Bill Gates doesn’t like to lose. When the Microsoft chairman and his chief executive, Steve Ballmer, played a game onstage at the Consumer Electronics Show (CES) in Las Vegas last week recreating the classic fight of Muhammad Ali against George Foreman, it was Gates (as Ali) who won, and Ballmer who threw his controller to the floor.
But there was a bigger fight going on at CES: to set the standard for the coming generation of high-definition video discs. And just as in the Rumble in the Jungle, where Ali came in as the underdog but stole the title, last week the Microsoft-backed underdog, HD-DVD, landed a few blows on its rival Blu-ray, which had looked the favourite, backed by Sony and most of the Hollywood studios.
First Microsoft announced it would offer an HD-DVD drive for the Xbox 360. Then Toshiba America said it would ship its first two HD-DVD players in March at $499,99 and $799,99. By contrast, the first Blu-ray player, a Pioneer Elite model, is expected this summer at $1 800, along with a Samsung player at about $1 000. HD-DVD suddenly looks within the reach of most HDTV owners, and Blu-ray doesn’t.
These were not knockout punches, but they follow Hewlett-Packard’s decision to support HD-DVD, instead of exclusively backing Blu-ray, and Intel and Microsoft joining the HD-DVD camp. Sony’s Blu-ray system has many more supporters — including all but one of the major Hollywood studios, Philips, Apple and Dell — but now it has a fight on its hands. More importantly, the announced prices for HD-DVD could make Blu-ray into a suicidally expensive proposition for Sony, whose profits have fallen by a quarter in the past five years.
Ted Schadler, a principal analyst and vice-president at Forrester Research in Boston said his team re-evaluated after CES. ”They’ve made it more attractive — a lot cheaper — to get into HD-DVD instead of Blu-ray,” he says, ”but that’s just going to prolong the battle. The fact that Blu-ray has more studio support means that HD-DVD doesn’t have a chance.”
But he’s also called it a pyrrhic victory: ”Eventually they both lose.”
The final format
Schadler reckons the format war will discourage consumers from buying any next-generation player until they are confident of the winner. In the meantime, they will expand their use of video-on-demand services, video downloads, and watching video over the net. And Gates recognises that: in an interview with the Daily Princetonian college newspaper last year he said that whichever format wins, ”this is the last physical format there will ever be. Everything’s going to be streamed directly or on a hard disk”.
With the launch of the Google Video Store and Starz’ Vongo movie download service, and the growth of video-on-demand cable services, some might wonder why we need a new format.
The answer is that the entertainment industries want to move to high-definition TV, offering 720 or 1 080 lines per screen (rather than the 625 lines of PAL in Europe). There just isn’t room to put an HDTV movie on a DVD disc. Both Blu-ray and HD-DVD can store from three to five times as much data: HD-DVD can store 15GB on a single-layer disc, and 30GB on a dual-layer disc, while Blu-ray manages 25GB and 50GB — rather than 4,7GB on a DVD. Blu-ray offers higher capacities, but the two systems should offer the same picture and sound quality: both use the same codecs.
But while broadband users are prepared to download movies — especially if they are not paying for them — these tend to be low-resolution 1,5GB DivX rips. They are less likely to download 15GB HDTV movies, and they don’t have the hard drive space to store them.
The problem for the rival camps, though, is that even if consumers accept the need for a new DVD format, they need not rush to buy it. Most people do not, in fact, have HDTV or even HD-ready TV sets, and most TV channels are not broadcasting HDTV pictures. The Hollywood studios would love users to buy HD copies of the films they paid to see in the cinema, bought on VHS and now own on DVD; but there are no HD movies in high street shops.
Sony’s answer is its Trojan horse strategy of fitting Blu-ray drives in its forthcoming PlayStation 3 consoles. Games developers can use the extra storage space, and if PS3 sales go as well, millions of homes will have devices that can play Blu-ray movies when they become available.
However, Blu-ray drives are expensive, and Merrill Lynch Japan has projected this will lead to Sony losing Â¥30-billion in the first year of the PS3’s release. And if Microsoft cuts the price of its Xbox 360 console when the PS3 appears, this could bring ”an additional loss of Â¥80-billion in its second year and Â¥50-billion in its third year,” according to Gamespot. Compare that to Sony’s profits in the past three years — Â¥220bn — and you see this strategy could cripple its instigator.
Given Sony’s reliance on profits from its gaming division, and the size of Microsoft’s bank balance — including $37-billion cash — this could get nasty. Life would be simpler if both sides backed one system. That’s what the two factions — led by Sony and Toshiba — did to create DVD. A format war is, as Schadler says, silly. But in this case, the two sides cannot agree.
Peace talks
The first problem is copy protection or digital rights management (DRM). With DVD’s encryption cracked, piracy is widespread. (Though this hasn’t stopped DVDs being a huge revenue stream for the studios.) They don’t want that to happen again, and they are backing Blu-ray as the most secure system. Blu-ray enables the encryption to be changed so that if (or when) it’s broken, it isn’t broken forever. Blu-ray also allows discs to be watermarked to make piracy harder.
This approach has less appeal to Microsoft and PC makers who want to sell products that people can use to download, display and edit music and movies. It especially hits Microsoft’s plans to sell PCs as home hubs. In his Princetonian interview, Gates said: ”The inconvenience [of Blu-ray] is that the studios got too much protection at the expense of consumers.”
The HD-DVD side is also keen on DRM, of course, but has won the support of Intel and Microsoft by agreeing to ”managed copy”.
This idea allows an encrypted copy of a movie to be stored on a PC hard drive and streamed to another device — not necessarily a free copy. Some worry this could be the achilles heel in HD-DVD’s security.
Another complication is the system used for interactivity on the new format. The Blu-ray group adapted a version of Sun’s Java used in set-top boxes. Microsoft, Disney and the DVD Forum then developed a cross-platform XML-based system called iHD, which they expected the Blu-ray camp to add. However, in a secret vote, iHD did not receive a large enough majority. This led to HP complaining about the ”unreasonable cost we have to bear in supporting the Blu-ray format”, which Maureen Weber, general manager of HP’s Personal Storage Business unit, told EE Times was $30 per PC drive. Microsoft then said it would add the iHD code to Windows Vista, free.
The battle to decide the next-generation disc is about technological breakthroughs and consumer benefits, of course. But it’s also about vast money streams from sales of players, PCs, consoles and phones, the content that makes them useful, plus all the royalties and patent fees. Companies are going to fight for those, even if consumers suffer.
The difference here, though, is that we can ignore the fight — and stick with our DVDs. That won’t hurt Bill Gates. But it will hurt Sony.
Fifty years of shiny discs and format wars
Optical storage has changed the way we listen to music, watch video and use computers. But if its days are numbered, it will end a story nearly 50 years old.
Inventor David Paul Gregg imagined the ”videodisk” in the late 1950s,but it took almost 20 years — plus record firm MCA and electronics manufacturer Philips — before the analogue DiscoVision arrived in 1978. It wasn’t very good, though, and by 1981 the name was Laserdisc — appropriate since it involved a laser reading information from a metal disc. Despite benefits over other formats, Laserdiscs were ungainly, expensive and unrecordable: the more flexible VHS tape won out as the dominant video storage.
Industry was working on an audio equivalent. Philips and Sony joined forces in the late 70s to create the compact disc — probably the most important format for bringing optical to the mainstream. 700MB CDs hit the shops in 1982, with CD-Rom following several years later.
A plethora of formats continued to roll off the production line, including Sony’s under-performing Minidisc and Sega’s Dreamcast GD-Rom. But the next real shift came when DVD became a success.
There were fights behind the scenes over what was best to replace VHS, and by the early 1990s, two contenders had emerged. Sony and Philips had the Multimedia Compact Disc, and a range of others — including Toshiba — backed the Super-density Disc. Fortunately, IBM boss Lou Gerstner recognised that nobody wanted to see another format race like VHS v Betamax, and united both standards behind the DVD. Today history is repeating itself — but Gerstner is not around to make peace. The rise of web-based content and huge hard disk storage could spell the end for the optical disc. – Guardian Unlimited Â