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Cost questions dog Blu-ray DVD's lead

By all accounts, Sony's high-definition discs are being tapped as the successor to standard DVD. But serious production questions remain.

Because Sony's Blu-ray disc technology appears to be the front-runner in the nasty fight to determine how the DVDs of the future are produced, movie studios and disc manufacturers are beginning to come to terms with the financial realities of the new format--as well as some troubling uncertainties.

For more than a year now, a bitter public relations war has been waged between supporters of Blu-ray and a rival Toshiba-backed technology known as HD DVD. Both are high-capacity discs that will support the distribution of high-definition versions of movies, with much better picture quality than what's possible with today's technology.

Blu-ray appears to have the lead, with most major movie studios saying they'll release films in the format next year. That's led to new concerns about mass production of DVDs in the new format. Since it represents a major break with past DVD and CD techniques, some worry Blu-ray will be expensive to support--at least in the short term--and could jack up prices for consumers.

News.context

What's new:
Blu-ray appears to be edging out its next-generation DVD rival, HD DVD. But some manufacturers say it will be expensive to produce.

Bottom line:
The debate over next-generation formats remains mired in politics and spin, but the real cost of discs and players will help consumers make their own decisions at the cash register next year.

More stories on Blu-ray

How much? No one can say for certain. But in at least one early test, according to a top manufacturing executive who asked to remain anonymous, a manufacturing line for HD DVD discs produced nearly twice as many usable discs as a similar line pumping out the Blu-ray format, over the same period of time. That translates into higher costs for Blu-ray producers. Moreover, component costs for Blu-ray can be nearly double HD DVD costs, because elements are still hard to find, the executive said.

That Blue-ray discs may start out pricey shouldn't be a shock. They face a classic curve for new technologies, which are initially expensive as manufacturers work with small numbers of orders and learn how to streamline the process. Sony also disputes those high-priced estimates.

"If there is a (cost) difference, that has yet to be determined," said Sony Pictures' Adrian Alperovich, the studio's executive vice president in charge of new business development. "There are (manufacturers) on both sides of the equation. If there is a difference in price either way, we think it will be minimal."

Alperovich argues that if there is a short-term price gap, the advantages of Blu-ray--mainly more capacity and flexibility for things like gaming--should outweigh that concern. But traditional engineering questions about Blu-ray have taken on a testier tone in this scrap.

Blu-ray's rival, the HD DVD format, relies on a reasonably well understood process. HD DVDs are constructed very similarly to existing DVDs, and the basic discs can be made with relatively minor modifications to existing DVD manufacturing lines.

Blu-ray discs, on the other hand, require completely different equipment. Most of the major disc replicators--the companies that make DVDs and CDs--now have a test line or two up and running, but hard data on production costs remains scant.

The format's backers at the Blu-ray Disc Association have repeatedly predicted that costs would come down quickly and be almost immediately competitive with those of HD DVD.

Yet one senior executive at a major disc replication facility said he has long been worried about Blu-ray costs.

"We feel that some of the (Blu-ray backers') statements are setting unrealistic cost and price expectations for the content owners they are courting," said the executive, who asked to remain anonymous owing to a close working relationship with Blu-ray companies. "They're right at the zero point in terms of operational knowledge."

Spin, or real concerns?
For the most part, things like the technical details of the manufacturing process, of video compression and of disc formats are irrelevant to consumers. But the prospect of a next-generation DVD format war, similar to the battle between VHS and Sony's Betamax in the mid-1970s, has chilled the industry. Analysts at Sanford Bernstein estimated that media companies could collectively lose as much as $16 billion over seven years if HD DVD and Blu-ray were launched without a clear favorite, because without a clear-cut winner, consumers would be leery of buying one or the other.

Blu-ray has more clout right now thanks to backing from studios such as Warner Bros. and Paramount, which have said they would release films in both formats. No Blu-ray backer has made the same gesture toward HD DVD.

Manufacturers have been testing both technologies in their labs for months and are now gearing up for actual production. Sony Pictures announced earlier this month that it had made the first "reference" disc of a Blu-ray movie, using a copy of "Charlie's Angels: Full Throttle." It's now being shipped to player companies for testing.

"The Blu-ray technology and process is new," said Lyne Beauregard, director of communications at Cinram International, a large disc manufacturer in Toronto. "If the format is launched and grows, there will be multiple generations of equipment. As we refine it and find efficiencies--that will lower the cost."

Cinram's Beauregard said her company had a single Blu-ray production line up and running, compared with 12 new DVD lines that could also do HD DVD discs. She wouldn't provide cost comparisons.

The disc manufacturing executive critical of Blu-ray said his company's production test lines showed that Blu-ray production was far less efficient than HD DVD. Component costs, for example, are higher because they use different materials than DVDs, including a high-tech film layer currently produced only by Sony.

"The difference is significant," the executive said. "Those are real costs. I don't think the price will ever equalize."

He also said that both sides' promises to make "hybrid" discs, with high-definition content on one side, and an ordinary DVD on the other, should be viewed with deep suspicion. Though it's feasible to combine the lowest-capacity HD DVD with DVD, Blu-ray and higher capacity HD DVD discs will be very expensive to meld with the standard format.

For now, since hard production data on the new technology remains scant, many of these comparisons rely on educated guesswork.

A recent white paper published online by Richard Marquardt, an engineer who served in top executive roles at disc replicators for years, predicted that retooling manufacturing plants for Blu-ray could cost up to $1 billion worldwide, while existing DVD manufacturing capacity could be refitted for HD DVD for less than a tenth of that.

"Already-beleaguered CFOs will be challenged to raise--and risk--this significant amount of capital," Marquardt wrote.

His predictions were immediately challenged by Blu-ray supporters, who noted he is a close associate of Warren Lieberfarb, a Hollywood consultant who works closely with the HD DVD camp. In an interview with CNET News.com, Marquardt said Lieberfarb had asked him to provide his thoughts on the manufacturing issues, but that he had no personal or financial stake in either side.

The real cost and quality issues will be apparent only when both formats hit the market next year.

"If we had made the determination solely based on cost, we would never have launched DVD," Sony's Alperovich said. "And that's absurd."

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