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Peace Pact?

2 May, 2005 By: Erik Gruenwedel



China's spat with Japan over ancient history isn't the only Asian turf war. Sony Corp.-backed Blu-ray Disc and Toshiba-supported HD DVD remain deadlocked for control of the next-generation disc format.

Publicly, hardware and software manufacturers on both sides of the issue agree two formats could kill consumer interest. They also say it is business as usual, with the HD DVD consortium steadfast in releasing software and hardware by the fourth quarter.

Toshiba said it believes a single format (presumably HD DVD) is most beneficial for consumers and will continue to work toward that objective.

“We will also engage in any necessary discussions [with Blu-ray],” said a spokesperson. “We are unable to comment further.”

Universal Studios Home Entertainment, a backer of HD DVD, contends there is no change in its position to release titles in the fourth quarter, despite scuttlebutt of a pending compromise. That said, a spokesperson reiterated president Craig Kornblau's desire for a single format and said he remains hopeful about some type of resolution.

“We are still proceeding in the same vein we were back in January [when the HD DVD team announced fourth-quarter titles at the Consumer Electronics Show],” said the spokesperson.

Corporate doublespeak
Sony, perhaps mindful of the Betamax/VHS debacle 20 years ago, has issued mixed signals toward a settlement.

Last month in Bordeaux, France, Yukinori Kawauchi, general manager of Blu-ray with Sony's Video Group, restated the merits of offering consumers one rather than two next-generation disc formats.

“We're open to discussions,” Kawauchi told Reuters, while admitting that little had been achieved toward accomplishing a single format. Shortly thereafter, spokesperson Taro Takamine in Tokyo reportedly said Sony had ruled out any compromise with HD DVD.

A Sony USA spokesperson, however, said the company continues to be open to discussions with supporters of other formats consistent with the focus of providing “the best consumer experience.”

“We can't comment on specifics beyond that at this time,” said the spokesperson.

Regardless, Sony might be wise to compromise. Despite sales of almost 3 million PlayStation Portable video game units, the company last week posted a fourth-quarter (ended March 31) loss of 56.5 billion yen ($533 million) compared to a loss of 38.2 billion yen during the same period last year.

Impasse or Bluff?
High-level sources on the software side suggest a compromise may not be reached soon, if at all. They say Sony can only bargain so far, that its Blu-ray architecture is essential for its pending PlayStation 3 platform, and that any concessions from Sony would be on the software end.

“Sony can't afford to compromise, other than to allow Toshiba software to [co-exist],” one source said.

A source suggested Sony would be open to expanding its disc capacity to equal the capacity of a dual-sided HD DVD disc. The existing single-layer Blu-ray capacity is 25GB; HD DVD is 30GB for a dual-sided disc, which would be more expensive to produce than a single-layer Blu-ray.

If that plan won't fly with the HD DVD camp, one source said, “then it looks like there's going to be a format war — unless Wal-Mart and Best Buy say it isn't going to happen, that they're not going to put two machines in their stores.”

Josh Bernoff, media analyst with Cambridge, Mass.-based Forrester Research, said one of the tenets of brokering a compromise is getting everyone to believe your format is going to succeed regardless and that it is going forward.

“Suppose the HD DVD camp ceased development and pulled back marketing efforts because they were negotiating with Blu-ray — well, their negotiating position just got a whole lot weaker,” Bernoff said.

“I don't believe these two formats going forward and trying to reach a compromise are mutually exclusive; in fact, this is exactly what you would expect to see if they were, in fact, brokering a compromise.”

Bernoff said both sides have points of compromise and that a unified format would have elements of each, including the probability of a dual-sided disc that has a current DVD version and a future version that will be compatible with some elements of the competitor.

“I think the products that are scheduled to launch in the fourth quarter will probably do so,” Bernoff said. “Whether there is a compromise or not, their sales will be poor as a result of confusion over the format.”

Additional reporting by Thomas K. Arnold.

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