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Blu-ray Vs. HD DVD:  Is Sony Now Losing The DVD War?

Tuesday, 21 Aug 2007 | 11:09 AM ET
Toshiba HD DVD
Toshiba HD DVD

Another battle in the very long war. For years Sony's Blu-ray has been battling with Microsoftand Toshiba-backed HD DVD. And everyone--the studios, the disc and player manufacturers, and consumers--is just dying for one format to emerge victorious and the other format to fall the way of the BetaMax. HD DVD just scored an unexpected win, after Blu-ray had taken the lead.

DreamWorks Animation and Viacom's Paramount (including DreamWorks Studio) just committed to releasing their films "exclusively" on HD DVD, whereas previously they had released on both HD DVD and Blu-ray formats.

This is huge for Microsoft and Toshiba. Until now, Universal (parent company is GE which also owns CNBC) was the only studio releasing exclusively on HD DVD, while Paramount and Warner Bros. (and a few smaller players)released on both. This year, Paramount is a particularly meaningful win, considering the fact that Paramount has the largest box office marketshare of any studio year to date.

Until now Blu-ray was in the lead, with exclusive distribution from Sony Pictures (of course) and from 20th Century Fox and Disney --three big players. Blu-ray's technology was considered more advanced, but also more difficult to produce, hence more expensive. Which is why Blu-ray players and Play Station 3's (which also play Blu-ray discs) are selling for $499, while HD DVD players sell for as little as $199.

Why did Paramount make the switch? They say it's the issue of price--with the understanding that consumers will be much more likely to go for HD DVD players now that they're so much cheaper. But the real issue may be how much Paramount and DreamWorks Animation were paid by HD DVD promoters (likely including Microsoft and Toshiba). The rumor--and it is a rumor--around Hollywood is that Paramount was slipped $50 million and DreamWorks Animation got $100 million for "promotional consideration." That's actually a quite significant amount of money for those companies--DreamWorks Animation's 2006 revenue was $395 million.

Why would HD DVD promoters pony up so much cash? This is a multi-billion dollar war. If they spend now, they'll secure billions in sales of discs and players down the road. If they lose the battle to Sony, the investment in creating the players was all a big waste.

So who's in the lead? Up until this weekend analysts were saying that Blu-ray had the vast majority of the studios, and it was shipping more discs. But now that HD DVD has made a significant gain, the outcome is hazier than ever. And the longer it takes for a winner to emerge, the more likely it is that other technologies, like video on demand, will make major gains in the meantime.

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.