Why the Format War is Beneficial CJ Paul and Larry Borden (06.05.2007) The so-called format war between Blu-Ray and HD-DVD has been the subject of considerable discussion, debate, and prognostication. While the negative aspects are apparent, we feel that they are outweighed by the benefits. Additionally, the naysayers of this format war have focused on the very near term, decrying both formats before they were even released in many cases. The complaints included lack of content, incomplete specifications, high prices, and the fact that there was a format war in general. All of these issues are or will be addressed over time so it is important to note that our position is that the benefit of the format war will be realized over the long term. In an ideal world, the market would have released one format at a low price point, with plenty of HD media and all of the ideal specifications, video codecs, audio codecs, finalized supporting technology (i.e. HDMI) etc. However, economic theory and historical precedence in the consumer electronics industry suggest that his is an unrealistic expectation. Even the most successful consumer electronics product to date ? the DVD ? didn't work that way. DVD launched with high prices, poor transfers, limited software and DIVX in the wings. So why are we not that upset about the format war? Our position relies on three main points. ? The other main "segments" of consumer electronics indicate that multiple formats can be successful, and may in fact be the way of the future ? Competition has forced improvement in both formats ? Competition has driven down prices For the sake of argument, we will (admittedly somewhat arbitrarily) divide the consumer electronics market into three large segments: home computing, gaming and A/V. Home computing and gaming have already gone multi-format and are unlikely to revert; examples include Apple vs. PC, USB vs. Firewire, and Compact Flash vs. Memory Stick vs. SD vs. variations on all of these formats. There are also DVD-R/RW vs. DVD+R/RW vs. DVD-RAM, and Palm vs. Windows CE. In the realm of down-loadable music, we observe iPod vs. Zune vs. all the others. Are those computing devices or A/V devices? Yes. We're sure there are many more examples which don't immediately spring to mind. Perhaps we need to throw Linux in there somewhere for some geek "cred". On the gaming side we have PS3 vs. Xbox 360 vs. Wii vs. Nintendo DS vs. PSP; in fact, divergent formats have existed since the early days of Atari and Intellivision. Both of these segments ? computers and gaming ? have flourished (especially the later, which industry sources often cite as one of the fastest growing segments of the CE industry), despite competing formats for nearly all types of devices. This is largely because competition improves the quality and feature set of CE devices, as well as driving prices down. The same thing is transpiring with HD-DVD and Blu-Ray. Competition between HD-DVD and Blu-Ray has driven the manufacturers of both formats to include more features, and to improve overall product quality and desirability. These improvements come in the form of interactive content provided by BD-J and iHD, better security features ? which admittedly may serve the studios more than the consumer ? as well as potential improvements yet to come such as "managed copy," or even the possibility of HD-DVD adding a third layer to increase capacity. Some of these features are admittedly speculative but that is exactly the point; the formats are still jockeying to one-up each other with features and areas to add value a year after launch. And what is the big deal about everything not being finalized? Geeks are busy buying "Draft N" routers without worrying that the specification may change because they're willing to take a chance to get better performance now. In the meantime A/V geeks are grousing that the HD-DVD and BD groups are still adding features? We should be ashamed of ourselves. Competition has also driven down prices. One of us (CJ) paid more for his first DVD player in August of 2000 (over three years after DVD launch) than for his first two HD-DVD players which were purchased within months of launch and about a year after launch. As a poor college student, the DVD player was one of the less expensive models, costing in the neighborhood of $360. Granted that the the first HD-DVD was purchased as a refurb, but it clocked in at slightly less than $360, and a second unit was just purchased for $299 with a rebate for over $100 (MSRP) worth of free media. Finally, we'd offer some points not specific to the format war, but rather a general statement on why we see one or both of the formats ultimately succeeding. First, people are in love with technology. The industry as a whole is booming. Despite common arguments, you don't have to understand the technology to buy it. Send your mother/grandmother to Best Buy for a "camera memory card" without providing any details. If she comes home with the right one, it was luck. Yet the digital camera industry is booming despite customers not understanding the differences between cameras, memory cards, zoom levels, lens quality, feature sets, etc. Another common argument is that people won't appreciate all the improvements of HD because their systems aren't calibrated, or even set up properly. Neither of these is a requirement for opening your wallet. Having a display device calibrated and properly setup wasn't a prerequisite for buying that 60" plasma in the first place, why is it suddenly a requirement now? Consumers ? including many who are affluent ? are reading about this technology in Maxim, GQ, Stuff and Playboy, and they want it simply because it was in the gadget section of Maxim, because it is cool, and because they can afford it. An important new addition to the market place is Universal players, more members of which are likely to soon enter stores. One universal player has already been released and though it does not support all the features of each format, another universal player is expected this year that reportedly will. When this happened with DVD-R and DVD+R on the PC side, it made the format war effectively moot. The universal drives came out relatively quickly, before many people had purchased a single-format drive. When it came time to buy a new PC, it came with a universal drive and people bought whichever burnable media was on sale. The format war has also driven convergence products. Both Microsoft and Sony support HD-DVD and Blu-Ray respectively in their current generation of gaming consoles. This is the result of two concurrent format wars, one in the gaming segment and one in the A/V segment. These products, equipped with their respective HD drives, represent amazing convergence products at amazing prices. For about $600 one can buy a device which plays games as well as streaming audio, video and pictures from a home PC, as well as high definition movies on disk. This is an amazing amount of technology in a reasonably priced package. As icing on the cake, the picture quality from these devices is at least on par with the stand-alone units, unlike the DVD playback quality of prior generation game consoles. In conclusion, the competition in the "HD on disk" market not surprisingly follows the basic rules of economics. While instability and uncertainty in the beginning might be the price to pay, the consumer ultimately benefits certainly in the long run, which is not so far off.