Strategic Computing and Communications Technology
High-Definition DVD Format War
vs.
March 14, 2007
Group A:
Saud Al Shamsi
Vikas Bhargava
Karen Hsu
Josh Palmer
Mark Schelbert
Edmung Wong
HD DVD vs. Blu-ray
“DVD is, by some measurements, the greatest success in consumer electronics history.
Following its 1997 debut, it took the format just a few years to completely conquer the
home-video market previously ruled by VHS tapes.”1 Not even 10 years later, two
formats have appeared in the market both claiming to be the rightful successor to the
DVD throne: HD DVD (developed by Toshiba) and Blu-ray (developed by
Sony/Phillips).
The battle for dominance between the Sony and Toshiba camps is not something
completely novel in the industry. Parallels can easily be drawn between the present
situation and a very similar “format war” between Sony’s Betamax and JVC’s VHS, two
competing videotape standards, that began 20 years earlier. Betamax was released in
1975, followed a year later by VHS. The JVC camp was finally declared victorious when
Sony announced that it was going to start production of VHS players and cassettes in
1988, over 10 years after the talks between both camps failed to generate any resolution
or compromise.2
A few lessons can be learned from the VHS-Betamax experience. First, format wars can
last a very long time. For example, during the VHS-Betamax war, consumers were
bombarded with propaganda and marketing campaigns that tried to entice potential
buyers into choosing one side over the other for 10 years. Ultimately, however, the
consumers were left in a state of confusion over which format was “better,” and choices
became more haphazard then as a result of good decision making. Second, better
technology does not necessarily guarantee success. For example, Sony’s Betamax offered
consumers superior technology compared to VHS. However, as history shows, that fact
was not enough to give Sony a strong foothold in the market. Lastly, better marketing
does not necessarily guarantee success. For example, Sony’s marketing expertise and
impressive advertising to promote Betamax were not enough to win the format war.
The VHS-Betamax war illustrated that success was neither marketing-driven nor
technology-driven, but instead achieved through a network effect. JVC’s VHS format had
the support and backing by a large network of key manufacturers and important content
providers. The VHS network ensured its success. In contrast, Sony lacked these networks
during the VHS-Betamax war, which proved a more significant determinant than both
technology and marketing combined.
While the VHS-Betamax comparison is widely used when discussing the current, and
potential future, situation in the High Definition optical disc format struggle, the story
behind the creation of the popular DVD format is usually left untold. In the early 90’s,
the Sony camp and the Toshiba camp were both working on a novel optical disc format.
In order to avoid a repeat of the VHS-Betamax war, both camps decided to convene and
discuss a potential compromise that would generate a single format. The president of
IBM at the time took the position of mediator, and out of those talks, the DVD format
1
2
John P. Falcone, “HD-DVD vs. Blu-ray,” March 21, 2006. http://reviews.cnet.com/4520-6463_7-6462511-1.html.
Marc Wielage, “The Rise and Fall of Beta,” Videofax #5, 1988. http://www.betainfoguide.com/RiseandFall.htm.
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was born. It is important to note, however, that the Sony camp was unhappy with the
share of royalties that it was receiving from DVD in relation to the higher amount paid to
Toshiba and co., and thus started working on what is now known as Blu-ray. Not to be
outdone, the Toshiba camp also started working on the next generation of optical disks,
and out of that development came the HD DVD.3
This time, however, the initial peace talks were unable to generate a resolution and the
two sides will have to let the market decide a la VHS/Betamax from two decades earlier.
As many would say, history does have a tendency to repeat itself. The question that is on
everyone’s mind now is, of course, “Who is going to win this battle? Blu-ray or HD
DVD?”
Other Standards Wars
There have been many format wars since VHS-Betamax, including some that produced a
clear winner. Windows beat out Mac OS because Microsoft decided to license their
software to hardware vendors. Apple saw themselves as a hardware company, refusing to
license the operating system to 3rd party vendors in order to protect their hardware sales.
As a result, consumers found Apple’s package to be more expensive than PC-based
systems, leading to wide-scale PC, and subsequently Windows, adoption.4 DVD and
DIVX discs were released around the same time, both touted as the next-generation in
video content technology. DIVX was released by Circuit City as a rental variation of the
DVD, and allowed for an unlimited viewing within 48 hours of it first being played. After
that, users were charged an additional fee for extra views. Many retail chains were
against selling DIVX discs, as it benefited their competitor Circuit City, and many video
rental chains refused to offer DIVX since it was direct competition. Consumers found the
lack of special features in DIVX to be a deterrent, as well as the fact they had to connect
their player to a phone line in order to facilitate the pap-per-view like system, and DVD
quickly won the war.5
Other wars, though, have not ended with any clear winner. DVD+R discs were released
five years after DVD-R discs, both used as blank discs on which consumers burned
content. Early DVD players only supported DVD-R, however multi-format players were
released soon after the introduction of DVD+R. Nearly all players are now multi-format,
and both types of discs are prevalent in the market.6 GSM and CDMA are two types of
mobile phone standards, with the differences lying in how each standard communicates
with nearby towers. Regionally, one standard has beaten the other, but globally there has
been no winner. The main reason is because the end users do not see a difference
between the two. There is interoperability between the two standards in that a GSM user
Ryan Block, “Blu-ray vs HD DVD: State of the Division,” September 19, 2005.
http://www.engadget.com/2005/09/19/blu-ray-vs-hd-dvd-state-of-the-s-union-s-division/.
4
Steve Wozniak, “How We Failed Apple,”
http://www.woz.org/pages/wozscape/Articles/Newsweek_FailingApple/FailingApple.HTML
5
http://www.dvdjournal.com/extra/divx.html
3
6
http://www.cdfreaks.com/reviews/Why-DVDRW-is-superior-to-DVD-RW
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can seamlessly communicate with a CDMA user.7 And finally, there are over 50 different
types of flash memory available in the market for phones, digital cameras, and
computers. No single type has won since there is a plethora of all-in-one readers
available, and many hardware manufacturers base their decision of which memory to use
on form factor and cost.8
It is best to keep these wars in mind as we explore the issues surrounding each high
definition disc, for they may give a hint as to what lies ahead.
Technology Comparison
Storage capacity
A single layer HD DVD disc can store 15GB of data, while a dual layer disc can store
30GB of data, which is about 5 hours of HD videos. On the other side, the capacity of a
single layer Blu-ray disc is 25GB, while a dual layer disc is 50GB, which is about 9 hours
of HD videos or 23 hours of standard videos.
Blu-ray is more practical for HD movies due to the larger storage capacity. One highdefinition movie (about 20GB) fits on just a single Blu-ray layer (25GB); while a HD
DVD requires dual layers (2 x 15GB).
Production cost
At a production of 25,000 single layer discs, the cost/disc for HD DVD is around $1.45,
while the cost/disc for Blu-ray is around $1.59.9 At a first glance, HD DVD looks to be
cheaper to produce. However, when we consider the replication cost in terms of cost/GB,
a single layer HD DVD disc ($0.097/GB) actually costs more than a Blu-ray disc
($0.064/GB).10 These calculations do not take into considerations of authoring, setup,
Advanced Access Content System (AACS) protection, packaging and other costs. Notice
that the final cost of replicating a HD DVD or Blu-ray disc will be higher.
Protective Hard coating
This is required for Blu-ray discs, because its data recording layer is very close to the
surface of the disc (0.1mm). In order for the Blu-ray disc to store more data, the laser is
bent into a cone shape. And with a higher aperture of 0.85 (compared to 0.6 and 0.65 for
DVD and HD DVD, respectively), the disc is more prone to error.11 Without the
protective layer, if the surface of the disc is scratched, data will be easily destroyed. For
HD DVD and DVD, this protection mechanism is optional, because the data is recorded
at 0.6mm below the surface.
7
http://en.wikipedia.org/wiki/Gsm
http://www.tigerdirect.com/applications/SearchTools/item-details.asp?EdpNo=1270859
9
Wesley Novack, “Blu-ray replication vs HD DVD replication costs revealed,” February 9, 2007.
http://wesleytech.com/blu-ray-vs-hd-dvd-replication-costs-revealed/111/.
8
10
ProAction Media. http://www.proactionmedia.com/hd_br_replication.htm.
11
Aaron Dobbins, “HD DVD: Blu-ray Has Problems,” BetaNews, January 7, 2006.
http://www.betanews.com/article/HD_DVD_Bluray_Has_Problems/1136673259.
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Digital Rights Management (DRM)
Both formats are using a standard called Advanced Access Content System (AACS),
which is intended to restrict attempts to copy HD discs. Moreover, both formats are
considering using digital watermark protection for additional security. Under this
protection scheme, all HD DVD and Blu-ray disc players will include a sensor to listen
for inaudible audio watermarks in the soundtrack of movies. If the players do not detect
the watermarks, the players will not play the discs. This method is considered to be an
effective way to prevent illegal camcording.
When DVDs came out in 1995, it used a static encryption model, so once the keys were
cracked, all DVDs were subjected to unauthorized decryption. In order to prevent the
same problem from happening in the HD disc format, Blu-ray is adopting a DRM feature
called BD+, which is a security platform that uses dynamic encryption. In case the
current keys were cracked, manufacturers could update the keys and build them into all
subsequent discs to prevent unauthorized copy.
Region Coding
Region codes denote the areas of the world in which distribution and playback of the
discs are intended. These codes allow studios to control various aspects of a release, such
as date and price, by different regions. HD DVD does not have region code in the
technical specifications, and most supporting studios of HD DVD are against adding such
a code. For Blu-ray, there are regional codes, but they are different from the DVD region
codes.
Network Comparison
Both disc formats are supported by various companies and consortiums. We can divide
these groups into four main categories as shown below in Table 1:
HD DVD
Blu-ray
Electronics
Toshiba, NEC, Sanyo
Sony, Hitachi, LG, TDK,
Panasonic, Philips, Samsung
Information Technology
HP, Microsoft, Intel
Apple, Dell, HP
Studios
Universal,
Warner Bros.
Music and Games
-
Table 1: Format Supporters
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Paramount,
Sony Pictures, Walt Disney
Studios,
Fox
Movies,
Paramount, Warner Bros.
Sony BMG, Universal Music
Group, Electronic Arts
While both formats have support from various large companies, Blu-ray has greater
support from content providers, which are critical to achieving positive network effects.
The three biggest box-office winners in 2006: Sony Pictures, Walt Disney Studios, Fox
Movies, all support Blu-ray. When one considers that these three studios will be
delivering last year’s hit movies to the home this year, that’s an enormous advantage for
Blu-ray.
Current Sales and Analysis
Figure 1: Blu-ray and HD DVD sales
In the first half of 2006, HD DVD was the dominant player in the market. However, since
the end of 2006, growth of Blu-ray sales has been steady. Figure 1 gives a better idea of
the recent trends in HD disc sales, showing that by the first month of 2007, Blu-ray has
amassed over 60% of the market share. And in terms of total sales since inception of both
formats (April 2006), Blu-ray has now surpassed HD DVD: 100 units of Blu-ray to every
98.7 units of HD DVD.12
One of the driving factors behind the growth in Blu-ray sales is the launch of PS3 in
November 2006. Since then, Blu-ray sales are up 700%. According to a recent survey13
12
13
Stephanie Prange, “Blu-ray Tips Scales,” Home Media Magazine, Feb, 2007.
Jason Unger, “Blu-ray Touts Content Advantage, PS3 Impact,” CE Pro, Jan 2007.
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of more than 10,000 PS3 owners, 80% indicated they will purchase Blu-ray movies and
75% said they will use PS3 as the major device for playing HD movies. These figures are
reasonable due to the fact that owners of the PS3 might as well take advantage of the
built-in Blu-ray playback functionality. Also notice that the PS3 is still the cheapest Bluray player at $499.14
The content advantage that Blu-ray enjoys is another major factor that should become
more noticeable in the future, when studios that exclusively support Blu-ray, including
Sony, Disney, Fox, MGM and Lions Gate, start to release more movie titles in the Bluray format. When looking at the top 20 home movie titles of 2006, 19 are available in
Blu-ray, 4 are available in HD DVD, and only one movie, King Kong, is exclusively in
the HD DVD format. In addition, the content advantage is very likely to further shift in
Blu-ray’s favor, as studios that support both formats, including Warner Bros. and
Paramount, increase their Blu-ray catalog to match their HD DVD line.
More analysis on the future trends of sales will be provided in later sections.
Business Model
Figure 2: Business Model
As can be seen in Figure 2, there are several players in determining a dominant network:
the customers, the competitors, the complementors, and the suppliers. For both HD
14
Blu-ray has a 5:1 ratio right now on the hardware side due to the PS3.
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optical disc formats, revenue is generated from consumers, retailers and distributors, and
licensees who wish to mass-produce media in HD formatted discs. Competitors of the
formats include the Internet, VHS, TV, and Video On-Demand (VOD). Suppliers of the
format include disc replicators, machinery providers, and the entertainment industry, who
supply content, which is certainly a key factor in determining who wins this war. And
lastly, complementors include HDTV, media players, and game consoles.
Current Marketing Strategies
Some of the key players with relevant market influence include the film industry, the
adult film industry, and also the game industry. Their format of choice will undoubtedly
play a large role in the outcome of this standards war, and their importance is reflected in
the marketing strategies of both sides.
In terms of advertising, both sides have taken different approaches. HD DVD has
launched a $150 million multimedia campaign pushing the slogan “The Look and Sound
of Perfect,” in efforts to raise awareness of their format.15 On the other hand, Blu-ray has
launched a pre-emptive strike by already declaring itself as the winner of this standards
battle in their “The War is Over” campaign.16 Clearly, the key is to not only raise
awareness of the format, but to give consumers the confidence for investment.
The gaming industry is roughly a $20 billion industry worldwide and is expected to grow
to about $26 billion by 201017 – numbers that clearly should not be taken lightly. While
the Microsoft Xbox 360 plays dual layer DVDs, it now supports an (optional) external
HD DVD player. However, with the Sony Playstation 3, the Blu-ray player is internal
and is used for the actual gameplay. This strategy of two-in-one was largely successful
with the Playstation 2. Although sales of the PS3 have not skyrocketed, studies show that
80% of those who purchase the PS3 also purchase Blu-ray movies to accompany their
new player, as mentioned before.18
The adult film industry also carries a lot of weight, as it makes up at least 10% of the
traditional market for DVDs.19 In an effort to win them over, HD DVD provided training
and unofficially connected the pornography studios to replicators. Comparatively, Bluray replicators are fewer in total overall, and of those, many refused to replicate
pornography discs.20 Further, while Digital Playgrounds announced last year commitment
to Blu-ray, they appear to have changed their mind as they have announced four HD
HD DVD Backers to Launch Massive $150 Marketing Blitz,” July 12, 2006.
http://www.highdefdigest.com/news/show/HD_DVD_Backers_to_Launch_Massive_$150_Marketing_Blitz/134
16
“Sony’s New Blu-ray Marketing Message: Format War is Over,” Feb. 10, 2007.
http://www.highdefdigest.com/news/show/468
17
Dean Takahashi, Mercury News, Sept. 19, 2005.
http://blogs.mercurynews.com/aei/2005/09/deans_speech_at.html
18
Peter Svensson, “Sony announces cheaper Blu-ray player,” Feb. 26, 2007.
http://www.businessweek.com/ap/financialnews/D8NHHM2G0.htm
19
Joseph Menn, Dawn C. Chimielewski, “Porn studios quietly courted,” Feb. 11, 2007.
http://www.latimes.com/entertainment/news/la-fi-porn12feb12,0,1689172.story?coll=la-home-headlines
20
http://www.azcentral.com/business/consumer/articles/0216porn-tech16-ON.html
15
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DVD titles in the U.S.21 Though HD DVD appears to be the format of choice by the adult
film industry, Vivid Entertainment Group has released the first U.S. adult film to be on
Blu-ray disc format for a trial run.22
Other efforts by Blu-ray supporters include Panasonic’s plans for Blu-ray car players23,
and Sony’s cutting of player prices to better compete with the generally cheaper HD
DVD players. Sony has announced that the Blu-ray disc player (BDP) S300 will cost
$400 less than the BDP-S1 with the same capabilities in early summer. Note that the
$600 player is the same price as the Playstation 3.24 Sony also projects that come
Christmas, players will be less than $500.
Furthermore, Geoffrey A. Moore offers a chasm theory that may help predict the victor of
the format war. As shown in Figure 3, Moore distinguishes between five groups of
adopters in the technology adoption lifecycle: innovators, early adapters, early majority,
late majority, and laggards. The most significant of the time gaps, called the Chasm,
falls between the early adopters of a product and the early majority pragmatists. 25 As
seen in the HD optical disc format war, both sides are vying to cross the Chasm first by
appealing to the solid citizens, the non-risk takers. Examples of efforts on both sides to
gain consumer confidence include Blu-ray’s “The War is Over” campaign and the
ongoing competition between Blu-ray and HD DVD for content providers (i.e., the adult
film industry). Nevertheless, current Blu-ray sales trends (with the aid of the PS3)
illustrating their market share dominance over HD DVD suggest that Blu-ray will be the
first to cross.
21
http://www.sgknox.com/2007/01/11/no-porn-on-blu-ray/
Wesley Novack, “Porn on Blu-ray – not an easy task,” Feb. 3, 2007.
http://wesleytech.com/porn-on-blu-ray-not-an-easy-task/98/
23 Bill Howard, “Blu-ray Coming to Cars, Panasonic Hints,” June 23, 2006.
http://www.technoride.com/article/Bluray+Coming+to+Cars+Panasonic+Hints/181829_1.aspx
24 Peter Svensson, “Sony announces cheaper Blu-ray player,” Feb. 26, 2007.
http://www.businessweek.com/ap/financialnews/D8NHHM2G0.htm
25
Geoffrey Moore, “Crossing the Chasm,” 1991. http://ist-socrates.berkeley.edu/~fmb/articles/lifecycle/index.html
22
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Figure 3: Moore’s Chasm
HDTV
So content and high-definition players are available, however a bottleneck in the adoption
of either format may actually be HDTVs. A viewer watching on a standard television
cannot tell the difference between standard definition and high-definition content, so
these potential customers will not invest in either technology. The war may be dragged
forward until HDTV sales hit a critical mass. Figure 3 below shows expected sales for
HDTVs, with total sales reaching $65 billion by 2009.
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Figure 4: HDTV Sales Forecast
As of 2006, 4 million US households had an HDTV. That number is expected to rise to
52 million households by 2010.26
Dual Formats
One way the format war could end would be though the advent of dual format players
and/or discs. At CES 2007, LG was the first hardware manufacturer to release a dual
format player, dubbed the “Super Multi Blue Player,” that could play both HD-DVD and
Blu-ray discs.27 The player is available now for the price of $1,199. The release of this
model was initially threatened because it does not support HDi, the interactive layer in
HD-DVD discs. This means some special features present on the disc may not be
viewable, but the main content will play completely. The DVD Forum, developers of
HD-DVD, protested, finally resulting in the player being released sans the HD-DVD
logo.28 At this point, the player’s price is a concern as it is possible to purchase separate
HD-DVD and Blu-ray players for less. It technically still favors Blu-ray over HD DVD
as well, so it is questionable whether this is an honest attempt to create a true dual format
player. Samsung, a proponent of Blu-ray, had also considered a dual format player, but
26
“HDTV Content Options In United States Growing,” Satellite News, April 17, 2006.
27
http://www.lge.com/about/press_release/detail/PRO%7CNEWS%5EPRE%7CMENU_20318_PRE%7CMENU.jhtml
28
David Katzmaier, “LG: No HD DVD logo on combo player,” Jan. 16, 2007.
http://crave.cnet.com/8301-1_105-9678168-1.html
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decided to take a wait-and-see approach. They have stated they will only enter the dual
format player market if HD DVD proves to be as popular as Blu-ray.29
On the disc side, Warner Brothers has announced they will release a disc that contains
both HD-DVD and Blu-ray content. Their disc, called Total HD, is expected to be
available by 3Q 2007, at prices only marginally above other HD content. Warner
Brothers has also said they would not charge licensing fees, so other movie studios may
release titles around the same timeframe.30 Dual format discs can be considered a threat
to Blu-ray, since it eliminates their main advantage. It seems unlikely these discs would
take off simply because this isn’t cost effective for the content providers. And with player
prices constantly falling and Blu-ray sales taking off, movie studios have even less of an
incentive to adopt the dual format.
Conclusion
Based on our findings, we believe Blu-ray will eventually win the format war. First, the
primary driver of its success appears to be the larger network of popular content
providers supporting Blu-ray. Second, in comparing technologies, Blu-ray can fit a single
HD 20GB movie on one 25GB layer (compared to two 15GB layers required with HD
DVD), which should minimize Blu-ray production costs. In addition, Blu-ray provides
superior encryption technology with BD+; assuming it can be successfully implemented.
Third, on the consumer side, more households now have Blu-ray players due to their
integration into the PS3. Accordingly, Blu-ray disc sales have strengthened in the last
several months, far outpacing HD DVD sales. And, as HDTV sales increase, Blu-ray’s
competitive position should become more pronounced. Dual format technology may pose
a threat to Blu-ray’s chances of winning; however, price is currently an obstacle to
adoption. This issue may become moot anyway if Blu-ray quickly outdistances HD DVD
before dual format prices drop to single format levels. Overall, it looks as if this time,
Sony’s technology will come out on top.
Eric Bangeman, “Hybrid Blu-ray/HD DVD player coming, format war to continue,” Jan. 4, 2007.
http://arstechnica.com/news.ars/post/20070104-8550.html
30
Richard Lawler, “Warner officially announces Total Hi Def hybrid disc,” Jan. 9, 2007.
http://www.engadget.com/2007/01/09/warner-officially-announces-total-hi-def-hybrid-disc/
29
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