DVD Wars: Not Over Yet

Paramount's move to release discs only in the HD-DVD format deals a blow to Sony's Blu-ray camp and makes the bigger battle too close to call

by Catherine Holahan

For a moment there, it looked as though the battle between the competing high-definition video formats was decided. In recent months, the camp backing Sony's (SNE) Blu-ray technology announced a series of partnerships with rental and retail stores that left the rival HD-DVD format limping. But key support from Paramount Home Entertainment for HD-DVD make the next-generation video disc wars once again too close to call.

On Aug. 20, Paramount parent Viacom (VIA) announced plans to release home movies from Paramount Pictures, DreamWorks (DWA), Nickelodeon, and MTV Films exclusively in the HD-DVD format, which is backed by Toshiba (TOSBY) and Microsoft (MSFT). Recent box-office blockbusters such as Transformers, Shrek the Third, and Blades of Glory will be among the first films to be released solely for HD-DVD players. Together, the three films brought in more than $1.5 billion worldwide, making them among the highest-grossing movies of 2007, alongside Walt Disney's (DIS) Pirates of the Caribbean: At World's End and Columbia Pictures' Spider-Man 3. Both Disney and Sony-owned Columbia Pictures support the Blu-ray format.

Setback for Blu-ray Momentum

Rob Moore, Paramount's president for worldwide marketing, distribution, and home entertainment, says the company favors HD-DVD because its supporting players are cheaper, on average, than Blu-ray players, making them more consumer-friendly. Toshiba's entry-level player is just under $400. Sony's entry-level player is about $100 more. "Ultimately, what we think is going to drive adoption is the price point," says Moore, adding that concentrating on one format will make it easier to release discs quickly.

Paramount's decision came as a surprise to some, especially Blu-ray supporters. Before the announcement, only NBC's Universal Studios was exclusively distributing HD-DVD discs. Many studios, including Time Warner's (TWX) Warner Bros. Pictures and others, have been releasing films in both formats, waiting for a clear victor to emerge before choosing sides. And it had seemed Paramount was content to do the same. "We don't really understand the decision at this particular time because of all the momentum that Blu-ray has had over the past two months," says Andy Parsons, a chairman of the Blu-ray Disc Assn. in North America and senior vice-president for product development at Pioneer USA.

Blu-ray supporters had cause for optimism. Blu-ray discs were outselling HD-DVD discs by a factor of nearly 2 to 1, says Parsons, fueled in part by the popularity of Sony's PlayStation 3, which plays Blu-ray movies as well as games. The game system costs only $600, compared with the $900-plus price tag on some of the newest Blu-ray players (see BusinessWeek.com, 4/6/07, "Blu-ray vs. HD-DVD: Price Matters").