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May the Best Brand Win: Blu-ray vs. HD DVD


Why HD DVD went the way of Betamax.

2 discs: Same dimensions. Huge disparity.

When it comes to new technology, it isn't innovation that causes delays. It's implementation. Whether it's 8-track versus cassettes, AM versus FM, or VHS versus Betamax, 2 or more parties will happily battle to the death to claim that theirs is the definitive unified format.

And the consumer gets left by the wayside.

The brand war between Sony's (SNE) and Toshiba's high-def video formats was no different. From 2002 to 2008, a brutal and costly battle erupted among developers, studios and early adopters over the merits and shortcomings of Blu-ray and HD-DVD discs. Factions were established, fortunes were gambled - and Blu-ray was eventually declared the victor. Toshiba and its backers were out billions.

But what happened?

In the mid-1990s, HDTV was heralded as the pinnacle of digital broadcast techonology; videophiles worldwide were fairly salivating at the possibilities. However, simple consumer technology to store high-def video and audio had yet to be established. VHS tapes were dying, and standard DVD was just catching on; neither could hold enough information to be viable for HD.

Along came an update to existing DVD laser diodes -- blue lasers, rather than red -- which allowed shorter wavelengths and higher density optical discs. Sony, along with a consortium of media developers, began development on the new laser technology: The project was dubbed Blu-ray.

Toshiba then decided it wanted in on the party, too. Its own international organization of media developers -- known as DVD Forum -- announced a competing format called Advanced Optical Disc - later renamed HD DVD.

Before the 2 incompatible formats were released, talks to avoid a costly format war were already underway. They failed.

Sony and Toshiba each pushed for different encoding standards, or video codecs. Microsoft (MSFT) became the chief backer of HD-DVD early on, lobbying for its proprietary codec, which gave complete control over how all HD-DVD discs were produced. The companies that supported Blu-ray -- including Apple (AAPL) and Sun Microsystems (JAVA) -- obviously had no interest in adopting a Microsoft standard.

Another key turning point was the inclusion of a Blu-ray player in every Sony Playstation 3. Though the cost of the console spiked to $599, many consumers regarded it as good value - a next-generation video-game console and a Blu-ray player in one. So for every game system Sony sold, it backed its own hi-def standard.

Microsoft countered with a HD-DVD player add-on. It sold both separately and very, very poorly.

The clincher: A shift in studio and retailer backing. In the beginning, each party had almost equal exclusive backing: Blu-ray had Fox (NWS) and Disney (DIS), while HD DVD had Paramount (VIA) and Warner Bros. (TWX). But the tipping point came when Warner ultimately decided to stop its HD-DVD releases and exclusively back Blu-ray.

The dominoes began falling for Toshiba. Wal-Mart (WMT) and Blockbuster (BBI) dropped the format, retailers recommended Sony's brand, and Toshiba was forced to cut sales costs.

In the end, Toshiba announced plans to discontinue the HD-DVD format on February 19, 2008.

For now, Blu-ray is the industry standard, and -- judging from last quarter's sales surge -- stands only to gain in popularity in 2009. But how long will it be before everyone's downloading their media, rather than purchasing a physical disc?

After all, when's the last time you bought a CD that wasn't a gift for an older relative?
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