High Definition Optical Disc Format War - Deciding Factors - Studio, Distributor Alliances

Studio, Distributor Alliances

Studio alliances shifted over time. Before October 2005 and the release of either format, each had the exclusive support of three of the Big Six. HD DVD had Universal Studios, Paramount Pictures, and Warner Brothers Pictures, while Blu-ray Disc started out with Columbia Pictures, Walt Disney Pictures, and 20th Century Fox. Disney and Fox were both impressed by the extra DRM (BD+ and region coding) that the Blu-ray Disc format provided on paper (actually, BD+ and region coding were both cracked in their first year). Then HD DVD supporters Warner Bros. and Paramount added support for Blu-ray. But in August 2007, after supporting Blu-ray for over a year, Paramount announced it would release all high-definition content (except titles directed by Steven Spielberg) exclusively on HD DVD. At the same time, DreamWorks Animation SKG, which had not released any high-definition discs, announced it would release exclusively on HD DVD. Explaining their decisions, the companies cited perceived advantages to HD DVD's technology and lower manufacturing costs. The companies together received about $150 million in cash and promotional guarantees, including a Toshiba HD DVD marketing campaign with a tie-in to Shrek the Third.

By August 2007, HD DVD appeared to have a modicum of fight left in it, as it was seeing its highest sales (though still substantially lower than Blu-ray), had support from major big-box retailers such as Wal-Mart due to low prices, and had the exclusive support of studios such as Paramount Pictures, DreamWorks SKG/Animation, Universal Studios and several Indie film studios. The format also had non-exclusive though favorable support (through occasional HD DVD exclusive titles) from Warner Bros., the largest home video releaser.

The fatal blow came on January 4, 2008 when Warner Bros., which has the largest market share of DVDs, announced plans to drop HD DVD support completely as of the beginning of June 2008. At the Consumer Electronics Show in Las Vegas, some HD DVD-related events and private meetings with analysts and retailers were canceled, including an event scheduled for the eve of the show sponsored by the North American HD DVD Promotional Group. Toshiba management expressed disappointment over Warner's decision but said that Toshiba would continue promoting the competing format. The following Monday, Toshiba reduced the price of its HD DVD players by 40 to 50 percent, calling price a "deal breaker for the mainstream consumer". At the time, analyst Roger Kay of Endpoint Technologies Associates likened the price cut to the high-stakes Blackjack bet of "doubling down" in an effort to increase market share and "win back the studios". Richard Greenfield of Pali Capital called the move a gimmick and predicted that HD DVD would not become widely adopted. Gartner analyst Hiroyuki Shimizu predicted that while the price cut might extend HD DVD's life somewhat, the limited title library would ultimately "inflict fatal damage on the format", leaving Blu-ray the victor by the end of 2008.

Warner Bros.' sister studio New Line Cinema followed suit, canceling tentative plans to release titles on HD DVD. Other small studios and producers moving exclusively to Blu-ray included National Geographic Society, Constantin Film, and Digital Playground.

Warner's move also caused a chain reaction among DVD distributors, most prominently in the form of Wal-Mart's February 15, 2008 decision to phase HD DVD out completely by June 2008. Wal-Mart is the largest DVD retailer in the United States, and its decision prompted the New York Times to run a mock obituary for the HD DVD format. The newspaper quoted technology analyst Rob Enderle's contention that if Wal-Mart "says HD DVD is done, you can take that as a fact." Four days earlier, Best Buy began recommending Blu-ray Disc as the customer's digital format choice, and Netflix, the largest online video rental service, began phasing out its HD DVD inventory after stocking both formats since early 2006.

These shifts were preceded by Blockbuster, the largest U.S. movie rental company, which in June 2007 had moved to Blu-ray exclusively in 1450 stores after test-marketing both formats at 250 stores and finding that more than 70% of high definition rentals were Blu-ray discs. In July 2007, Target Corporation, began carrying only Blu-ray standalone players in its stores, promoting them with end cap displays featuring Blu-ray Disc movies from Sony and Disney. In January 2008, UK retailer Woolworths Group plc said it would stock only Blu-ray discs in its 820 stores beginning in March 2008.

Read more about this topic:  High Definition Optical Disc Format War, Deciding Factors

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Famous quotes containing the word alliances:

    An alliance is like a chain. It is not made stronger by adding weak links to it. A great power like the United States gains no advantage and it loses prestige by offering, indeed peddling, its alliances to all and sundry. An alliance should be hard diplomatic currency, valuable and hard to get, and not inflationary paper from the mimeograph machine in the State Department.
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