily copied standard DVDs.
Today's announcement gives the Toshiba group a leg up, for the time being, in a burgeoning format war over the next-generation of DVDs. Sony Corp. has spearheaded a rival technology called Blu-ray, which it is pushing hard in part because its technology for the current generation of DVDs mostly lost out to Toshiba's -- with very little Sony technology winding up in today's standard DVDs. And in the early 1980s, its Betamax technology for videocasettes lost out to Victor Co. of Japan Ltd.'s VHS format.
Hoping to avoid another failure, Sony has been aggressively lining up partners for its Blu-ray format. At this point, the earliest that movies could be issued in the Blu-ray format would be 2006. Still, Blu-ray has far more manufacturers and consumer-electronics partners on board than the Toshiba group. And Blu-ray discs can hold far more material than HD DVD, allowing studios that distribute TV shows, for example, to pack more episodes on a single disc, or to throw in more bonus features.
Despite today's announcement by Toshiba, Blu-ray remains a strong contender. Firmly in its camp: Sony's powerhouse Columbia Pictures, along with the studio it is in the process of acquiring, Metro-Goldwyn-Mayer Inc. And the deals Toshiba is making with studios aren't exclusive -- the same studios could also make software deals with Blu-ray.
All studios are anxious to avoid another Betamax/VHS-style format war, however, because they don't want to confuse consumers by releasing their movies in many similar-looking disc formats -- or annoy them if the format they choose is off the market in a couple of years. Studio executives say it would be best if one technology scored a clear win over the other or if the two camps could compromise so both new versions could play on the same player.
Although millions of Americans have yet to buy even a standard DVD player, Hollywood has been plotting the next generation of DVD for years. Until recently, studios figured they should delay the next generation for as long as they could, maximizing sales in the current format. But the studios have been speeding up their plans lately as sales of standard DVD players have tapered off. Amid signs that piracy is cutting into sales far more than predicted, the studios also reason that they should move more quickly toward the new technology because of its superior antipiracy features.
Thus, the studios want to get started making next-generation DVD a hot product for next Christmas and beyond. Such efforts are typically slow to bulid; the first year DVD players came out, only 300,000 players sold; studios anticipate a similarly slow pickup for next-generation DVD.
To get things going next year, the studios plan to offer what they expect will be top-selling new releases. That means special-effects packed movies aimed toward affluent men, perhaps films like Paramount's Steven Spielberg-directed "War of the Worlds," Universal's "Doom," and Warner Bros.' "Batman Begins." Those are expected out next summer, in plenty of time to get on DVD by the holidays.
A holiday rollout is key, studios say, because that's the time when people are most likely to drop the big bucks needed to switch over to the new format. By next Christmas, an HD-DVD player should cost around $1,000. To work properly, it needs a pricey high-definition TV. By Christmas 2006, the prices are expected to drop to $500 for a player.
The next-generation players also are expected to play current DVDs; players ready in the U.S. market by the end of 2005 could include Blu-ray players from Sony; Blu-ray DVD drives for computers from Hewlett-Packard Co.; HD-DVD players from Toshiba; and HD-DVD drives from NEC Corp. as well as a joint venture of Toshiba and Samsung Electronics Co.
Both Sony, Toshiba, and their respective allies are also furiously working to win over companies that make the players – and particularly businesses that etch and stamp the discs themselves. Both sides claim they have lined up the parts – such as lasers, drives and lenses – that they need to make players next year. Indeed, major DVD-drive maker Sanyo Electric Co. was showing both Blu-ray- and HD-DVD-compatible parts at a recent Tokyo-area electronics show.
More technology companies, however, are hedging their bets as Blu-Ray and HD DVD duke it out. Samsung Electronics, a member of the Blu-ray camp, may make HD-DVD players next year, people familiar with the situation said. Microsoft Corp. is providing its video compression technology to both HD-DVD and Blu-ray formats. And disc makers are already readying production lines on the assumption that they will have to make both formats.
Proving that the discs can be manufactured easily and cheaply will also be extremely important to Hollywood, as they start taking a hard look at bottom lines for the new business. If Hollywood is going to order up large numbers of high-definition discs in time for next Christmas, the disc makers have to start buying new equipment and running trials in the next few months.
Toshiba's HD DVDs are very similar to existing DVDs, and could use much of the same equipment to make them. That means it's quicker and cheaper, for now, to make HD DVDs than Blu-Ray discs." It's all a matter of [disc-making] infrastructure," says Kanji Katsuura, chief technical officer at Memory-Tech Corp., a Japanese disc maker that's supporting the Toshiba-led effort. "If the infrastructure is in place, Hollywood won't be able to ignore it."
For the past few months, Memory-Tech and Toshiba have been promoting a manufacturing line that can make both DVDs and HD-DVD discs, changing between the two in only five minutes. The companies argue that such dual-purpose equipment will make it easier for disc makers to invest in a brand-new technology, especially when nobody can predict how fast high-definition discs will actually catch on. When HD DVD demand picks up, the dual-purpose machines can press high-definition discs; until then, they can be used to make DVDs, which are still seeing strong demand.
"If you're going to add new DVD lines anyway, why not add ones that can make HD DVD discs too?" says Mr. Katsuura.
Sony, on the other hand, has been trying to land orders for Blu-ray-specific manufacturing machines from big disc pressers or equipment makers. It's trying to sell disc makers a special machine it developed to etch the data on a master disc used for stamping -- though it hasn't clinched a sale yet.
And this week, Sony is expected to announce an agreement to work on Blu-ray disc-making equipment with Germany's Singulus Technologies AG, one of the world's biggest manufacturers of machines that produce CDs and DVDs. The two companies are planning to have prototype Blu-ray production lines ready by the middle of 2005 -- meaning mass production of Blu-Ray discs could start around early 2006.
