DVD Wars: Not Over Yet

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The Blu-ray camp had also announced a series of deals that promised to further extend the dominance of Blu-ray technology. On June 18, movie rental giant Blockbuster (BBI) announced plans to expand the sale of Blu-ray discs, and only Blu-ray discs, to 1,450 more stores. Previously, only 250 company-owned stores rented high-definition discs (see BusinessWeek.com, 6/25/07, "In DVD War, Body Blows for Toshiba"). Soon after, BJ's Wholesale Club announced plans to stock only Blu-ray discs and Target (TGT) said it would sell only Sony's Blu-ray player in stores (though it still planned to carry HD-DVD discs and the external HD-DVD drive companion to Microsoft's Xbox 360).

Will Confused Consumers Stay Away?

So why did Paramount back HD-DVD? A Hollywood news blog, Deadline Hollywood Daily, reported that Toshiba & Co. agreed to pay Paramount $150 million for "promotional consideration." Neither HD-DVD representatives nor Paramount would confirm or deny any such deal, saying only that they couldn't discuss specifics. "Any sort of price differential in 2007 is likely to evaporate by this time in 2008," says Forrester (FORR) research analyst Josh Bernoff. "This is surprising, and it does make you wonder what is going on behind the scenes."

Regardless of how the deal was done, the question now is how the divided support among movie studios will influence consumer shopping this holiday season. Bernoff, for one, believes the renewed strength of the HD-DVD camp will confuse consumers—and unsure consumers keep their wallets shut while they wait for some sort of resolution that can guarantee they're not wasting money on the next-generation version of Betamax.

HD-DVD supporters hope Paramount's support will fuel sales by enabling the studio to focus on extra features that make next-gen DVDs worth the price and hassle of upgrading from a traditional DVD player. "The consumer today is very happy with their DVD, and they need to look at more than the better picture and the better sound quality," says Ken Graffeo, co-president of the HD-DVD Promotional Group and an executive vice-president at Universal Studios. "They need to see how this is going to change their movie-viewing experience. [Paramount] can now focus their communications on the benefits of this format."

Meanwhile, the Blu-ray camp is all the more determined to show why their discs alone—and not some hybrid version or dual-support player—deserves to win the format wars. "Either a single format wins, or nobody wins," says Pioneer's Parsons. The smart money for the moment is on nobody.

Holahan is a writer for BusinessWeek.com in New York.