Is the Fat Lady Warming Up?

First, the obvious statement: it appears that the high def format war has been decided. However, like Japan in early 1945, it's unclear whether Toshiba realizes it. With Warner Brothers deciding to terminate HD-DVD support (starting in the late spring), the content split goes to 70/30 exclusive in favor of Blu-Ray. That's a crushing blow. Blu-Ray will be the winner; there's no question of that. (If you have been sitting on the fence but really want high def DVDs, this is your indication that it's okay to buy a Blu-Ray player.) But how long will it take to get to the point where it can be decisively declared that the format war is over? That depends on three things: When Toshiba and Microsoft decide to throw in the towel, when Universal decides to go format neutral (their next likely step), and what Paramount/Dreamworks does. Do they have an "out" clause in their agreement with HD-DVD or are they stuck until early 2009?

(As for the rumors that Sony paid huge amounts of money to Warner Brothers/New Line to make this decision, so what? It's the same thing Toshiba and Microsoft did with Paramount/Dreamworks. This is business, and money talks. In this case, it has a benefit for the industry as a whole and for consumers who yearned for format issues to be settled. By staying neutral as long as they did, this allows Warners to reap a stunning reward. By all accounts, had they gone HD-DVD exclusive, they would have gotten a similar financial package, so no one is playing unfair. To Warners, Blu-Ray simply makes more sense and, if it gets them some ready cash in the process, where's the harm?)

However... The format war ends once all the major studios agree to produce high def DVDs in one format. Only once everything is being made available in one format is the other one truly dead. That's when the Fat Lady Sings. Until then, it's officially still on, although that may be a formality. Indeed, at this point, it's a "when" not an "if." We could start seeing Paramount and Universal Blu-Ray discs as early as September or they could be delayed until next year. Even though I predicted that the format war would not (officially) end this year, the fact that I purchased a PS3 after straddling the fence for more than a year is an indication that I felt the direction in which the wind was blowing. (I received an HD-DVD player for Christmas and I have a small handful of discs - as long as it keeps working, I see no reason to mothball it, although I won't be building a large library of titles - not that there are many titles out there to whet my interest.)

At this point, I'm unwilling to back away from that prediction: the format war will not officially be over with HD-DVD dead and buried until 2009. One thing that keeps me skeptical is that we don't know how Toshiba/Microsoft will respond to this. Could they give up? Not likely. Radical drops in prices are possible, including a rumored drop to about $75 each for the cheap version of the HD-DVD player, making it a viable alternative to a standard upconverting DVD player. Unfortunately for Toshiba, the buying season is over. That kind of strategy might have worked a month ago. There's also the possibility of disc price-slashing. If HD-DVDs hit the shelves at $10 each, it will be tough to hold back on purchasing, even if the format is the "loser." Consider that someone who couldn't afford the price tag of about $350 for a Blu-Ray player and five movie titles might be able to afford a little more than $100 for the HD-DVD equivalent.

It comes down to how much money Toshiba is willing to lose to stay in the game. The financially sane thing would be to throw in the towel now, admit defeat, and start making Blu-Ray players. But that assumes a rational, profit-based approach. The format war isn't just about money. If that was the case, there never would have been one in the first place. Sony and Toshiba would have come to a compromise agreement two years ago and we'd be living in HD heaven now. No, this is about power, egos, and winning. And that's why it's unlikely that Toshiba will give up without a hell of a fight, even to the point of implementing a scorched earth policy. Whatever moves they plan next won't win the war but it could prolong the battles for another year. I feel confident that the format war will be over by March or April of 2009. I do not feel confident that it will be over by December 2008.

But there's another issue I haven't read about anyone addressing. It's whether the potential end of the format war has come too late to give high def DVDs the boost they need. There's a big shadow that now looms over everything. What if the United States slips into a recession (as is being predicted by some economists)?

By any definition, high def DVD is considered to be a "luxury" item, even for people with nice 42" widescreen TVs. If we tumble into a recession, no one is going to be buying $250 Blu-Ray DVD players and high def discs. Instead, they'll stick with what they have and what has served them well for many years. The end of the format war couldn't have come at a worse time. For two years, while the economy was running hot, people didn't buy players because of confusion. Now, with the economy cooling off, they might not buy because it's not a priority. Recessions bring belt-tightening. Belt-tightening is not conducive to selling this sort of high end product. In order to enter the mainstream, millions upon millions of units have to be sold (get it to at least 10-15% penetration). In a recession, the only way to accomplish that is to bottom out prices. Even in tough conditions, consumers might buy at a $100 level, but can Blu-Ray get that low? In the last three years, people have been spending a lot of money on electronics, but a recession will change that.

Enough gloom and doom. I just don't think the picture is as rosy as some Blu-Ray enthusiasts have painted it to be because they're looking only at piece of it, not the whole thing.

The hope is that we'll start getting some decent catalog titles on high def. There are a handful I would buy in the new format; none of those have been announced. Right now, my Blu-Ray disc collection is pathetically small - less than ten titles. Based on what's on the schedule, it won't be growing fast any time soon. And that's what it all comes down to - software. Get the titles out and people will come. Eliminating one format is a good start. Now it's time for the studios to open the vaults and release their A-list titles.

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