LONDON - The battle between two high-definition DVD formats may end in a stalemate that proves frustrating and detrimental to retailers.
In a new report, media research firm Screen Digest here predicts that the two formats, HD DVD and Blu-ray, will most likely coexist until an affordable dual-format solution emerges.
This outcome is a headache for retailers who will "have to stock up on three SKUs for every title if they are to provide consumers with all the options," Helen Davis Jayalath, senior analyst, video, Screen Digest, told SN.
HD DVD, a technological successor to DVD, has the support of its developer, Toshiba, as well as three major Hollywood studios: Warner, Paramount and Universal. Microsoft has built HD DVD into its next-generation PC operating system, Windows Vista, and Hewlett-Packard supports HD DVD and Blu-ray.
Meanwhile Blu-ray is a new type of technology rather than a successor to DVD. Its developers, Philips and Sony, are in its camp along with Dell, and all the major Hollywood studios except Universal. Both new formats play existing DVD software.
"There is virtually no difference between the two formats in terms of quality, despite a few early hiccups, and with no decision by Hollywood to back one format or the other, a dual launch became inevitable," Davis Jayalath said.
Vested interests on both sides mean that neither is prepared to back down, Davis Jayalath said. "Unless one format dramatically outsells the other in the next few weeks, causing the studios to realign their support, a continued format war seems the most likely scenario."
Several hardware manufacturers are already exploring ways to develop a viable dual-format solution, Davis Jayalath said. "As soon as such a solution becomes available at an affordable price, many consumers who have decided to wait may feel they can start upgrading."
With both formats supporting similar features, Screen Digest predicts that by 2010, $11 billion out of the total $39 billion expected to be spent on video discs in the U.S., Japan and Europe will be generated by sales of high-definition formats.
"We don't believe that demand for [regular] DVD will disappear in the next few years," Davis Jayalath said. "Even homes that have bought a Blu-ray Disc or HD DVD player are likely to continue buying DVDs since they will probably have only one high-def player initially."
"Stores keen to be perceived as key destinations for home entertainment will have to stock all three formats; those for whom space is of greater concern will probably stick to DVD for the foreseeable future," she said.
Rather than generating volume sales, the high price points of the new formats are expected to raise total revenues from packaged media 15%-20% higher than they would be without high definition by the year 2010, the report said.
Supermarkets, which usually carry items at lower price points, should be wary of discounting the new technology too soon, Davis Jayalath said. "While some discounting is inevitable, if processes are depressed too fast too soon by either studios or retailers, there is a real danger that spending on the new formats will peak even faster than DVD spending did."