Tuesday, August 21, 2007

HD DVD says “I’m not dead yet!”

While I was never a huge Monty Python fan, I still enjoyed the British comedy troupe in small doses. After all, who could forget the infamous exchange from Monty Python and the Holy Grail: “Bring out your dead” and repost: “I’m not dead!”†

This week my MBA students are picking term projects and several have suggested the next-generation video format war, which pits Blu-ray (Sony, Panasonic, Samsung) vs. HD DVD (Toshiba, Microsoft). As a standards researcher, there’s nothing I like better than a good standards fight, but since Blockbuster dumped HD DVD two months ago, it looked like things were tipping to Blu-ray and the battle was all but over.

Now HD DVD has proven “I’m not dead yet!” It shows that when you’re behind in a standards war, there’s always something you can do. In this case, Toshiba and/or Microsoft bribed two major studios to switch sides. Here’s the new lineup:

  • HD DVD: Universal, Paramount, Dreamworks Animation
  • Blu-ray: Sony, Disney, Fox
  • Both: Time Warner, Paramount
The story is a little messy, because Dreamworks Animation is a public company still controlled by two of its billionaire founders (Katzenberg, and Geffen), but in 2005 they sold Dreamworks Pictures to Paramount. Also, pictures directed by Steven Spielberg (the “S” in SKG) are not exclusive to either format. Still, the announcement means that November’s release of the popular Shrek the Third will be exclusive to HD DVD (plus plain old DVD).

Of course, when you’re behind in a standards war, you have to do something or you’ll get wiped out. The NY Times quoted anonymous executives of Viacom (parent of Paramount) as saying that the HD DVD group was paying $150 million for the switch. It’s not a huge risk, because that the exclusive was promised only for 18 months (according to the NY Times), just long enough for two Christmas seasons.

Uncertainty is bad for Hollywood, which has long memories of VHS vs. Beta. However, the HD DVD camp is pushing down prices of players — at $150-200 less than Blu-ray — which is likely to fuel adoption. The stakes are more than just players. Sony is pushing Blu-ray in its PS3, while Microsoft’s Xbox 360 includes a HD DVD player. One estimate said 90% of the Blu-ray movies are being played on the PS3.

HD DVD buyers still have the legitimate fear of becoming (as economist Paul David put it in a 1987 paper) an “angry orphan.” Given this, consumers may be willing to risk $200 on a player but not more money on a large library of content — ideal for the rental market, except that Blockbuster is exclusively Blu-Ray. Netflix is quietly supporting both HD DVD and Blu-ray, but it’s not like they’re promoting either one. Would winning over Hollywood Video be enough to matter? If I were Microsoft (or Toshiba), I’d offer a joint promotion with Hollywood Video to mail introductory coupons to affluent neighborhoods near any Hollywood store that carries HD DVD.

† For the past 30 years, I’ve heard it quoted as “I’m not dead yet!” but the “yet” is clearly missing from the original.

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