Warners sides with Blu-ray in high-def battle

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UPDATED Sunday, Jan. 6, 2008 3:45 a.m.

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Warner Home Video is casting its lot exclusively with the Blu-ray Disc format, delivering what could be an eventual death blow to HD DVD.

The move, which had been widely expected and publicly denied, came Friday on the eve of the Consumer Electronics Show, where both next-generation disc formats have big presentations on the agenda.

Warner -- with a market share of more than 20%, the biggest Hollywood player in the home entertainment industry -- had been the last remaining major studio to release titles in both Blu-ray Disc and HD DVD.

The decision to ditch HD DVD after May gives Blu-ray a decided advantage since the format now enjoys the exclusive support of four of the six major studios -- WB, Disney, Sony and Fox -- as well as the smaller MGM and Lionsgate.

The move also mitigates any momentum HD DVD might have gained in the fall when Paramount, along with DreamWorks and DreamWorks Animation, abandoned the dual-format strategy and began releasing titles only in HD DVD, as Universal already had been doing. After that, the format war everyone expected to end appeared to be headed toward a stalemate.

Subsequently, at the Blu-ray Disc Festival in Hollywood, a Warner executive said the studio would re-evaluate its dual-format strategy at the end of the fourth quarter and, after monitoring sales, throw its support behind only one.

That was a departure from the policy set forth by former Time Warner CEO Richard Parsons, who had been telling Wall Street that he was happy to issue content in both formats until the marketplace dictated otherwise.

Executives from Universal had no comment.

WB execs said Friday that the decision to go exclusively with Blu-ray was based on two considerations: more demand for Blu-ray compared with HD DVD and a desire to help usher an end to a format war.

"The window of opportunity for high-definition DVD could be missed if format confusion continues to linger," WB chairman and CEO Barry Meyer said.

WB said it will pull the plug on HD DVD gradually, issuing titles on HD DVD "after a short window following their standard DVD and Blu-ray releases," then discontinue HD DVD entirely come May. Executives wouldn't say Friday exactly how many days that window would be.

While Warner in the past has said its dual-format strategy allows it to maximize sales in the nascent HD media market, consumer confusion ultimately became the bigger issue.

"We want mass adoption," said Kevin Tsujihara, president of the Warner Bros. Home Entertainment Group. "At this point, we believe the highest probability of success is with one format."

Tsujihara said that, on titles that WB was selling in both Blu-ray and HD DVD formats, Blu-ray was outselling its rival 6-to-4.

When Paramount and DreamWorks abruptly ended their support for Blu-ray last year, it was leaked that a $150 million incentive payment was a deciding factor. Tsujihara, while vague, said that WB's decision wasn't based on such a consideration.

"This is too important," Tsujihara said. "This wasn't a bidding war. It was really about us being very clear about what the best strategic choice was for us -- and the industry, quite frankly."

Some observers were predicting that WB's decision would put an end to HD DVD as early as this year.

"A Warner Blu-ray shift will kill off HD DVD within six to nine months," Pali Research analyst Richard Greenfield told clients Friday.

With DVD sales falling to $15.7 billion in 2007, nearly 5% lower than in the previous year, according to Adams Media Research, WB has more incentive than other studios to hasten an end to the format war because it relies more on catalog titles than its competitors, Greenfield said.

Tsujihara, in fact, acknowledged that DVD sales in the fourth quarter were disappointing because too many consumers were holding off even buying standard-definition DVDs, waiting instead to upgrade to next-generation discs once the format battle was settled.

Tsujihara added that he doesn't expect an end to the format war would encourage consumers to replace their standard-DVD collections entirely with Blu-ray, but sales of certain titles should pick up significantly.

"There will be a percentage of movies people will upgrade. The classics in their libraries, they'll want to see in high definition," he said.

According to Nielsen VideoScan, 64% of all high-definition discs purchased by consumers last year were Blu-ray. Plus, insiders said that as of two months ago, there were 2.7 million Blu-ray players in U.S. homes compared with only 750,000 HD DVD players.

Internationally, Tsujihara said, Blu-ray has a 75% market share in the U.K. and a 90% share in Japan.

Toshiba, a prime HD DVD backer, said Friday that it was surprised at WB's decision, given "the fact (that) there are various contracts in place between our companies concerning the support of HD DVD."

"We will assess the potential impact of this announcement with the other HD DVD partner companies and evaluate potential next steps," the company said.
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