Commentary: A War of Hype, and Paramount's Big Bombshell

Posted Fri Aug 31, 2007 at 01:57 PM PDT by

Editor's Note: A long-time movie buff and collector of discs from laserdisc to DVD, Joshua Zyber is a staff reviewer at DVDTalk, and an enthusiastic supporter of all things High Definition. In his twice-monthly High-Def Digest column, Josh discusses a broad range of topics of interest to other early adopters.

By Joshua Zyber

As most readers of this site are by now well aware, the High Definition format war got a whole lot more interesting on Monday, August 20th, 2007. Surprising just about everyone, including many within their own company, Paramount Home Entertainment announced that effective immediately the studio would be dropping support for Blu-ray and releasing High Definition titles exclusively on the HD DVD format. As has been widely reported, this means that some major summer blockbusters including 'Transformers' and 'Shrek the Third' (Paramount also distributes Dreamworks titles) that were hotly-anticipated as future Blu-ray releases will now come out only on HD DVD.

The impact of this cannot be overstated, and goes far beyond a couple of hit movies. In fact, it may just be the single biggest and most shocking development to happen in the format war to date. Prior to this point, Paramount was, alongside Warner Bros., one of the chief proponents of format neutrality, and had released discs equally on both sides. By kicking Blu-ray to the curb, as it were, a major studio with a huge catalog of desirable titles ('The Godfather' trilogy, 'Braveheart', 'Grease', and the entire 'Star Trek' franchise among them) has effectively issued a vote of no confidence for the future prospects of the format.

Making this news all the more startling is the fact that it came despite many recent reports that Blu-ray discs had been outselling HD DVD by a 2:1 margin. Why, in the midst of numerous proclamations that Blu-ray had all but locked up the win in this horse race, would a major studio change its strategy and side exclusively with the "losing" format? If they're already selling more Blu-rays than HD DVDs, aren't they "leaving money on the table," so to speak, by dropping Blu-ray? Industry and web pundits have been abuzz with theories about Paramount's motivations, the most popular being that they were paid off to the tune of up to $150 million, an allegation reported by no less than the venerable New York Times. For their own part, in an interview with Chief Technology Officer Alan Bell, Paramount has cited "manufacturability, the reliability of players, the cost, [and] the infrastructure that's developed to support our creation of titles" as the primary factors behind their decision.

Could these factors really outweigh the widely acknowledged sales advantage that Blu-ray software currently holds over HD DVD? What's really going on here? To get to the heart of this matter we need to cut through all the hype, spin, and outright misinformation that has perpetuated since the start of this format war. We need to take a hard look at that credited 2:1 sales ratio and analyze what it really means in practical terms to the companies involved.

An Important Disclaimer

It seems that any article related to the High Definition format war will inevitably be picked apart and scrutinized for signs for bias (not without good reason in many cases), so before we go any further, I feel that I should address my own position in all of this. I've been covering both High-Def formats since each debuted, and have been described as biased towards HD DVD by some Blu-ray fans, mostly because I gave favorable ratings to early HD DVD hardware and discs, and negative marks to early Blu-ray equipment and software (apparently, the fact that Blu-ray really did have serious quality issues at its start doesn't matter to some people). The less-polite among them have called me a "shill" when it was in the interest of their own arguments to do so. I want to clear that up right now.

Unlike some supposedly objective editorialists covering the format war, I have never received any financial compensation or lucrative gifts from any party on either side of the issue. If offered such, I would reject it to avoid the conflict of interest or appearance of impropriety. I am currently on my second disc player for each format, all of which were purchased immediately upon release and paid for out of my own pocket. I have not attended any lavish Las Vegas parties thrown in my honor by the backers of one format or the other, nor do I write articles (paid or otherwise) for the official promotional web sites on either side. I have no ties to any corporation that would in any way influence my writing on the topic. My opinions are strictly my own, based on my own observations and experience.

I should also note that I have no insider knowledge into the business decisions of the companies discussed here. Everything I say in this article is based on publicly available information.

I am not a format fanboy, or a corporate shill. What I really am is a High Definition fan, so much so that I've gotten to the point where I can no longer watch standard DVDs, finding them blurry to the point of giving me a headache from straining to see detail that isn't there. I want every movie I watch to be in High Definition, mastered in the best quality presentation possible. Whichever format will deliver that to me makes me happy. I don't care whether a movie I like is released on Blu-ray or HD DVD, because I can play both discs.

That said, it's true that I was critical of Blu-ray early on. The fact is that HD DVD launched out of the gate with a more polished and impressive product than Blu-ray did, and at half the price. Over time (I'd like to think due to pressure from both buyers and critics like myself), the Blu-ray manufacturers and studios eventually cleaned up their acts, greatly improving their quality and at least somewhat bringing down their prices. Technical specifications aside, in actual practice the two formats are essentially indistinguishable today, and I consider that a big victory for both. As I said, all I want are great-looking High Definition movies, whatever it takes to get them. Nonetheless, I will still call things as I see them, and to that end I remain greatly annoyed by Blu-ray's lack of interactive features, seeming inability to finalize their format specs, and still exorbitant hardware pricing. At the same time, I am equally frustrated by HD DVD's continual problems with compatibility between Combo-format discs and HD DVD players. Neither format is perfect, but at their best both offer an amazing home theater experience. At less than their best, I have no hesitation about criticizing either one for their mistakes.

That's where I stand.

As I Was Saying…

With all that out of the way, let's look at some real numbers. For months now, we've been inundated with press releases trumpeting the 2:1 sales gap between Blu-ray and HD DVD, but until recently none of them offered the actual number of units sold. We were given ratios and percentages, all of which sounded pretty damning for HD DVD's chances of survival, but had no real figures to back them up. It wasn't until a couple of weeks ago that Home Media Research provided actual sales numbers for the first half of 2007. In that announcement we learned that sales of Blu-ray discs for the first six months of 2007 totaled 1.6 million units, compared with 795,000 HD DVD discs sold in the same time frame.

Indeed, that's twice as many Blu-ray sales as HD DVD. Doesn't that just about wrap up this format war?

Not so fast. The sales lead only sounds impressive when taken out of context. To put those numbers into perspective, during its first week of release alone, the Standard-Def DVD edition of '300' sold 5.10 million copies. That's one single movie on DVD, during just one week of release, moving more than twice as many units as all Blu-rays and HD DVDs combined could manage in 6 months. In fact, that lone DVD in its first week significantly outsold the grand total of all High-Def media from inception in early 2006 to date (3.7 million in all). That's an astounding disparity, and it has only grown in subsequent weeks of that disc's sales life.

Let there be no confusion on this point. DVD is where the studios make their money. High Definition media amounts to barely a blip on the DVD sales radar. Bragging that Blu-ray has outsold HD DVD 2:1 at these volumes is like boasting that an ant is larger than a flea, just before the big shoe of DVD comes down to smoosh them both into oblivion.

These formats are going to have to start moving DVD-sized sales before either one can be called a success, and that isn't going to happen anytime soon. A year into their lives, both are still in their infancy. Another thing you won't read in a Blu-ray Disc Association press release is that Blu-ray is a lot more expensive for the studios than HD DVD. The development costs are higher, the authoring and manufacturing costs are higher, and the licensing fees are higher. If the discs were selling in DVD-sized volumes, none of those problems would be significant, but that isn't happening. We have to consider the possibility that, despite selling more Blu-rays than HD DVDs, at the volumes we're talking about Paramount may have actually been losing more money on Blu-ray than they were losing on HD DVD. Wouldn't that be a kick in the head? Now, that's merely speculation on my part. No hard numbers on that have been released, but Alan Bell's comments above about "manufacturability, the reliability of players, the cost, [and] the infrastructure that's developed to support our creation of titles" sure seem to hint to that effect.

In any case, this notion that Paramount is "leaving money on the table" by dumping Blu-ray is clearly false. If anything, they're letting go of one failing aspect of their business and hoping for the best from another.

A Big Payday?

And what of the claims that Microsoft and/or Toshiba offered Paramount a $150 million incentive package to drop Blu-ray? A public relations firm employed by BDA member Sony has reportedly been making hay of this story in an (arguably successful) attempt to undermine the public perception of Paramount's decision. Microsoft denies participating in anything of the sort, and none of the other companies involved have officially acknowledged such a package, but for the sake of argument let's say that it's true and there was some sort of compensation involved.

Frankly, who cares? It's a business deal. They happen every day, and I find it tremendously hypocritical to denounce Paramount for accepting an incentive package from the HD DVD camp without considering the possibility that at least one of the Blu-ray studios may have done the same at the start of the format war. For the record, when directly confronted with the question this week, Fox, MGM, and Sony each denied that any "sweeteners" influenced their decisions, while Disney would only issue a mysterious "No comment" statement.

So consider this: Disney has long claimed that interactivity was one of their biggest concerns in choosing a High-Def disc format, even to the extent of actively participating in the design of the HDi specification used in HD DVD. Yet despite that, they release titles exclusively on the competing format that currently still can't implement simple picture-in-picture functionality and is at least a year and a half behind HD DVD's progress in the area Disney claims is of critical importance to them. Early last year, CEO Robert Iger stated that the company would "probably publish in both formats", yet that never came to pass.

Where was the outrage last year when the Blu-ray exclusive studios declined format neutrality? Would it have been considered scandalous if Paramount had chosen Blu-ray exclusivity last week rather than HD DVD?

Likewise, when Sony recently locked down a promotional arrangement with Target, in which the manufacturer will pay for an endcap display in Target stores and the national retailer will not carry any other stand-alone High-Def disc players, where were the cries of "payoff" then? Aren't consumer choices being limited to further a corporate agenda?

Business is business. Whether Paramount or any of the studios are really receiving anything in return for supporting their chosen formats, I can't say, but transactions of this nature happen all the time between huge multi-national corporations. There's nothing illegal or unethical about them. Let's not kid ourselves into believing that companies in the BDA haven't tried to entice Warner and Universal into dumping HD DVD and going Blu-ray exclusive with similar offers; Personally, I have no doubt that they're continuing to do so right at this very minute.

The Future Is Not Set. There Is No Fate But What We Make for Ourselves.

Considering the real facts of the matter, presumptions that the High-Def format war could be won by either side anytime soon were seriously misguided. The truth is that both Blu-ray and HD DVD are losing the real battle, which is to supplant DVD as the next mainstream optical disc standard. They're just losing it to different degrees.

But we're still very early in the game. Releasing movies on High Definition media is an investment in future potential. Everyone involved is betting that there will eventually be real money to be made from one format or both. In making the decision of which to support, a company like Paramount must weigh not just current sales results (which are still insignificant at present volumes), but also the long-term business strategies on both sides.

According to their August 20th announcement, Paramount believes that HD DVD has more potential for growth. Why might they feel that way? For one thing, the Blu-ray format has based a large part of its sales plan around the Playstation 3, which is by far the best selling and most popular Blu-ray playback device on the market. Unfortunately, the PS3 hasn't met expectations in the video game arena, trailing behind the XBox 360 and Nintendo Wii in popularity among gamers. While there are enough PS3 consoles in active use right now to lead to the 2:1 disc sales advantage over HD DVD as discussed above, perhaps Paramount doesn't feel that this is a sustainable business model. HD DVD has consistently sold more dedicated stand-alone disc players than Blu-ray, and stand-alone players have a much higher attach rate of discs sold (PS3 owners are more likely to buy the unit for games than for Blu-ray movies). Taking the long view, if this trend continues, HD DVD could have a growth surge that eventually surpasses Blu-ray.

The BDA has been using all the muscle of their promotional machine to maintain the perception of winning the format war, expecting that hype will eventually become reality. In truth, all they've managed to gain so far is a larger slice of a tiny pie, which wins them nothing more than temporary bragging rights. Has either side made a real profit yet?

What Am I Getting At?

If the tone of this article seems overly negative or critical of Blu-ray, note that I am making no judgments about one format being superior to the other, nor am I predicting which of the two will eventually win out over the other, if that should happen at all. As I explained earlier, I own both formats, and I just want movies in High Definition, however I can get them.

All I hope is to present an alternate viewpoint to the widely held presumption that prior to Paramount's announcement, Blu-ray had all but locked up their victory in this format war, a notion I don't believe is supported by the facts. Are there opposing perspectives on last week's events? Of course there are, and no doubt you're hearing them loud and clear all over the web. Hysteria over the format war has reached a fever pitch, with fans of both sides treating the spectacle like a sports rivalry, each hoping for the utter domination of their team over the other. This isn't helped at all by the media, crawling as it is with pundits weighing in with ill-informed opinions based on misleading statistics, each screaming louder than the next to make their sound bite heard over the din.

I think it's time we all took a step back and tried to look at this from a more balanced perspective. If the video game market can survive with multiple formats, each offering their own exclusive releases, how is the High Definition market any different? Personally, I foresee both HD DVD and Blu-ray coexisting for a long time, and potentially both thriving. If competition between the two formats continues to result in improved quality, lower prices, and a steady stream of movies in High Definition, that's a good thing in my book.

Should anyone still think that I'm playing favorites, know that my next column will take aim at HD DVD for their many Combo disc compatibility problems, which aggravate me to no end.

That's my take. I'd like to hear what you think. Join us in the forums to discuss this topic further.

Josh Zyber's opinions are his own and do not necessarily reflect those of this site, its owners or employees. To view a complete collection of Josh's commentaries for High-Def Digest, click here.

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