The Short Term Success Factors

In the short term, there are a number of issues at play that make picking a clear winner somewhat difficult. There are even concerns that neither format will make major inroads for some time. Why you ask? Didn't we just go through an explosive holiday season where sales of wide screen HD "Capable" sets were by far the strongest ever? If so, why didn't we see an equally explosive selling season on HD-DVD and BlueRay players? We don't think it's quite that clear cut.

Firstly, yes there was indeed a significant rollout of HD "Capable" displays this year in most markets. However, the overwhelming majority of these displays, while they may "support" 1080P, do not actually DO 1080p (read the fine print on your display boys and girls, you may be surprised). That's not to say that 1080p displays weren't sold, but clearly the majority were at best 720p native displays. The reason's these displays sold well came down to consumer desire and plain economics. Technologies have improved and prices dropped to a point where consumers could say "yes". For the overwhelming majority of consumers current sub $1000 wide screen displays are a significant improvement over the displays they have currently, which are overwhelmingly 4:3 aspect CRT tube monitors. And, overwhelmingly these are consumers who will be happy connecting their existing DVD players to them, and will be content with the mild quality boost they get in their movie viewing, especially in the case of 16:9 or Cinemascope format DVD's, where they will get to experience a larger viewing area, even if their new wide screen isn't all that much bigger than the set it replaces.

For ourselves, we still really don't see much consumer demand for high definition yet. Sure, there are a significant fraction of people in "our spectrum" of things who will be jacking in their HD-DVD drive equipped XBOX 360's or PS3's, but beyond this crowd we don't see too many regular consumers preparing to fork over $600-1000 for a high definition player. Until costs come down significantly both in media and players, it's just not going to happen.

Another development which will make the predictive waters a bit murky revolves around the players themselves. LG recently launched a dual format player, the LG BH-100. Unlike the video rivalry of the past with VHS and Betamax, both of the new high definition contenders use identically sized media, and nearly identical optics. Because of this, implementing a dual format player should be relatively simple, and is the logical direction players will eventually go in our opinion. The last place a hardware manufacturer wants to be is playing for the losing team after all. High definition recorders aren't even worthy of mention at this point, as they're are only a handful, they're all very very expensive, and probably will be for some time.

In terms of the media itself, HD-DVD has a few advantages in overall cost. The media is less complex to manufacture than BlueRay media, which should result in not only lower initial costs, but a quicker ramp up to lower overall costs going forward. HD-DVD Mastering equipment is also somewhat less expensive than BlueRay. HD-DVD also supports high definition encoded standard DVD as well, which should go over well with episodic media producers (i.e. Series's released on disc) and the (cough) pornography industry, where the storage capacity of dual layer DVD is "enough" (you generally don't get bonus materials and directors commentary with your porn).

Lastly, and perhaps this is unfair, with Sony being the major backer of BlueRay things may not bode well simply if history repeats itself. Betamax, Digital Audio Tape (yes Phillips was a partner too), Minidisc, the Atrak audio format, and the PSP were all not exactly smashing successes. Yes the PSP has sold well, but attach rates for store bought media are low, and as a portable console Nintendo walks all over it in both units and attach rates.

In summation, we feel, in the short term at least, that HD-DVD will have a few advantages as a consumer format going forward. Whether these advantages actually congeal into having a higher market share is still up for debate as we're still quite early in the ramp up of these two formats. Economies of scale and consumer acceptance will decide the issues, regardless of technical merits as we have clearly seen in the past.

The long term? Well...