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The End of the Blu-ray/HD-DVD War August 26, 2007 Alan Dang |
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Summary: Think Paramount's exclusive jump to HD-DVD is forecasting a prolonged HD-DVD vs. Blu-ray war? Hardly. The end is near!
 Introduction | Page:: ( 1 / 7 ) |
A week ago, it looked as if Blu-ray was going to be the winner of the HD battle. The momentum of Blu-ray was increasing with Blu-ray movies such as 300 outselling the HD-DVD counterpart by almost 2:1. In fact, one week ago, Universal remained the only HD-DVD exclusive studio. If you were interested in movies from every other major studio, Blu-ray was the smart choice. It would only be a matter of time before Universal caved in and went dual-format and Blu-ray’s victory was imminent.
On August 20, 2007, Paramount and Dreamworks Pictures changed the course of the war. After being a format neutral studio in the last year, Paramount elected to switch to HD-DVD exclusively for an 18 month period. Those looking to get Transformers in high-definition or any movie from Paramount Pictures, DreamWorks Pictures, Paramount Vantage, Nickelodeon Movies, and MTV Films, and Dreamworks Animation would now need to go to the HD DVD camp; Steven Spielberg’s movies being the sole exception. The New York Times has since reported that Paramount’s and DreamWorks Animation’s decision was driven by $150 million of financial incentives.
While most of the commentary has focused on the possibility of a prolonged battle between the HD DVD and Blu-ray camps, Paramount’s decision to go HD DVD exclusive has the best chance of ending this battle once-and-for-all.
Think I’m crazy? I am crazy… crazy like a fox.
But it’s complicated…
SIDEBAR: I’ve also been hungry like the wolf.
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During the first year of the HD-DVD and Blu-ray war, it was not uncommon to hear that people were waiting for the dust to settle. In the meantime, people would stick with DVD, which one of my friend’s has called “The Look and Sound of Good Enough.” Although my friend’s frustration is with the mercurial nature of the high-def world, it’s not uncommon to hear people claim that upsampled DVDs are “almost as good” as these new high-def formats. These claims typically come from people who don’t own Blu-ray or HD-DVD players. The simple fact is that today’s HD-DVDs and Blu-ray discs offer a substantial improvement over their DVD counterparts. Just check out these actual screenshots of 1080p movies:
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You don’t even need A/B comparisons to see how sharp these images are in comparison to DVD.
Like the “Microsoft Office Dilemma,” the problem is that DVD offers “good enough” quality for many users. The studios and hardware manufacturers will all lose unless they can generate consumer demand for the new hardware and software. In contrast to the DVD-Audio and SACD battle, where the benefit of the new technology required ultra-high-end equipment (i.e. speakers, amplifier, etc.), or the battle between Vizio and traditional LCD TV manufacturers, the benefits of high-definition video are more obvious with today’s high-resolution large panel displays. With 1080p LCD TV’s starting below $1k and 65” being the new 32”, it no longer takes a dot com success story to be someone with enough money to buy a TV capable of benefiting from the new high-definition discs.
Before August 20, unless you were actually an owner of HD-DVD or Blu-ray, there just wasn’t any mainstream interest in the high-definition video format battle. When HD-DVD first launched, the focus was on the impending threat of Blu-ray and the 90-second boot time. When the first Blu-ray player finally arrived, design flaws and poorly encoded discs meant similarly long boot times and blurry images. Neither format had a particularly strong start.
Things are different now. Today’s HD-DVD players offer excellent value and performance while the PlayStation3 has quickly become of the best Blu-ray players (and CD and DVD players for that matter) and today’s high-bitrate MPEG-4 AVC encoded movies offer amazing picture quality. Importantly, all of this increased attention is coming at a time when 1080p televisions are more popular; in September 2006, 49% of new TV’s sold were 1080p.
With Paramount’s announcement, the press buzz around the high-definition battle has been renewed. This is a reboot for the HD-DVD and Blu-ray, but more consumers actually care about the battle given cheaper players and cheaper 1080p TVs. If the industry wanted an opportunity to recruit more consumers to the high-definition world, they couldn’t have asked for a better set of circumstances. Controversy always delivers interest.
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Before I go on with the rest of the analysis, it’s important to take a moment to talk about the perceived strengths and weakness of the Blu-ray and HD-DVD formats from a technical standpoint. The short summary? HD-DVD was designed to be a pragmatic real-world solution. Blu-ray was designed as a legacy-free clean-slate solution.
One of the misconceptions is that the actual data contained on a HD-DVD and Blu-ray is the same – after all, they both support MPEG-2, VC-1, and MPEG-4 AVC technologies. Things are a little different. The difference between HD-DVD and Blu-ray is bandwidth. A Blu-ray disc can support bitrates of 48Mb/sec (40Mb/sec dedicated to video) while a HD-DVD disc can only support bitrates of 30.24 Mb/sec (29.4 Mb/sec dedicated to video). For any given CODEC, Blu-ray theoretically offers higher potential performance. Current Blu-ray discs are either 25GB or 50GB whereas the majority of HD-DVD discs are dual-layer 30GB discs. The theoretical limit of HD-DVD is 60GB whereas Blu-ray can theoretically reach 200GB. In the lab, Blu-ray discs supporting 200GB of data have been manufactured whereas lab-sample HD-DVDs have only reached 51GB.
But there is always a trade-off. HD-DVD uses a format very similar to DVD. There is a 0.6mm surface layer and a 0.6mm base layer. This is identical to DVD’s design which means that DVD factories can easily be converted to HD-DVD production. In contrast, Blu-ray has a 1.2mm base layer and a 0.1mm hardcoat. This is what makes Blu-ray’s increased capacity possible – but it also means that you need to spend more money dedicated Blu-ray manufacturing plants. In the long-run, it’s all the same but in the short term, Blu-ray discs are more expensive to manufacture and it’s the studio that is taking the bulk of the financial hit.
The other difference is mandatory features. Blu-ray players manufactured later this Fall and Blu-ray players manufactured earlier have a different set of “minimum specifications.” This hasn’t been an issue with HD-DVD. HD-DVD players guarantee network connectivity and picture-in-picture support – this is optional for Blu-ray. On the other hand, many Blu-ray players feature 1080p/24 support – owners of HD-DVDs are still awaiting the firmware upgrade that will bring this feature to the table.
BD-J vs Advanced Navigation
HD-DVD uses iHD/HDi/Advanced Navigation (three names for the same thing) to do the fancy interactive features. This is based around XML and Javascript/Microsoft .NET. It’s incredibly efficient when it comes to hardware resources and is very straightforward to program. Efficiency means faster performance for a given hardware spec.
BD-Java is Java, or specifically the Global Executable Media Home Protocol (GEM). This offers developers more flexibility to work with interactive tools. Importantly, since GEM-based standards are also in play for global digital TV standards (DVB, ACAP/ATSC, and OpenCable), special features on a Blu-ray disc programmed in BD-J could theoretically be ported over to broadcast digital TV with relative ease (for the day that we actually transition to downloadable content).
BD-J is more flexible but it’s general purpose nature means that it’ll result in higher development costs. Likewise, it also requires more powerful computational resources to be featured in each machine.
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BD+, ROM-Mark, Region Coding
Blu-ray’s final trump card over HD DVD is BD+ and region coding. Both Blu-ray and HD-DVD incorporate AACS for the core of the data encryption. Unsurprisingly, this has been broken. Although Sony has taken a lot of flak for their rootkits, the Blu-ray Disc Association has really beefed up security with BD+.
BD+ is pretty cool technology. Essentially, BD+ provides a mechanism for the Blu-ray disc to take control over the player. Once the Blu-ray player is under the control of the movie, three things can happen.
- Transform code
- Basic countermeasures
- Advanced countermeasures
Right now, the data on a Blu-ray or HD-DVD AACS is encrypted. Break AACS and you get access to the raw MPEG-2, VC-1, or MPEG-4 AVC data. With BD+ you can encrypt the AACS-encrypted data with a second layer. This basically allows studios to use one-time pad style encryption, using a different key for each movie. This means you cannot create a “Blu-ray copy” utility – someone has to manually hack the virtual machine for each movie in the same way crackers have to crack software independently for each movie. Basic countermeasures include Xbox 360-like firmware checks and auto-authentication. Advanced countermeasures allow studios to program their own encryption algorithms (offering security by obfuscation, which works in this case because the goal is to make casual and commercial piracy annoying enough where it’s cheaper to buy the real thing).
ROM-Mark is a unique identifier on each commercially pressed disc that allows customs agents to identify where a pressed disc was manufactured. In theory, this will help curb commercial piracy and counterfeit production of copyrighted material. The goal is to make cracking this system financially costly to the point where.
Region coding is pretty annoying for any of us who enjoy import movies, but many studios continue to advocate for region coding. The idea is that for a big-budget movie, it will be possible to obtain more “investors” (producers), by preselling home video distribution rights to different companies in different regions of the world, creating an open market.
None of these features are designed for end-users, but they are designed to help. Are they perfect? No. But this gives Blu-ray the perceived advantage from a movie studio’s perspective, at least when it comes to preventing both commercial and casual piracy.
Does Paramount care about piracy?
Every studio cares about piracy. The problem is that HD-DVD and Blu-ray are still niche formats. To date, 3.7 million high definition discs have been sold. Even if I assumed that each studio made a $20 profit per disc, that’s only $74M total sales for all studios for an entire year. If the New York Times is correct and Paramount was offered a $150M deal to go HD-DVD, it’s a no-brainer decision.
Economics aside, Paramount’s CTO gave a lengthy interview with PC World on his reasons for choosing HD-DVD. Many of the comments are things we’ve already discussed: the players are more affordable, the specification standard is fixed with less concern for legacy issues, and the development costs are lower. At the moment, Paramount believes that 30GB should be enough for most movies and one of the driving factors is the ease of programming in HDi for interactivity over BD-Java. BD-Java requires someone who really understands object oriented programming; HDi just requires that someone be comfortable with a scripting language.
It’s cheaper to develop HD-DVD discs, the quality is still better than over-the-air 1080i ATSC HD broadcasts, and the reported $150M financial incentive (Paramount distributes Dreamworks movies for home formats) makes Paramount’s decision seem like the smart move.
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Spielberg’s Checkmate
It’s a no-brainer decision for Paramount to take the $150M incentive if one was offered to them. There’s just one glitch in all of this: the actors, screenwriters, and directors.
When you talk about the impact of the Hollywood elite such as Steven Spielberg, James Cameron, and Michael Bay or screenwriters such as Ted Elliot, Terry Rossio, and David Koeep, it’s important to realize that their salary is rarely paid upfront. Nowadays, the big push is moving toward a points-based system in which the reimbursement is a percentage of the profit. Studios expose themselves to less risk, and the truly talented individuals behind the movies get their fair share.
In addition to explicit contracts, there is also an automatic residual system that’s part of standard guild policies (i.e. WGAw, SAG, DGA). That is, if you’re a screenwriter who sells a script to a WGA signatory company, you’ll automatically get 5 cents for every DVD sold no matter how poorly you negotiated your contract; it’s part of a minimum basic agreement.
Paramount’s decision to go HD-DVD exclusive makes sense economically, but it introduces a new predicament. Over the last year, Blu-ray movies have been outselling HD DVD movies, in some cases nearly 2:1. This is to say that Paramout’s decision will result in less cash in the form of residuals and/or other performance-based sales.
Enter Spielberg.
Steven Spielberg is a director/producer in his own class. Although Paramount and Universal have both produced Steven Spielberg’s movies, and both are HD-DVD exclusive studios, Steven Spielberg has negotiated some sort of special deal exempting him from the HD-DVD and Blu-ray war. It’s brilliant, really. In this war, Spielberg is the arms dealer to both sides, free to support one or both formats, unencumbered by studio-level decisions. His first high-def movie, Close Encounters of the Third Kind, is coming to Blu-ray shortly.
The Paramount deal has created a new class division between Spielberg, the director who gets to pick and choose which high-definition formats to support on his own and everyone else who has to listen to what the studio wants. What about Clint Eastwood and his movies? What about Michael Bay and his movies? It’s not by random chance that Transformers ends up being a “fun popcorn flick.” It’s actually a reflection of a talented screenwriting team and a talented director. Is Paramount saying that Steven Spielberg is a better director than everyone else? Why doesn’t Michael Bay get to choose what format Transformers gets released on when it brings in $660 million worldwide and Spielberg’s most recent blockbuster, War of the Worlds, only did $590M worldwide?
Spielberg’s exception is sure to generate discussion among the tier-1 writers, actors, and directors. When you’re tier-1 talent, you command a hefty price-tag because you genuinely have an ability to do things that other people cannot replicate. If Spielberg was able to negotiate a contract that allows him control over which high-definition format his movies are on, don’t you think the other Tier-1 talent will attempt to do the same for their future movies?
Sure, Spielberg has had a much longer track record than Michael Bay, but what about James Cameron and Titanic? It turns out that Titanic was distributed by Paramount in the US and 20th Century Fox internationally? Could we see an “exclusive” HD-DVD version of Titanic from Paramount in the US and an “exclusive” Blu-ray version of Titanic in Japan, which oh-by-the-way, happens to have the same region code as the USA? Possibly. Unfortunately, that’s a unique case for Titanic. Although Paramount’s international divisions operate as independent subsidiaries, the HD-DVD decision is worldwide.
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Paramount’s decision to go HD-DVD exclusive makes sense from a economic standpoint, and their CTO has reiterated HDi’s simplicity as one of the driving factors. So what about everyone else?
Universal’s decision to go HD-DVD is driven in part by deals. Universal has financial incentives to create HD-DVD exclusive features such as the Xbox Live component for Heroes. Universal’s position is also highly strategic. In the beginning of August, Universal Home Video President Craig Kornblau noted that the HD-DVD and Blu-ray war has been “the very best thing that ever happened for consumers, retailers, and, frankly, studios" because it has driven prices down further and more quickly than expected (at the expense of consumer electronics manufacturers). In the beginning of August, Universal’s HD-DVD exclusivity was also done in the context that the HD-DVD format could fail entirely if Universal opted to release its movies in Blu-ray. Once players dropped to $200, Universal will finally decide which format to support. One of the big challenges is that Universal has had a lackluster theatrical season (in contrast to Paramount). With Paramount now carrying the torch for HD-DVD, only time will tell if Universal elects to go dual format in the near future. IGN has even reported on rumors that such as deal is in the works.
Warner Bros
Warner Bros. is pushing for dual-format releases. Not only do they get to talk about the moral high ground, they have the advantage of more sales. In fact, their TotalHD solution offers discs that can be played in both HD-DVD and Blu-ray players. If the other studios adopted TotalHD, the whole format war would be moot. Oh by the way, Warner owns the patent to TotalHD. If Blu-ray and HD-DVD somehow co-exist, Warner Bros will definitely see a lot of benefit, especially while combination players are still expensive.
20th Century Fox
Remember how I was talking about BD+ copy protection? The corporation that licenses BD+ is BD+ Technologies, LLC a joint venture between Matsushita Electric Industrial Co., Ltd., (i.e. Panasonic), Sony Corporation and Twentieth Century Fox Film Corporation. Fox is in it for the copy protection. Not only do they protect their own movies with the standard they developed, they get royalties from other studios too. Fox is unlikely to abandon Blu-ray – they value copy protection too much and also have an economic interest – it’s a one-two punch.
Disney
While Paramount and Universal have complained about the complexity of BD-Java versus HDi in doing simple navigation, Disney continues to up the ante with increasingly elaborate Java games (see Chicken Little and Pirates of the Caribbean 2). In fact, Disney is going on a national tour to hype up Blu-ray. Is Disney wasting their money on real programmers while Paramount and Universal get great interactivity with a lower budget? Hardly. Disney investment in BD-Java gaming is a good long-term strategy. Remember how as a kid you would want to buy the toys, lunch box, and cereal of your favorite cartoon? Disney’s highly interactive games on Blu-ray do the same thing. A high-quality BD-Java game on a Blu-ray disc is just one more way Disney can increase the potential of their merchandising revenue. It’s also important to realize that while many movies will have built-in games (300 being another), the target audience of Chicken Little is very different the target audience of 300 – interactive games are going to be less important in the latter group.
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The Paramount deal does a few things. While it increases uncertainty for consumers and changes the 7 against 1 studio battle to 5 against 3, it ups the ante to a whole new level.
- It provides new mainstream interest in high-definition formats, especially in an era when DVD remains the most significant threat to high-definition video. Yes, the war is being prolonged – but more consumers are actually informed about the format war and the benefits of these next-generation formats. This can only be a good thing.
- It places an increased pressure on consumer electronic manufacturers to pursue dual format players and/or cheaper Blu-ray players. Hopefully this will not occur by cutting corners resulting in sub-standard quality.
- It allows Paramount and DreamWorks Animation to pocket $150M. This ups the ante for the HD DVD, which up until last week, looked like it was losing momentum. Will the HD DVD group continue to have the resources to provide sufficient resources to keep studios exclusive to their format? Universal has already said that they have been approached by the Blu-ray camp financial incentives to join their camp. Will this deal cause the Blu-ray camp to raise their bet and offer a bigger deal to Universal? In the end, both Universal and Paramount have to answer to their shareholders…
- The Spielberg deal is also important. The Digital Bits has reported that “the deal contains ‘a lot of clauses which would allow us to release certain films on Blu-ray during this time-period.” The Spielberg films clearly fall into this category. Tier-1 directors or screenwriters who may otherwise have been oblivious to the Blu-ray and HD DVD format may now be able to negotiate for similar terms.
There’s no question that Paramount’s decision is a win for HD-DVD owners and a loss for Blu-ray owners. The real question is what Paramount’s decision means for everyone who’s currently on the sidelines. Everyone claims that the lay person will just buy the cheapest without any understanding of the HD-DVD or Blu-ray battle. For nearly a decade, I’ve written with a simple ethos: most people are actually pretty smart. HD-DVD will not magically win the war when players are less than $200 – you can already buy HD-DVD players (with 5 free movies) for $250. The war will end when dual format players are <$500 or when it’s clear that both formats will co-exist (i.e. studios go multi-format) or when it’s clear that one format will lose. The dual-format player is the most likely outcome and buying separate HD-DVD and Blu-ray players is currently $650. By Christmas, we’ll break that $500 barrier and that means by Spring 2008, we’ll see combi-players for <$300.
One week ago, the HD-DVD and Blu-ray battle was in a quagmire. Universal was unlikely to switch to Blu-ray given the financial incentives they were receiving, hardware manufacturers would be reluctant to develop dual-format hardware because HD-DVD was on its death bed, and even the consumers were waiting for Blu-ray to completely take over. There would be no end in sight. As long as the HD-DVD group could afford to keep Universal happy, there would be two formats. As long as there were two formats, the format would never take off and it would always make more sense for Universal to stick with the incentives than to release movies on both formats. It would have been a self-fulfilling cycle.
With the ante increased, the pressure is on. The battle has escalated and there is no more opportunity for blissful ignorance. Finally, we asked Blu-ray and HD-DVD representatives to answer two simple questions:
- Why should a consumer choose your format over the other?
- Where do you feel that your format is behind your competition, and what are you doing to close that gap?
Both HD DVD and Blu-ray representatives said they would get back to us, but we were only able to get responses from the HD -DVD Promotional Group:
1) HD-DVD not only delivers the best picture and sound quality available, but also a consistent experience with mandatory features such a network connection and picture-in-picture capabilities with every player, and superior interactivity and web-enabled features – all at the lowest price points available. MSRP’s for HD-DVD players start at $299 for the Toshiba players and $179 for the Xbox 360 HD DVD drive. Plus, there will be more than 1,000 titles available on HD DVD by the end of the year, including many exclusives such as “Transformers,” “Heroes: Season 1” and “Shrek the Third.”
HD DVD will continue to offer a smart migration path for consumers from DVD to high definition with the combo disc, allowing one disc purchase to be used in regular DVD players in the house, automobile, portable player, etc., and in the HD DVD player.
2) The real competition is standard DVD – by and large consumers are happy with the DVD players they already own. HD DVD goes above and beyond DVD with an experience that will help bridge the gap between the world of standard definition movies people know and love, and a world of HD movies that can offer interactive experiences they’ve never seen before. HD DVD will continue to offer the best overall value for consumers making the switch to high definition. If it weren’t for HD DVD pushing high quality, lower cost options, high definition players from Blu-ray would still be $800 to a $1,000 right now. We plan to continue to push the envelope to make high definition affordable for consumers who own HDTVs.