Studios Choose Sides In DVD War

Nov 27, 2006  •  Post A Comment

By David Goetzl

Special to TelevisionWeek

Normally, word that a television series is coming out on DVD wouldn’t cause much hype. But Warner Home Video’s mid-October announcement about “Smallville” created a publicity storm, with some observers saying the event signals a new, potentially lucrative era for studios.

“Smallville’s” fifth season will be the first TV show released as a high-definition DVD, coming out Nov. 28 in the Toshiba-backed HD-DVD format. Warner also plans to make the drama available on Blu-ray-the competing format championed by Sony-though it hasn’t set a release date.

HBO Video had hoped to break the ice this fall by releasing season six of “The Sopranos” on HD-DVD and later Blu-ray, but production issues caused a delay.

The two HD formats are locked in a battle to become the industry standard for the next generation of DVDs.

Corporate siblings Warner and HBO are making their series available on both formats, but other studios, including 20th Century Fox and Universal, are playing favorites, choosing to go with one or the other.

While overall DVD revenues have slowed recently, studios are counting on high-definition DVDs to reinvigorate the business. And sales of TV series in the new formats look to be a primary growth driver.

In recent years, sales of TV DVDs have soared, giving studios a robust new revenue stream. Growth is on target for a 16 percent jump this year on top of a 15 percent gain in 2005, according to Nielsen VideoScan.

Now with HDTV adoption spreading, those revenues could accelerate even more if consumers hunger for TV shows in hi-def to take advantage of their cutting-edge sets.

“The consumer appetite and interest in collecting TV series is strong and growing,” said Rosemary Markson, VP of TV marketing for Warner Home Video. “High-definition formats are a logical extension for future growth, particularly given that many current TV DVD buyers are early adopters to new technology in general and HD television specifically.”

So far, however, studios have been reluctant to release TV series in high definition, preferring to focus on the slow-growth movie business.

Aside from the recognized benefits of HDTV-a wider screen, enhanced sound and pristine picture quality-the high-definition DVDs have greater storage capacity, allowing for up to five times more content in the case of Blu-ray and three times for HD-DVD.

Warner is taking advantage with “Smallville” to offer bonus features such as a documentary about the making of the first episode that’s not available on the standard DVD. The HD version costs about $30 more.

The high-definition DVDs also allow for groundbreaking interactivity. Viewers can access a menu-perhaps to select a different camera angle-without having to pause. And they can listen to commentary from actors or directors via a picture-in-picture setup while the show plays on.

Still, a mass craving could be a long way off, as the HD-DVD and Blu-ray formats offer competing-and incompatible-options. The hardware-a high-definition DVD player-can play only one type, and consumers may be reluctant to spend hundreds of dollars for a device that would leave them unable to watch films or TV series in the other format.

A new survey from CNET and the Consumer Electronics Association shows 81 percent of “tech enthusiasts” are uncertain about which format will emerge as the market leader.

“We’re really talking about the early adopter who is contemplating the decision on either of them,” said Bruce Leichtman, who heads the Leichtman Research Group.

As of September, five months after HD-DVD players came onto the market, only 30,000 U.S. homes had the device. Figures for the Blu-ray devices, released two months later, weren’t available.

Potential Format War

Wall Street analysts offer mixed signals about the impact high-definition DVDs will have on studios’ bottom lines. Credit Suisse’s William Drewry wrote that the category is “still a question mark,” though Hollywood executives are optimistic it will lead to dynamic sales by the end of next year. But Pali Research’s Richard Greenfield wrote the next generation is “not going to materially impact” revenues in 2007.

A potential game-changer could arrive next month, widening the appeal of hi-def DVD among the young male segment interested in trailblazing technology. In the next chapter of the rivalry between Sony and Microsoft over their respective gaming consoles, the devices coming in November will enter the Blu-ray-versus-HD-DVD fray.

Not surprising, since Blu-ray and PlayStation are part of the Sony empire, the much-hyped new PS3 will allow users to watch only Blu-ray videos. Microsoft’s Xbox 360 is already on the market, but will release an external drive allowing users to play HD-DVD content exclusively.

A heated marketing battle will ensue as Sony has promised to give the first 500,000 PS3 buyers a free copy of Sony Pictures’ “Talladega Nights: The Ballad of Ricky Bobby” in Blu-ray. And Microsoft will offer Universal’s “King Kong” for a limited time in HD-DVD.

There has been speculation that Toshiba and Sony would reach a settlement to avoid a war similar to the one that took place between VHS and Beta in the 1980s. But the two companies now seem to be digging in their heels.

“You’re going to see both formats in the market for a long time,” said Ted Schadler, an analyst with Forrester Research. “The established cultures of both companies don’t make it easy for either side to give up, and it’s going to be a war of attrition.”

Nevertheless, Mr. Schadler wrote that Blu-ray would ultimately become the standard for the next decade, in part because both sides have tried to sign up as many studios as possible to offer their content exclusively-and Blu-ray has a leg up. Credit Suisse’s Mr. Drewry wrote that among Hollywood executives the “consensus” is Blu-ray will win “the format war.”

Disney, Sony Pictures, 20th Century Fox, MGM and Lionsgate will release only in Blu-ray. Universal is the only major studio to commit solely to HD-DVD. Paramount and Warner Bros. are each using both formats.

While “Smallville” will stand out as the first TV series, film releases in the two formats are expanding rapidly, with some 150 HD-DVD titles and 117 in Blu-ray expected by the end of the year. Six of the 10 top-selling high-definition releases since June have been in HD-DVD, but two of the top three are in Blu-ray, according to Nielsen VideoScan. June is an important starting point because it marked the first time both Blu-ray and HD-DVD players were available in the U.S.

“Granted, we’re still ramping up production, but the demand and the feedback have been overwhelmingly positive,” said Ken Graffeo, executive VP of Universal Studios Home Entertainment.