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High-definition DVD Format Wars March 14, 2007

Strategic Computing. High-definition DVD Format Wars March 14, 2007. Saud Al Shamsi Vikas Bhargava Karen Hsu Josh Palmer Mark Schelbert Edmund Wong. Introduction Blu-ray vs. HD DVD. In recent years, high-definition (HD) television and HD optical discs entered the market

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High-definition DVD Format Wars March 14, 2007

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  1. Strategic Computing High-definition DVD Format Wars March 14, 2007 Saud Al Shamsi Vikas Bhargava Karen Hsu Josh Palmer Mark Schelbert Edmund Wong

  2. Introduction Blu-ray vs. HD DVD • In recent years, high-definition (HD) television and HD optical discs entered the market • Two HD formats have appeared in the DVD market, both claiming to be the rightful successor to the DVD throne: • Blu-ray (developed by Sony/Phillips) • HD DVD (developed by Toshiba) • Measured by most performance metrics these two technologies are the same, except that Blu-ray has significantly larger capacity (66%). • However, Blu-ray appears to have greater network support Strategic Computing

  3. Blu-ray vs. HD DVD Future • While the format war rages on, entirely different outcomes are possible: • LG has introduced a dual-format player and drive • Internet may replace the DVD as a movie delivery vehicle • International view: Japan (96% Blu-ray), Europe (pushing for open licensing of both formats), China (proprietary HD format), India (small $ market), South America (unknown); Xbox 360 but still no PS3) Strategic Computing

  4. History of Format Wars • Before HD, IBM arbitrated a standard DVD format intended to avoid a format war, but the outcome favored Toshiba regarding royalties, leaving Sony unhappy • In response, Sony began developing the next generation of high-definition optical media • Toshiba followed suit with its own HD technology • While there were many “peace talks”, neither party reached agreement • Comparison: VHS vs. Betamax War • Despite Beta’s superior quality, VHS won the war because of its strong “content” network Strategic Computing

  5. Outcomes of Similar Format Wars • Certain format wars were never won, but instead compromised with the introduction of multi-format technology • DVD-R vs. DVD+R • Multi-format DVD drives accommodate both • CDMA vs. GSM • Can make/receive calls regardless of technology • Both prevalent around the world • Flash Memory Formats • Over 50 different kinds of flash memory • All-in-one readers handle most types Strategic Computing

  6. Tech Comparison • Most performance metrics of these two technologies are the same • Blu-ray storage capacity is more practical for HD movies • One high-definition movie (~20GB) fits on just one Blu-ray layer (25GB); while HD DVD requires two layers (2x 15GB) * Sources: ProActionMedia, WesleyTech; single layer. Strategic Computing

  7. Network Comparison • While both formats have support from various large companies, Blu-ray has greater support from content providers that are critical to achieving a network effect • Consumers will follow the format of the CONTENT providers Strategic Computing

  8. Security, Durability & Other • Digital Rights Management • Blu-ray promises BD+, which allows encryption keys to be modified when they are hacked • AACS is the copy protection scheme used by both HD DVD & Blu-ray. Took years to develop, but broken in weeks Disc Aperture Settings • Blu-ray more prone to error due to high aperture • Without protective hard-coating, Blu-ray is easier to scratch (data layer is closer to surface) DVD 0.6 HD DVD 0.65 Blu-ray 0.85 Strategic Computing

  9. Current Market Share • Sales trends illustrate Blu-ray gaining dominant market share Strategic Computing

  10. Availability of Hardware (players) Blu-ray (with PS3) : HD DVD = 5 : 1 Blu-ray sales up 700% since the launch of PS3 and other players 687,000 PS3 sold in US Availability of Content 19 of the “Top 20” DVDs in 2006 were released by studios supporting Blu-ray Why Blu-ray is On the Rise? Strategic Computing

  11. Business Model • There are several players in determining a dominant network • However “Content is King” and will largely determine the victor Customers Consumers Retailers / Distributors Licensees Competitors Complementors HD Optical Disc Format Internet VHS TV On Demand (VOD) Flash Memory HDTV Media Players Game Consoles Suppliers Disc Replicators / Factories Machinery Providers Entertainment Industry Strategic Computing

  12. Film Industry Adult Film Industry XXX Video Game Industry Current Marketing Strategies • Key players with influence in the format war between HD DVD and Blu-ray: the film industry, the adult film industry, and the video game industry ESTIMATED ANNUAL REVENUE 2006 IN U.S. $35 Billion $3.6 Billion $12.5 Billion Strategic Computing

  13. Current Marketing Strategies • Blu-ray has adopted a “pre-emptive strike” marketing strategy with its “War is Over” advertising campaign HD DVD Blu-ray • “The Look and Sound of Perfect” $150M advertising campaign • Xbox 360 supports external HD DVD player • Pornography industry experimenting with HD DVD • “War is Over” advertising campaign • PS3 internal Blu-ray player • Sony cutting player prices from $1K to less than $500 • Future Blu-ray car players Strategic Computing

  14. Future Drivers • What are the drivers that will determine the future of this format war? Strategic Computing

  15. Resolution (NTSC) 640 x 480i pixels Audio – Stereo, 44kHz HD vs. Standard: is it worth the hype? • TV remains the Limiting Factor for the time being • High-definition provides far superior resolution; however, without HD televisions the improvement in quality will go unnoticed. Standard High Definition • Resolutions • 1920 x 1080p • 1920 x 1080i • 1280 x 720p • Audio - AC-3: 48 kHz sampling rate, up to 8 channels, up to 18 Mbit/s Strategic Computing

  16. HDTV Sales Trends • HD TVs expected to increase from 4M HHs in 2006 to 52M HHs in 2009 Strategic Computing

  17. Has HD Optical Media Crossed the Chasm? • With the PS3, Blu-ray is quickly approaching the chasm… …but HD-DVD is lagging behind. Strategic Computing

  18. Possible Compromises Internet / Flash • Internet/flash memory may replace DVDs as the dominant media delivery vehicle for movies • “DVD format will be irrelevant” – Bill Gates … may be replaced by flash memory or Internet Dual-disc / Dual-player • LG Super Multi Blue Player and Drive • Supports playback of both formats • Available now for $1,199 • Warner Bros. Total HD • Single disc compatible with both players • Available 3Q 2007 • Costs marginally more than current discs Strategic Computing

  19. Thank You • Blu-ray is positioned to win the format war because • Stronger sales in the US and Japan • Larger studio network providing film content (promise of superior security BD+) • PS3 integrated Blu-ray players • Larger capacity of 25GB (vs 15GB) • Questions & Answers Strategic Computing

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