Europe Steps Up Probe of New DVD Formats
Competition of Blu-ray, HD
To Secure Studios' Support
Arouses Antitrust Concerns
By MERISSA MARR and SARAH MCBRIDE
July 3, 2007; Page A7
In a move that could be key to determining the future of home cinema, European antitrust regulators are stepping up their probe into possible anticompetitive practices in the format war over high-definition DVDs.
Hollywood's studios are racing to dig up files, emails and records of telephone conversations related to the competing Blu-ray and HD DVD formats after the European Commission sent out letters last month demanding evidence of their communications and agreements on the new generation of DVD formats.
The European Commission, the European Union's executive body, appears to be particularly interested in the activities of the Blu-ray group because of its dominance in Hollywood, according to people familiar with the situation. The commission is investigating whether improper tactics were used to suppress competition and persuade the studios to back their format.
Jonathan Todd, a spokesman for the commission, confirmed that it had sent letters to the studios in mid-June trying to establish whether they have restrictive agreements to use one or the other of the standards.
Blu-ray, which is supported by Sony Corp. and partners, is in a fierce combat with the Toshiba Corp.-led HD DVD group to set the standard for the next generation of DVD. High-definition DVDs promise sharper picture quality and better sound than traditional DVDs, but they require new players. (Neither of the new formats is compatible with traditional DVD players, but traditional DVDs can be viewed on both Blu-ray and HD DVD players.)
While the HD camp has had some success in its partnership with Microsoft Corp.'s Xbox 360 videogame consoles and by offering lower-priced machines, the Blu-ray camp has gained the upper hand in Hollywood, with more studios backing its format. Blockbuster Inc. also recently said it would exclusively stock DVDs using the Blu-ray format.
The HD DVD camp has been lobbying the commission to draw attention to Blu-ray's tactics in the movie capital in a bid to force more studios to put their product on HD DVD, according to people familiar with the situation. One issue the Commission has raised with some studios is statements made at the Consumer Electronics Show in January in Las Vegas about the exclusivity of studios to Blu-ray, according to people familiar with the situation.
Blu-ray is supported by every major studio except NBC Universal's Universal Pictures, which is backing HD DVD exclusively. Five studios are exclusive to Blu-ray: Sony Pictures Entertainment, Walt Disney Co., News Corp.'s Twentieth Century Fox, Lions Gate Entertainment Corp. and MGM, which is owned by a consortium including Sony. Viacom Inc.'s Paramount Pictures and Time Warner Inc.'s Warner Bros. are backing both. In its formal request to at least one studio, the commission has asked for documents related to any decision to release movies on Blu-ray exclusively and not HD DVD, as well as communications on both formats with certain individuals associated with Blu-ray.
Both new formats offer old and recent titles.
The European Commission launched a broad inquiry into the competing formats a year ago. The commission said at the time that it had sent a letter to Blu-ray and HD to request information about their licensing practices. However, the commission's recent letter to the studios signals a shift in focus to the studios and possibly Blu-ray specifically.
The battle between Blu-ray and HD DVD is expected to reach a fever pitch in the fourth quarter of this year. The run-up to the Christmas period is traditionally the most important period for DVD sales. There is a lot at stake: Whichever camp wins the battle stands to make huge profits from selling both players and DVDs.
Both camps have significantly stepped up their efforts in recent weeks. Blu-ray announced a summer promotion that gives consumers five free Blu-ray movies if they purchase a new Blu-ray player by Sept. 30. Toshiba recently announced HD DVD players would sell for as little as $299, far less than comparable Blu-ray players.
The market for next-generation DVDs of either stripe is tiny so far, though. Through June, Blu-ray had sold about 1.8 million discs, compared with 1.3 million for HD DVD, according to consultancy Adams Media Research. A top title such as Warner Bros.' "The Departed," which was out in both formats, shipped 85,000 copies in Blu-ray and 60,000 in HD DVD, compared with 7.7 million for regular DVDs.
These days, Blu-ray discs are outselling HD DVDs at a rate of about two to one, says Tom Adams, president at Adams Media. But that doesn't mean HD DVDs can't reclaim the advantage if more studios start releasing movies in both formats.
Once either format hits about two million homes, it will create a large enough incentive for any studio not releasing titles in that format to reconsider, Mr. Adams says. Currently, about 105,000 homes have Blu-ray players, and about 150,000 have HD DVD players. An additional 1.5 million homes have PlayStation 3 devices, which also play Blu-ray movies, although fewer gamers are using the machines to play movies than had been hoped for. About 160,000 consumers have bought add-on devices for Xbox machines that allow them to play HD DVDs.
The studios want a new revenue stream to compensate for slowing DVD sales. When consumers switched from the VHS tape format to DVD, it created a sales bonanza as consumers replaced their old tapes with crisper DVDs. Studios are hoping for the same sort of upgrade for new format DVDs.
But many consumers say the difference in quality between the new DVDs and the old ones isn't as impressive as the difference between VHS tapes and DVDs, prompting them to drag their feet on replacing their equipment. In addition to buying new players, consumers need expensive high-definition televisions to play the new discs.
Consumer groups have slammed the studios and the electronics companies for creating another product in which two incompatible technologies battle for supremacy in the marketplace. The situation harks back to the battle between VHS and Betamax in the 1980s. VHS tapes eventually won, but not until millions of consumers bought Betamax machines, which became obsolete.
For DVDs, the studios and electronics companies worked together to avoid a similar mess. As two competing formats for next-generation DVDs emerged, the companies involved talked about merging the formats or picking one over the other, but this time compromise proved elusive.
-- Adam Cohen contributed to this article.
Write to Merissa Marr at email@example.com and Sarah McBride at firstname.lastname@example.org