March 14, 2007
Saud Al Shamsi
Vikas Bhargava
Karen Hsu
Josh Palmer
Mark Schelbert
Edmund Wong

 In recent years, high-definition (HD) television and HD optical discs entered the market
 Two HD formats have appeared in the DVD market, both claiming to be the rightful successor to the DVD throne:
– Blu-ray (developed by Sony/Phillips)
– HD DVD (developed by Toshiba)
 Measured by most performance metrics these two technologies are the same, except that Blu-ray has significantly larger capacity (66%).
– However, Blu-ray appears to have greater network support
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 While the format war rages on, entirely different outcomes are possible:
– LG has introduced a dual-format player and drive
– Internet may replace the DVD as a movie delivery vehicle
 International view: Japan (96% Blu-ray), Europe (pushing for open licensing of both formats), China (proprietary HD format), India
(small $ market), South America (unknown); Xbox 360 but still no
PS3)
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 Before HD, IBM arbitrated a standard DVD format intended to avoid a format war, but the outcome favored Toshiba regarding royalties, leaving Sony unhappy
 In response, Sony began developing the next generation of highdefinition optical media
– Toshiba followed suit with its own HD technology
– While there were many “peace talks”, neither party reached agreement
 Comparison: VHS vs. Betamax War
– Despite Beta’s superior quality, VHS won the war because of its strong “content” network
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 Certain format wars were never won, but instead compromised with the introduction of multi-format technology
 DVD-R vs. DVD+R
– Multi-format DVD drives accommodate both
 CDMA vs. GSM
– Can make/receive calls regardless of technology
– Both prevalent around the world
 Flash Memory Formats
– Over 50 different kinds of flash memory
– All-in-one readers handle most types
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 Most performance metrics of these two technologies are the same
 Blu-ray storage capacity is more practical for HD movies
– One high-definition movie (~20GB) fits on just one Blu-ray layer
(25GB); while HD DVD requires two layers (2x 15GB)
Storage
(single layer)
Storage
(dual layer)
Cost/Disc*
Cost/GB*
Disc Player
Price
~$1.59
~$0.064
Blu-ray
25GB (5 hrs of HD video)
50GB (9 hrs of HD video)
$500 (PS3) - $1000
* Sources: ProActionMedia, WesleyTech; single layer.
Strategic Computing
HD DVD
15GB (2 hrs of HD video)
30GB (5 hrs of HD video)
~$1.45
~$0.097
$500 - $800
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 While both formats have support from various large companies, Blu-ray has greater support from content providers that are critical to achieving a network effect
 Consumers will follow the format of the CONTENT providers
Content Network
Blu-ray
20th Century Fox, Apple, Dell,
Disney, LG, Lion’s Gate, Paramount,
Philips, Sony (Columbia and MGM),
Warner
HD DVD
Paramount, Universal, Warner
Player Network LG, Phillips, Samsung, Sony LG, RCA, Toshiba
Gaming Network
Sony PS3 (integrated), Electronic
Arts (EA)
Microsoft Xbox 360 (external)
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
Digital Rights Management
– Blu-ray promises BD+, which allows encryption keys to be modified when they are hacked
– AACS is the copy protection scheme used by both HD DVD &
Blu-ray. Took years to develop, but broken in weeks
Disc Aperture Settings
DVD
HD DVD
Blu-ray
0.6
0.65
0.85

Blu-ray more prone to error due to high aperture
 Without protective hard-coating, Blu-ray is easier to scratch (data layer is closer to surface)
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 Sales trends illustrate Blu-ray gaining dominant market share
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
– Blu-ray (with PS3) : HD DVD = 5 : 1
– Blu-ray sales up 700% since the launch of PS3 and other players
• 687,000 PS3 sold in US

– 19 of the “Top 20” DVDs in 2006 were released by studios supporting
Blu-ray
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 There are several players in determining a dominant network
 However “Content is King” and will largely determine the victor
Customers
Consumers
Retailers / Distributors
Licensees
Competitors
Internet
VHS
TV
On Demand (VOD)
Flash Memory
HD Optical
Disc Format
Suppliers
Disc Replicators /
Factories
Machinery Providers
Entertainment Industry
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Complementors
HDTV
Media Players
Game Consoles
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 Key players with influence in the format war between HD DVD and Bluray: the film industry, the adult film industry, and the video game industry
$35 Billion
XXX
$3.6 Billion
$12.5 Billion
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 Bluray has adopted a “pre-emptive strike” marketing strategy with its “War is Over” advertising campaign
HD DVD
 “The Look and Sound of Perfect”
$150M advertising campaign
 Xbox 360 supports external HD
DVD player
 Pornography industry experimenting with HD DVD
Strategic Computing
Blu-ray
 “War is Over” advertising campaign
 PS3 internal Blu-ray player
 Sony cutting player prices from
$1K to less than $500
 Future Blu-ray car players
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 What are the drivers that will determine the future of this format war?
Economic

Content
– Blu-ray has greater support

Price
– Similar pricing

Complementors -
HDTV supports both formats

International View
–
Japan sided with Bluray
Performance

Storage Capacity
–
Blu-ray greater capacity
Regulatory

Associations - Blu-ray,
BDA; HD DVD, DVD
Forum

Security
– Promising dynamic BD+ encryption
 Europe –European
Commission (EC) seeking open technology
 Durability – Blu-ray offers proprietary coating to prevents scratching
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HD vs. Standard: is it worth the hype?
 TV remains the Limiting Factor for the time being
– High-definition provides far superior resolution; however, without
HD televisions the improvement in quality will go unnoticed.
Standard
 Resolution (NTSC)
– 640 x 480i pixels
 Audio – Stereo, 44kHz
High Definition
 Resolutions
– 1920 x 1080p
– 1920 x 1080i
– 1280 x 720p
 Audio - AC-3: 48 kHz sampling rate, up to 8 channels, up to 18
Mbit/s
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 HD TVs expected to increase from 4M HHs in 2006 to 52M HHs in 2009
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Has HD Optical Media Crossed the Chasm?
 With the PS3, Bluray is quickly approaching the chasm…
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…but HD-DVD is lagging behind.
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Internet / Flash
 Internet/flash memory may replace DVDs as the dominant media delivery vehicle for movies
 “DVD format will be irrelevant” – Bill Gates … may be replaced by flash memory or Internet
Dual-disc / Dual-player
 LG Super Multi Blue Player and Drive
– Supports playback of both formats
– Available now for $1,199
 Warner Bros. Total HD
– Single disc compatible with both players
– Available 3Q 2007
– Costs marginally more than current discs
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 Blu-ray is positioned to win the format war because
– Stronger sales in the US and Japan
– Larger studio network providing film content (promise of superior security BD+)
– PS3 integrated Blu-ray players
– Larger capacity of 25GB (vs 15GB)
 Questions & Answers
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