Top 12 Film Industry Stories of 2008:
#2: HD-DVD Loses, Why Hasn't Blu Ray Won?

By David Mumpower

January 15, 2009

Half a billion dollars *is* serious.

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In point of fact, HD-DVD was beginning to hold many of the cards late in 2007. Thanks to the aforementioned pricing that included $99 hardware sales, HD-DVD had become a popular holiday selection for many budget-conscious consumers. An incentive plan that gave away five free HD-DVDs for every new hardware purchase meant that a frugal customer looking to get their feet wet with HDTV could buy a new HD-DVD player and five free discs for just over $100 including sales tax. Such a purchase on Blu Ray would have cost a minimum of $450. The pricing gap between the two products was readily apparent to all consumers and it was the source of much frustration for Sony. No less than CEO Howard Stringer made a statement in early November of 2007 that the next-generation DVD was "at a stalemate" and he expressed frustration that an expected quick victory in this new landscape had never unfolded. New tactics were needed to end this battle once and for all.

Like every other business industry, this fight was eventually settled by money. The odd quirk here is that Sony's success in winning the battle stemmed from what may only be defined as bribery. Painfully aware that the tide had turned to HD-DVD's side in the format war, Sony had gone to one of the fence sitters, Warner Bros. and made a cash offer. A financial stipend was given in exchange for Warner Bros. to switch exclusively to Blu Ray. Savvy business people that they were, the decision makers at Warner Bros. took this offer back to Toshiba and the other HD-DVD people and asked them to match. There was one other unusual aspect of WB's request. They wanted HD-DVD to lure one of the current Blu Ray exclusive studios to swap, thereby swinging the balance to the HD-DVD side, presumably once and for all. Just before the Consumer Electronics Show last January, the perception existed that any major change in the lineup of next-generation DVD support would end the battle once and for all.


Once Sony became aware of these negotiations, they offered further financial incentives for their current supporters to remain loyal. Simultaneously, Toshiba made what proved to be a regrettable decision for their HD-DVD technology by refusing to pay so much money just to buy the loyalty of a studio. Warner Bros., perhaps the only studio who behaved logically and rationally in this entire chain of events, recognized that another year of split sales between HD-DVD and Blu Ray would hurt the industry. They were willing to take less money from HD-DVD in order to become exclusive to that side since they had sussed out that it was better positioned to win the next-generation DVD war. They were not, however, willing to take significantly less money in exchange for no guarantee that the war would end. Less than 48 hours before the beginning of CES, the biggest trade show of the year, Warner Bros. accepted a reported $520 million, signed an exclusive licensing agreement for Blu Ray and effectively ended the format war. After months of ceaseless stalemate, the deathblow for HD-DVD had come in startlingly quick fashion. On February 19, 2008, barely five weeks after Warner Bros. made their decision, Toshiba announced that HD-DVD was dead.

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