HD DVD and Blu-ray – a Format
Battle with Only One Winner?
ANDREAS
WISS
Master of Science Thesis
Stockholm, Sweden 2006
HD DVD and Blu-ray – a Format
Battle with Only One Winner?
ANDREAS
WISS
Master’s Thesis in Media Technology (20 credits)
at the School of Media Technology
Royal Institute of Technology year 2006
Supervisor at CSC was Arild Jägerskogh
Examiner was Nils Enlund
TRITA-CSC-E 2006:162
ISRN-KTH/CSC/E--06/162--SE
ISSN-1653-5715
Royal Institute of Technology
School of Computer Science and Communication
KTH CSC
SE-100 44 Stockholm, Sweden
URL: www.csc.kth.se
Abstract
HD DVD and Blu-ray - A Format Battle with Only One Winner?
Abstract
The high-density disc formats HD DVD and Blu-ray are both aiming to become the
successor to the DVD format. The two incompatible formats are both backed up by a
large number of important companies from the home electronics, computer and film
industry. The rivalry between the two formats will cause confusion among consumers,
hindering adoption considerably.
The purpose of this project was to analyze the formats HD DVD and Blu-ray
at the time of their competitive introduction to the market. The goal was to investigate
and forecast what effect these blue-laser formats will on the market for consumer
electronics and whether how consumers will embrace these technologies or not. The
study can be used both as a technical introduction to the two formats and as a
forecast of what might be expected of the technologies from an anthropological point
of view, in terms of usability, privacy, interoperability etc. The research strategy has
mainly consisted of a thorough literature review and qualitative methods: in-depth
interviews with experts within fields like high definition technology, disc media
production and marketing.
The outcome of the study can be summarized into the several main points.
HD DVD and Blu-ray differs mainly in the terms of manufacturing costs (Bluray being more complex and thus more expensive to produce) and theoretical
storage capacity (HD DVD being inferior). None of these differencing factors are
probable to affect either format’s potential progress on the market.
It is currently difficult to foresee a winner in this format battle, since both
formats have massive company support and are similar in their technical capabilities.
Another aspect making the forecast more complicated is that both formats were
created before there was any consumer demand for a High Definition-capable disc
format product. The consumer reactions to these formats are thus unpredictable.
The format war is causing confusion and uncertainty among consumers,
making them probable to postpone any purchase of either format.
Initial high retail costs (particularly compared with DVD) and potentially
restrictive digital rights management technologies, where future generation of players
may render it possible for content holders to conduct detailed monitoring of
consumers’ viewing habits or restrict HD playback, are also feasible to hinder
adoption of either format.
Unless a unified format or player is developed, both formats might loose to
another kind of storage media, probably not a physical one (e.g. downloads and
home media networks).
Sammanfattning
HD DVD och Blu-ray – En formatstrid med enbart en vinnare?
Sammanfattning
Högkapacitetsformaten HD DVD och Blu-ray har båda målet att bli DVD-formatets
ersättare. De två inkompatibla formaten backas av ett stort antal viktiga globala
marknadsaktörer från branscherna hemelektronik, dator och film. Rivaliteten mellan
de två formaten kommer att orsaka förvirring bland konsumenter, vilket kommer att
leda till att utvecklingen och adoptionen förhindras.
Syftet med detta projekt var att analysera formaten HD DVD och Blu-ray
under tidpunkten av de bådas marknadsintroduktion. Målet var att undersöka och
försöka förutse vilken effekt dessa blålaserformat kommer att ha på
hemelektronikmarknaden och hur pass väl konsumenter kommer att mottaga dessa
format eller inte. Studien kan både användas som en teknisk introduktion till båda
formaten och som en prognos för vad som kan väntas av teknikerna i framtiden ur en
användarantropologisk vinkel, om man ser till användarvänlighet, integritet och
interoperabilitet. Metodvalen har huvudsakligen bestått av litteraturstudier samt
kvalitativa metoder i form av djupintervjuer med experter inom kunskapsfält som HDteknik, skivproduktion och marknadsföring.
Studiens resultat kan summeras i ett antal punkter.
HD DVD och Blu-ray skiljer sig från varandra på huvudsakligen två punkter:
tillverkningskostnader (Blu-ray, det mer komplicerade formatet, är dyrare att
framställa) och lagringsmöjligheter (HD DVD har lägre kapacitet). Dessa faktorer
kommer dock knappast att påverka händelseutvecklingen för respektive format.
Det är svårt att förutse en vinnare i formatstriden, då båda format har massivt
stöd från industrin och är överlag lika vad gäller tekniska egenskaper. En annan
aspekt som försvårar prognosen är det faktum att båda format skapades innan det
fanns något marknadsbehov av ett skivbaserad HD-stödjande format.
Konsumentreaktionerna är därför svåra att förutse.
Formatkriget orsakar förvirring och osäkerhet bland konsumenter, vilket kan
leda till att de skjuter upp alla beslut om val av köp.
Höga initiala inköpskostnader (särskilt i jämförelse med DVD) och möjligheten
till restriktiva kopieringsskydden, som innebär att framtida spelare kan göra det
möjligt för filmbolag att övervaka vad, hur och när konsumenter tittar på filmer eller
hindra uppspelning i HD-format, är också möjliga adoptionshinder.
Om inte ett unifierat format, eller en spelare som är kapabel att spela båda
formaten, utvecklas, kan båda format förlora mot andra typer av lagringsmedia, då
troligen inte ett fysiskt sådant (till exempel lagliga nedladdningstjänster och
hemmanätverk).
Preface
Preface
This is a Master’s Thesis in Media Technology, with a major in Television and Video
Production at the Royal Institute of Technology (KTH) in Sweden. The study was
conducted in Aoki Media Lab at the Shibaura Institute of Technology (SIT) in Tokyo
during the period April-September 2006.
First and foremost I would like to thank the Shibaura Institute of Technology
for accepting my application and welcomingly helping me to carry out my study in
Japan.
I would like to thank my supervisors at KTH and SIT, Mr. Arild Jägerskogh
and Professor Yoshimitsu Aoki, for their guidance and creative feedback.
I am very grateful for all the interviewees that willingly participated in my
thesis.
I want to thank Reiko Kageyama at SIT and Roland Trumpf-Nordqvist at KTH
for guidance and support regarding exchange student matters.
I would also like to thank the kind students of Aoki Media Lab at SIT for
welcoming me to their lab and helping me with everyday life situations in Japan.
I want to thank the Sweden-Japan Foundation for their financial contribution
that has been very useful to my project.
Finally, I would like to thank my friends and family for continuously loving
support.
10 October 2006
Andreas Wiss
Contents
CONTENTS
1 INTRODUCTION.......................................................................................................... 1
1.1 Background ........................................................................................................... 1
1.2 Purpose................................................................................................................. 1
1.3 Research Questions .............................................................................................. 2
1.4 Delimitations.......................................................................................................... 2
1.5 Research Strategy................................................................................................. 2
2 METHOD ..................................................................................................................... 3
2.1 Methodology.......................................................................................................... 3
2.2 Research Schedule ............................................................................................... 3
2.3 Qualitative Method ................................................................................................ 4
2.4 Quantitative Method .............................................................................................. 4
2.5 Literature Review .................................................................................................. 4
2.6 Methodology/Choosing respondents ..................................................................... 5
2.7 The Questionnaire ................................................................................................. 6
2.8 Validity and Reliability............................................................................................ 6
3 BACKGROUND ........................................................................................................... 9
3.1 Introduction ........................................................................................................... 9
3.2 Introducing the two formats ................................................................................. 10
3.3 HD DVD .............................................................................................................. 10
3.3.1 HD DVD – Technology ................................................................................. 11
3.3.2 HD DVD – Company Support ....................................................................... 16
3.4 Blu-ray................................................................................................................. 16
3.4.1 Blu-ray – Technology.................................................................................... 17
3.4.2 Blu-ray – Company Support.......................................................................... 20
3.5 Comparing the formats ........................................................................................ 21
3.6 NTSC and PAL conversions ................................................................................ 21
4 SUCCESS FACTORS ................................................................................................ 23
4.1 Production costs.................................................................................................. 23
4.2 Distribution and success factors of DVD.............................................................. 23
4.3 The Playstation 3 – Bringing Blu-ray into the homes?.......................................... 25
4.4 The Need for HD ................................................................................................. 26
4.5 Adoption pattern models...................................................................................... 27
4.7 Adoption Hindrance ............................................................................................. 31
4.8 Piracy .................................................................................................................. 31
4.9 Other disc format contenders .............................................................................. 32
4.9.1 FVD – Forward Versatile Disc....................................................................... 32
4.9.2 EVD – Enhanced Versatile Disc.................................................................... 32
4.9.3 VMD – Versatile Multilayer Disc.................................................................... 32
4.9.4 HVD - Holographic Versatile Disc ................................................................. 33
4.10 Comparison to a Previous Format Battle; VHS and Betamax ............................ 33
5 RESULTS .................................................................................................................. 35
5.1 Introduction ......................................................................................................... 35
5.2 Consumer adoption and alternatives to HD DVD and Blu-ray .............................. 35
5.3 Potential Success Factors ................................................................................... 41
5.4 The impact of the Playstation 3 ........................................................................... 44
5.5 Production costs / Economy ................................................................................ 46
5.6 Digital Rights Management / Copy Protection...................................................... 50
5.7 Differences in technical features - Pros and cons ................................................ 55
5.8 Future scenarios for HD DVD and Blu-ray - Which format will prevail? ................ 59
Contents
6 ANALYSIS ................................................................................................................. 65
6.1 Summary – Consumer Adoption and alternatives to HD DVD and Blu-ray .......... 65
Illustration 6: “When will HD DVD and/or Blu-ray technology reach majority
consumer groups, if ever?” ........................................................................................ 66
6.2 Summary – Potential Success Factors ................................................................ 66
6.3. Summary – The impact of the Playstation 3........................................................ 67
6.4 Summary – Production costs / Economy ............................................................. 68
6.5 Summary – Digital Rights Management / Piracy.................................................. 69
6.6 Summary – Differences in technical features - Pros and cons ............................. 71
6.7 Summary – Future Scenarios of HD DVD and Blu-ray - Which format will
prevail? ..................................................................................................................... 72
6.8 Conclusions......................................................................................................... 73
7 SUGGESTIONS FOR FUTURE RESEARCH............................................................. 75
REFERENCES.............................................................................................................. 77
Chapter 1 - Introduction
1 INTRODUCTION
This chapter is intended to explain the purpose of the project and what problems it
aims to give answers to. It is also meant to provide the reader with background
information concerning the project’s field of study.
1.1 Background
HD, short for High Definition, has been somewhat of a buzz word within the video
and television business since the start of the new millennium. Though HD technology
has been around for more than two decades, it looks like it finally will have its
breakthrough (Ive, 2004). This is a lot because of the LCD (Liquid Crystal Display)
and Plasma Display Panel (PDP) flat screens that have gradually become more
popular with the consumers, and are well on their way replacing analogue CRT
(Cathode Ray Tube) sets (Salmon, 2004). The flat screens’ often large sizes and use
of digital technology make them particularly attractive for HD technology (Wood,
2006). A significant part of the flat screens sold today are marked with a “HD ready”label, meaning they are capable of displaying high definition video. Studies have
shown that viewers notice a large difference in quality when comparing HD video and
standard definition video on larger size flat screens (Haglund, 2002). Add to this that
HDTV (High Definition Television) transmissions have become somewhat
standardized in countries like USA, Japan and Australia (where some channels have
HD quotas to fill). HDTV-transmissions have also started to hit Europe.
The next big step in HD technology is purchasable or rentable prerecorded
video and movies. Video-on-demand and similar online options are believed to
become a future preference for many movie viewers (Honick, 2005), but there is also
an opportunity window for a HD-supported physical format.
From its introduction in 1997, the video and data storage disc DVD (Digital
Versatile Disc) has become the most successful and rapidly adopted home
electronics consumer product ever (Bell; Cookson, 2004). Since regular DVD players
are not capable of transmitting or recording HD video (although this is possible, using
new codecs), it will need a successor with such a kind of capability. Enter the blue
laser discs. Because of their use of a narrower blue laser light cone, compared to the
DVDs red laser, they have many times the information storage capacity compared to
DVD (see chapter 3.3.1 and 3.4.1).
This year, two competing blue laser disc formats, both with massive company
support, hit the market. The first one is called HD DVD (High Definition/Density
Digital Versatile Disc) and is mainly supported by Toshiba. The second one is named
Blu-ray Disc (BD) and is mainly supported by Sony. The formats are not compatible,
although their characteristics and capabilities are similar (see chapter 3.3.1 and
3.4.1). Also, the company support is almost equally divided for each format (see
chapter 3.3.2 and 3.4.2). A format war is inevitable.
1.2 Purpose
The purpose of this project was to analyze the two formats HD DVD and Blu-ray
during the crucial time of their introductions to the market during the period of mid2006. One aim has been to conduct a technical comparison of both formats; another
has been to analyze their marketing strategies and also to investigate how the format
war affects
1
Chapter 1 - Introduction
consumers. The main goal of the project was to predict a winner of the two formats, if
there is one.
The results and conclusions of this report are not only meant to be used as a market
economical prognosis, but mainly as a broad comparison between and as an
introduction to the two formats and investigate potential future scenarios of movie
consumption and data storage.
1.3 Research Questions
The two main questions this project aimed to give answers to are:
•
•
Which format, if any, of HD DVD and Blu-ray will prevail in the battle for the
blue laser-market?
Is there room for two disc-based high density/high definition-video formats on
the market?
Since a format war is a broad and complex field of study, this project also has
focused on secondary questions like:
•
•
•
•
•
•
•
•
What are the main differences between the formats?
Which are the pros and cons for each format?
Which company supports which format and why?
Are consumers ready to adapt to HD technology?
What is the ultimate HD-resolution?
How has movie consumption changed since the introduction of DVD?
Does the disc-based format have a future as storage-media? When will it
become obsolete?
What lies in the future of movie consumption?
1.4 Delimitations
This thesis will not thoroughly investigate HDTV, focusing on prerecorded high
definition media instead of HD transmission technology.
1.5 Research Strategy
The project’s purpose was mainly to study the two blue-laser formats HD DVD and
Blu-ray as mediums for films - since it is by far the largest market for disc-based
storage media (Interview with K. Oestreicher, 2006) - but also as data-storage
formats. The study aimed to focus on comparing the differences; the strengths and
weaknesses for each of the two formats. The research has mainly been based on a
literature review and qualitative methods, which consisted of interviews. These
methods aimed to give answers from a technical, economical, anthropological and
forecasting analytical points of view. Quantitative methods conducted by other
researchers have also been referred to.
2
Chapter 2 - Method
2 METHOD
This chapter explains and motivates the research strategy and the chosen methods
used for gathering data. Also, the validity and reliability of the methods are discussed.
2.1 Methodology
When conducting this kind of scientific research, it is important to specify whether the
method for data gathering should be quantitative and/or qualitative. Qualitative
methods aim to study relations between facts and, after processing the data, to form
generalizing conclusions. A quantitative method is more based on gathering
information or data that is measurable, for instance via forms or questionnaires (Bell,
2000). Qualitative research methods are usually more focused on individual’s
opinions and views on subjects that are relevant for the project. According to
Johansson (1999), the qualitative method aims to classify the observed phenomenon
regarding its meanings and significance. The method is generally carried out through
interviews. After the interview data has been collected, the results of the interviews
are formed into hypothesis or theories, if possible (Stensmo, 2002).
This project has mainly used qualitative (and to some extent also quantitative)
methods, only referring to quantitative methods that have been performed in previous
research. The qualitative methods have consisted of interviews with company
representatives, academics, journalists and other HD and/or marketing experts. After
the interviewing the data was summarized, verified and hypothesizes or theories
formed.
Also, a thorough literature review was conducted at the start of the project, in
purpose of gathering vital background data and forming a foundation for the rest of
the research.
2.2 Research Schedule
The research was divided into different phases. The first phase was to set up goals
and delimitations and to formulate the purposes for the project. Next, the literature
review was conducted and so on. The phases are summarized below, in table 2.1.
Phase
1. Project planning – 2 weeks
Phase outcome
Purpose of the study, method choice,
project schedule, basis for chapter(s):
Introduction and Method
Background information, ideas for
interviews, company contact information,
statistics and facts, basis for chapter(s):
Background
Networking; providing vital contact
information for the interview phase
Main questions, basis for chapter(s):
Results
Follow-up questions to initial answers
Summary of the interviews, basis for
chapter(s): Results and Analysis
Analysis of the interview evaluation,
basis for chapter(s): Analysis
2. Literature review – 6 weeks
3. Company/media/other contact – 2
weeks
4. Initial interviewing – 2 weeks
5. Follow-up interviews – 2 weeks
6. Interview summary – 4 weeks
7. Analysis – 4 weeks
Table 2.1 – Project phase summary
3
Chapter 2 - Method
2.3 Qualitative Method
Since the project’s wide definition of subject, mainly qualitative methods were used,
in the form of in-depth interviews. The purpose of the interviews was to both conduct
informant based and respondent based interviews. The interviews should be
informant based to get updated with new (for instance technical and marketing)
information that was not available via the literature review and respondent based to
get individual views for each format (also not available via the literature review) and
important insights and motivations, for instance regarding company support.
The interviews have been structured (with questions that are to supply with
knowledge required) and mostly standardized open-ended (the wording and
sequence of questions are determined in advance, all interviewees are asked the
same basic questions in the same order) (Cohen, 2000), although some of the
questions have been asked to certain interviewees depending on the respondent’s
knowledge/occupation/specialty etc. These kind of interviews were chosen to
increase validity, thus to increase the equality regarding each format. Concerning
interviews with partial subjects, as many impartial interviewees as possible were
selected (individuals with no commercial interest in or responsibility for any of the
formats).
The interviews were planned and carried out through the model in Cohen’s chapter
‘Planning interview-based research procedures’, with the following stages:
-
Thematizing (formulate the purpose of the investigation, clarifying the why
and what of the investigation)
Designing (planning the design of the study, for instance forming questions)
Interviewing (carried out in person, via telephone or via e-mail, based on an
interview guide and with a reflective approach to the knowledge sought)
Transcribing (if the interview was conducted in person or via telephone, the
text was transformed from oral speech to written text)
Analyzing (deciding the nature of the interview material and which methods of
analysis are appropriate for the interviews)
Verifying (ascertain the generalizability, reliability and validity of the interview
findings)
Reporting (communicate the findings of the study and the methods applied in
a form that lives up to scientific criteria, that results in a readable product, i.e.
the Results chapter)
2.4 Quantitative Method
Because of the project’s limited time span, there has not been enough time to
conduct both qualitative and quantitative methods. However, a couple of quantitative
methods conducted within other projects within the same field of research have been
referred to. For instance, Lars Haglund of SVT (Swedish Television) has done tests
on image quality perception on larger flat screens with HD and SD (Standard
Definition) image sources. The BBC (British Broadcasting Corporation) has also
conducted similar tests on average viewing distances. I have referred to both.
2.5 Literature Review
The literature review was conducted as one of the early phases of the project. Initially
a search for blue-laser disc/HD DVD/Blu-ray literature was carried out. Since the
blue-laser videodisc technology is new, academic pieces, technical papers and news
4
Chapter 2 - Method
articles were used to a greater extent as sources of information than books. The
literature was mainly gathered from databases available via The Royal Institute of
Technology’s and Shibaura Institute of Technology’s online library services. Internet
sources have been referred to according to the Harvard System in the References
section.
After the search for and gathering of literature, a reading phase was carried out,
where the most relevant information was highlighted. Subsequently, a second readthrough was conducted, this time mainly focusing the highlighted information. During
and after these phases, the main parts of the Theory chapter were written.
The literature review has been the base of the technical comparison between the
formats. It has also provided with data concerning previous carried-out quantitative
research within this field of research; for instance, the BBC’s study on viewing
distances’ inflict on image quality perception, called ‘Tests of visual acuity to
determine the resolution required of a television transmission system’. The literature
review has also resulted in relevant statistics and facts. It has also given some
information concerning previous format battles, like the one between the video
systems Betamax and VHS (Video Home System).
2.6 Methodology/Choosing respondents
Initially, the intention with this phase was to mainly focus on interviewing company
and organization representatives in order to receive motivational answers on
company support. However, this proved to be difficult during the
Company/media/other contact phase (see chapter 2.2). During this phase, more than
30 different companies and organizations were contacted (including Toshiba, IBM,
Intel, NEC, Sanyo, Sharp, Sony, Apple, Hewlett Packard, LG Electronics, Hitachi,
Panasonic, Pioneer, Samsung, TDK, Thomson/Technicolor, Universal, Paramount
Home Entertainment, Warner Home Entertainment, Buena Vista, Sony Pictures
Home Entertainment/MGM, Walt Disney Pictures and Movies, HD DVD Program,
The DVD Forum, The Blu-ray Disc Association and several others) somehow
involved with HD DVD and/or Blu-ray, and several different representatives at each
of these companies. Many of these companies did not reply at all. Others informed of
a non-interview policy with people outside the media industry, and referred to white
papers or other already authored sources (The DVD Forum, IBM and Apple were
among these companies). Two companies, HP and NEC, replied that they had no
spokesman for Blu-ray/HD DVD at the moment of contact (June 2006).
Four companies accepted the interview requests: Dell, Microsoft, Niveus Media Inc.
and Thomson/Technicolor. Only Microsoft (with representative Xavier Pouyat) and
Niveus Media Inc. (with representative Tim Cutting) fully completed the
questionnaires. Dell (with representative Robert Williams) and Thomson/Technicolor
(with representative Season Skuro) backed out of the interviewing once they
received the questionnaire. Robert Williams at Dell referred instead to Dell’s white
papers and public analysis on Blu-ray and HD DVD. Season Skuro at
Thomson/Technicolor chose not to answer the questions with the motivation:
“Unfortunately, the questions that you have posed below are not questions the
company is in a position to answer due to the sensitive nature of this topic.” (e-mail
from Season Skuro received on June 13)
The results of the company interviewing phase made it clear that the format war was
a bigger taboo among company representatives than perviously planned. It was
grasped that, even if some companies were to participate in the study, the kind of
5
Chapter 2 - Method
wanted feedback was not probable to be received from these respondents, as this
kind of information most usually is not available to the public. Also, it became clear
that the information gathered would be biasad and thus not benefitial for the study’s
purpose. Pondering these factors, it was decided to change the selecting range of
respondents.
After the fruitless outcome of the company networking phase, the feedback
from what would become twenty-three technical journalists, economists, analysts and
others with similar areas of expertise was far more satisfying. Also, these sources
were regarded to have higher validity, since their in general neutral, unbiased
standpoint. It was then decided to focus on these interviews instead. The selections
of these respondents were mainly decided during the literature review phase, after
reading articles, papers, columns etc. by the respondents that provided useful and
relevant information. The authors were then contacted with an interview request,
which some accepted and some declined. A detailed list of all the interviews
conducted can be found in the Reference section.
2.7 The Questionnaire
The questions used, to all interviewees, were mainly of a discussion and open-end
basis. The subjects of the questions were formed during the literature review. The
often general character of the questions was chosen due to the intention of gathering
unbiased opinions and point of views. Examples of questions asked include:
•
•
•
•
Do you think customers are ready and willing to invest in high definition disc
formats? If not, when do you believe they will be ready (if ever)?
What are your thoughts on HD DVD's software use of iHD contra Blu-ray's
use of Java?
Do you believe the technically advanced DRM systems of HD DVD and Bluray might affect the consumers' privacy and possibilities of interoperability?
Which format, if any, do you believe will win the format war? Why? Do you
think it is possible for both formats to coexist on the same market?
Some of the interviews had questions that were individually suited for the interviewee,
if the interviewee had certain knowledge of a particular subject. In some cases,
follow-up questions were added after gathering the initial answers, if clarification felt
necessary or if other questions came up.
Some interviewees felt they did not want to or had the proper knowledge in
certain areas regarding HD DVD and Blu-ray and chose not to answer certain
questions. These non-answers have not been presented in the analysis phase.
The questions mainly focused on areas as consumer adoption, alternatives to HD
DVD and Blu-ray, potential success factors, storage, video codecs, software,
production costs, DRM (Digital Rights Management), alternatives to HD DVD and
Blu-ray, the future of movie consumption and future scenarios for HD DVD and Bluray.
The following chapter summarizes and analyzes the interviews. The respondents’
answers are being presented in the same order the interviews were carried out (as
listed in the Reference section).
2.8 Validity and Reliability
Reliability and validity are two important terms when it comes to conducting scientific
research.
6
Chapter 2 - Method
Reliability is a measurement of to what extent an instrument or methodology is
getting unvarying outcomes during repeated experiments, conducted under constant
circumstances. High reliability means getting same or very similar results during
repeated attempts of an experiment with the same circumstances (Bell, 2000). For
instance, if a question receives one type of answer under a particular circumstance
and a completely different reply during the same circumstance, the question is not
reliable (Bell, 2000). However, this project’s interviewing has not had the main
purpose of gathering empirical facts. The aim has been to investigate the opinions
and thoughts of the interviewees, due to the new and interchangeable nature of the
technologies. Therefore, a majority of the interviews have been of a respondent
character, i.e. they have had the purpose of investigating the opinions of the
interviewed person (or, in a few cases, the company or organization he or she is
representing). However, some of the interviews have been of a more facts gathering
nature, in other words of an informant character. These facts have mainly consisted
of statistics and technical facts, not available through the literature review. After all
the interviews were conducted, their outcomes were recapped, compared and
summarized. The results were then analyzed, discussed and finally a conclusion was
formed.
Validity is a measurement if a certain method measures or describes what it is
intended to measure (Bell, 2000). Given this, it means that if a question is not reliable,
it also lacks validity, but in case the reliability is high it does not necessarily mean
that the validity also is high. Since the main part of the interviews have been of a
respondent character, the validity has mostly been about making sure that the
questions are relevant for the project’s purpose. This matter has also been of
importance to avoid bias, due to potential partiality.
The literature review has been of high relevance concerning both the research’s
validity and reliability. This is because some of the interviewees’ answers may have
been or have been biased, due to professionally based partiality. Of course, some of
the literature also may have been under the subject of bias (for instance both of the
respective format introductions written by the Blu-ray Disc Association and the DVD
Forum).
7
8
Chapter 3 - Background
3 BACKGROUND
This chapter summarizes the most relevant technical information on HD DVD and
Blu-ray gathered from the literature review. Its purpose is to provide crucial
background information concerning the two formats. The sources of information have
mainly been technical articles and papers.
3.1 Introduction
The video and data storage disc DVD is the most successful consumer electronic
product ever, considering its growth rate, high sales and rapid spreading; replacing
the VHS system in barely five years after its introduction (Bell; Cookson, 2004).
Millions of consumers that previously never bought home videos, found the DVD
concept so appealing that they have purchased their own private libraries with
movies and Television series on DVD.
In three and half years DVD players achieved the mark on the U.S. market
that VCRs took eight years to reach, and CD players also took eight years to match.
From its introduction in early 1997 until October 2000 more than ten million DVD
players were sold in the USA (Taylor, 2002) and until now more than 106 million DVD
players (excluding DVD-ROM drives and DVD-capable PlayStation 2 systems) have
been sold in the U.S. alone (thedigitalbits.com, July 2006).
The success factors of the DVD include enhanced picture quality (compared
to the previous analogue video system VHS), digital multi-channel surround sound
capability, convenient access to the program material using on-screen menu-based
navigation and the packaging of added bonus material and interactive content along
with the primary title. Its possibilities as a source for data storage have also been one
of the most important success factors (Bell; Cookson, 2004).
With less than ten years on the market, the contending successor for DVD might
already be here: the blue-laser storage disc. Because of its use of blue laser the
storage capacity greatly exceed the old red-laser DVDs. Since the blue laser’s light
cone is narrower than the red one’s, the information pits can be placed closer to each
other on the disc, thus increasing the storage capacity (see chapter 3.3.1 and 3.4.1).
The growing need for increased storage capacity for disc based media,
particularly caused by the larger bit streams of HDTV and advanced multimedia
applications like computer games, will make the DVD insufficient within a couple of
years (DVD Forum, 2003). The need for purchasable and rentable video and movie
in HD will also increase when television viewers get accustomed to HDTV
transmissions, since the 480-line screen resolution for DVD is already considered too
low and results in almost unacceptable low image quality on larger screen sizes.
Various perception-based tests have shown that many find the picture quality of
SDTV (standard definition digital television) and DVD on plasma or LCD flat screen
televisions (with a larger screen size) to be unsatisfactory or of poor quality (Haglund,
2002). Consumer research show that perceived quality assessment tends towards
“poor” for screens beyond 36 inches, while HDTV images are still considered “good”
at 60 inches and beyond. (Auger, 2005) Since digital flat screen television sets sales
are continuing to rise, the need for high definition transmission sources enhances.
This year the sales for digital flat screen televisions are expected to exceed the ones
of analogue CRT televisions for the first time; HD televisions will outsell analog sets
by 89 percent in the U.S. according to the Consumer Electronics Association
(Fernandes, 2006). The high definition TVs sales are believed to accelerate at an
even higher rate when HD movies become widely available (VSDA, 2006). Research
shows that once consumers get introduced to high definition moving images, they will
have a difficult time adjusting back to lower resolutions. At a certain level, DVD must
9
Chapter 3 - Background
remain competitive with HDTV. If someone can watch a movie in high-definition on
broadcast HDTV, this option will likely seem more attractive than renting the DVD if it
only plays in 480-line, interlaced standard definition (Taylor, 2002).
As for the next generation of disc storage, there are two blue-laser based disc
formats that are competing for the same market, which has multibillion dollar
potential (VSDA, 2005). The two formats are called Blu-ray disc and HD DVD. The
technologies of the two discs are similar, but they are not compatible. Blu-ray is
technically more advanced, because of its use of thinner layers, and has a larger
storage capacity while HD DVD is more similar to the DVD format and is both easier
and cost less to produce than Blu-ray (Maquardt, 2005). Both formats have massive
company support. The HD DVD format is mainly supported by Toshiba but, at the
time of writing (September 2006), also by companies like Microsoft, IBM and
Universal Studios. The Blu-ray format is mainly supported by Sony but, at the time of
writing (September 2006), also by companies like Apple, Philips and Disney (see
chapter 3.3.2 and 3.4.2).
Thoughts about a format battle were formed early. Executives of Toshiba and Sony
have met on several occasions, together with representatives of other supporting
companies, with the intention to try in some way to unify the formats and its
supporters, in an attempt to avoid competing for the same market. These meetings
were inconclusive and without any success. Finally, in April 2006 the Panasonic
executive officer Kazuhiro Tsuga commented the termination of the meetings in an
interview with the news agency Reuters: “We are not talking and we will not talk. […]
The market will decide the winner“(DVD Intelligence, 2006a). The feared but awaited
format war then became official.
3.2 Introducing the two formats
The format battle is of great concern, particularly for the home electronics industry,
computer industry and movie industry. A large number of movie studios, home
electronics companies and computer companies have decided to support one of
either format exclusively. Analysts at Sanford Bernstein estimated that media
companies could collectively lose as much as US$16 billion worldwide over seven
years if HD DVD and Blu-ray were launched without a clear favorite, since without a
clear winner, consumers would be leery of buying one of either format (Cnet, 2005).
For many companies, the support has switched since the formats were introduced.
Some companies, like Paramount, started supporting one format, but later turned to
also support the other. Other companies have from the start decided to support both
companies and many have stated that they will change to the other format if it is
revealed to be the stronger one.
Worth noting is that HD DVD executives have stated that because more highdefinition movies will be distributed over the Internet in coming years, they have
essentially upgraded existing DVD technology to get the product available fast and to
keep prices down. Blu-ray discs, however, include architecture that Sony’s chairman
Sir Howard Stringer calls “revolutionary, not evolutionary” (Belson, 2006). In other
words, Toshiba promotes economy and a swift entry into the market before
developing advanced and revolutionary technology with its HD DVD, while Sony
seem to have the opposite intentions with Blu-ray.
3.3 HD DVD
HD DVD was developed by the DVD Forum and is based on a proposal from NEC
and Toshiba. The DVD Forum develops and defines DVD standards. It is a member
10
Chapter 3 - Background
organization consisting of over 230 companies from businesses like movies,
entertainment, computing, consumer electronics and software. In November 2003,
the DVD Forum selected HD DVD to represent the next-generation, post-DVD
standard for high capacity, high definition optical discs. Therefore, HD DVD may
include the DVD-logo in its trademark; it is considered an official DVD format. The
DVD Forum does not consider Blu-ray to be a DVD format (www.dvdforum.org).
3.3.1 HD DVD – Technology
The HD DVD disc is in many ways similar to the DVD disc. Both discs have a 12 cm
diameter and a substrate thickness of 0.6 mm (each disc consists of two substrates
bonded together). However, HD DVD discs are read with a laser with a wavelength of
405 nanometers (which represents the color of violet), compared to the DVD laser’s
wavelength of 650 nanometers (which represents the color of red). In other words,
the HD DVD laser is located at one end of the visible light spectrum (the visible light
spectrum lays approximately between 400 nanometers and 700 nanometers,
although wavelength perception may vary for different individuals). The shorter
wavelength reduces phenomena like diffraction, and increases disc density.
Illustration 1: Wavelength color representation. Used with permission of the DVD
Forum. Copyright © 2005 DVD Forum1
HD DVD systems use a blue-violet laser with a numerical aperture (NA; tells of the
lens’ light focusing characteristics) of 0.65 for the lens, which, in combination with the
lower wavelength, results in a smaller and more focused spot diameter of the laser
compared to the one in used red laser DVDs (which use a numerical aperture of 0.6).
Illustration 2: HD DVD Disc structure compared to DVD-9 structure. Used with
permission of the DVD Forum. Copyright © 2005 DVD Forum2
HD DVD discs may be single or double-sided, giving a theoretical storage potential of
60 GB on one disc. All HD DVD systems are designed to be backward compatible
1
2
Source: http://www.dvdforum.org/images/Forum_HD_DVD_Universal_24.pdf
Source: http://www.dvdforum.org/images/Forum_HD_DVD_Universal_24.pdf
11
Chapter 3 - Background
with DVD, meaning they can also play DVD discs. This is arranged by incorporating
an optical pick-up head, integrating both a red laser diode for standard DVD discs
and a blue laser diode for HD DVD, along with a single objective lens that works with
both.
The HD DVD ROM (Read Only Memory) disc contains pre-recorded media or
software. Also, an 8 cm mini HD DVD-disc has been developed for applications like
home video cameras. For data storage, HD DVD-R (recordable) and HD DVD-RW
(re-recordable) have been developed. For storage capacity for respective format see
table 3.1.
Video
A codec (the word is a portmanteau of any of the following: ‘CompressorDecompressor’, ‘Coder-Decoder’ or ‘Compression/Decompression algorithm’) is a
program capable of performing encoding and decoding on a digital data stream or
signal. It is often used in audio and video applications.
DVD uses the audio and video codec MPEG-2 (Moving Pictures Expert Group).
When DVD was introduced in Japan in 1996, MPEG-2 video compression at around
eight Megabits per second was used. To transmit HD video with MPEG-2 codec at
least 19.3 Mbps is needed (Auger, 2005). However, new, codecs with more efficient
data rates have been developed since then. The maximum data transfer for HD
DVD-video is 36.55 Mbps, compared to DVD-video’s maximum data transfer rate
11.08 Mbps (Auger, 2005), thus making HD DVD capable of transmitting HD video
signals using MPEG-2.
At the DVD Forum’s Steering Committee meeting held in Tokyo during February
2004, a motion was carried approving all three MPEG2, H.264 (also known as
MPEG-4 and AVC) and VC-1 (Video Codec 1 - previously known as Windows Media
9) as mandatory codecs in HD DVD players, with the intention of future proofing the
format (Bell; Cookson, 2004). The content owner will have the option to compress the
motion picture in any one of these codecs, since all HD DVD players will be capable
of decoding.
Video quality is measured in pixels and lines. HD DVD supports video modes up to
1920x1080 (which means 1920 pixels x 1080 lines). Video images may be displayed
using either progressive scanning technique or interlacing. Progressive scan (p)
displays full frame pictures, while the interlace (i) scanning means that each frame is
divided in two parts; one containing the even lines and another containing the odd
lines. HD DVD supports both 1920x1080i and 1920x1080p, although all players may
not have this capability (for instance, Hitachi’s first players HD-A1 and HD-XA1 did
only support video modes up to a maximum of 1080i). The maximum resolution
output DVD is 720x480 60i for NTSC and 720x575 50i for PAL (see chapter 3.6).
Audio
HD DVD supports audio codecs LPCM (Linear Pulse Code Modulation), Dolby
TrueHD (Previously known as MLP or Meridian Lossless Packing), Dolby Digital,
Dolby Digital Plus, DTS (formerly known as Digital Theaters System) and DTS HD.
HD DVD will be able to deliver a maximum of eight (7.1) audio channels of 24-bit/96
kHz.
Software
12
Chapter 3 - Background
HD DVD ROMs use the open standard iHD Interactive Format to allow interactive
content to be authored for discs. In contrast, Blu-ray makes use of Java technology
for its interactive content. iHD is exclusively developed for HD DVD by Microsoft, with
input from movie studios like Disney, and Toshiba and is based on the XML program
language and uses ECMA-script (standardized JavaScript). Since iHD is based on
XML, it is not limited to offline content used on optical media, but also media
delivered or streamed over the Internet (or any other network). This will be usable in
Internet connection capable versions of HD DVD players. iHD enables features like
animated graphical menus or video signals that can be superimposed over a movie
while it’s still running, compared to the static menus and single video feed of DVD.
According to BetaNews-reporter Nathan Mook, iHD is both "fast and very easy to
learn” (interview with N. Mook, 2006). Mook further believes that interactivity is going
to change the way people watch movies in the future.
Storage Capacity
A single-layered single-sided HD DVD ROM disc has the storage capacity of 15
gigabytes (GB) while a dual-layered single-sided disc can store up to 30 GB. At the
time of writing (May 2006), Toshiba has announced the development of a triplelayered single-sided HD DVD ROM disc with a storage capacity of 45 GB. Table 3.1
shows different HD DVD storage capabilities.
Physical Size
HD DVD-ROM,
single sided
Single Layer
15 GB
Dual Layer
30 GB
HD DVD-ROM,
double sided
HD DVD-R, single
sided
HD DVD-R, double
sided
HD DVD-RW,
single sided
30 GB
15 GB
60 GB (not
developed
30 GB
30 GB
60 GB
Triple Layer
45 GB (under
development at
time of writing)
15 GB (under
30 GB (under
development at
development at
time of writing)
time of writing)
HD DVD-RW,
30 GB (under
60 GB (under
double sided
development at
development at
time of writing)
time of writing)
Table 1: HD DVD storage capacities developed or under development
13
Chapter 3 - Background
Content Distribution / Digital Rights Management
Illustration 3: The structure of AACS. Used with permission of the DVD Forum.
Copyright © 2005 DVD Forum3
AACS – Advanced Access Content System
In order to prevent piracy concerning prerecorded digital media, a venture founded
by companies Toshiba, Sony, Microsoft, IBM, Intel, Panasonic, The Walt Disney
Company and Warner Bros. Studios, has implemented both HD DVD and Blu-ray
with the cryptography system AACS (Advanced Access Content System). AACS is
similar to the CSS (Content Scrambling System) used for DVD ROMs, but the main
difference lies in how the various decryption keys are distributed. AACS is based on
broadcast encryption, i.e. the cryptographic tools used to encrypt broadcast content,
disallowing non-subscribers to watch protected data streams (AACS LA, 2006b).
AACS allows the content provider to eliminate any subset of users from being able to
use the service. Each individual HD DVD (and Blu-ray) player is provided with a
unique set of decryption keys, which are used in a broadcast encryption scheme. If a
player’s keys are compromised by an attacker (e.g. keys posted publicly after being
hacked), the AACS LA (Licensing Authority) can revoke those keys in future content,
making the keys and player useless for decrypting new titles. This could lead all the
keys of particular players to be revoked, i.e. loosing the function to play back new
discs. In comparison, with CSS, all players of a given model are provided with the
same, shared decryption key. AACS encrypts content under one or more title keys
using the Advanced Encryption Standard (AES). The keys are derived from a
combination of a media key and several elements, including the physical serial
number embedded on a DVD (volume ID), and a cryptographic hash of the title
usage rules (AACS LA, 2006b).
Future versions of HD DVD and Blu-ray hardware players might be able to authorize
content online, via an Internet connection (Fang, 2006). Though, it is hard to imagine
Internet connections being required by default, as this could diminish or delete
segments of the consumer base. This is more likely for software players, e.g. used in
computers. Though an Internet connection could update hardware players that have
been depleted of decryption keys, it also opens up for issues like online security
3
Source: http://www.dvdforum.org/images/Forum_HD_DVD_Universal_24.pdf
14
Chapter 3 - Background
Fang, 2006).
A digital watermark copy protection system has been developed for AACS, but not
yet implemented (August 2006) for HD DVD. If implemented, all HD DVD players will
be equipped with a sensor that listens for inaudible watermarks in the soundtrack of
theatrical motion pictures, added by the movie studios. If the sensor should detect
the marks, the player will refuse to play the disc, since it means the disc is playing
back a copy made from a theatrical print.
ICT – Image Constraint Token
AASC guidelines (which must be followed by HD DVD and Blu-ray player
manufacturers) allow movie studios the option of converting down the analog
component outputs on HD DVD (and BD players). This is done using the HighBandwidth Digital Content Protection (HDCP) technology. HDCP was invented by
Intel and has the purpose to control video and audio as it flows out of a player and
onto a display. A digital flag, called Image Constraint Token (ICT), can be embedded
in the metadata of a disc (AACS LA, 2006b). If the content provider implements the
flag, the resolution will be converted down from 1920x1080 to 960x540, if the video
signal is not connected via a fully digital and protected pathway, called HDMI (High
Definition Multimedia Interface) or DVI (Digital Visual Interface) output. The resolution
would be only a quarter, since both the horizontal and vertical resolution is halved. If
ICT is implemented, non-HDCP-screens (a majority of older flat screen versions) will
not be able to display high definition images. E.g. customers that purchased legal
copies of HD DVD or Blu-ray movies can be penalized with a picture downgrade,
only for not using a HDMI connection. According to BusinessWeek, only one in 20
HD television sets sold over the past few years and only 15% of new sets sold in
2006 have the right version of digital connector that would pass as ICT approved
(Edwards, 2006).
The purpose of ICT is to prevent piracy. According to Holtzman (2006), the
only way a Digital Rights Management (DRM) can really work is to control all of the
hardware the video data flow through, including the monitor. Without ICT it is
possible to copy full-resolution copies of HD DVD and Blu-ray movies via an analog
video connection or videotaped and subsequently distribute them via peer-to-peer
networks (Bangeman, 2006). The decision to whether set the ICT flag to restrict
output is left to the content provider. AACS guidelines require that any title that
implements ICT must clearly state so on the packaging of the video. At the time of
writing (July 2006), only one movie studio (Warner Brothers) has announced any
near future use of ICT according to BusinessWeek (Edwards, 2006), and there is an
unofficial agreement between other movie studios and some consumer electronics
manufacturers not to use ICT until 2010 or 2012 (Fisher, 2006).
However, there is an official deadline for when all HD DVD players and ROMs
will make use of ICT. During the ‘2006 DVD Forum Seminar’ (see chapter 3.3) in
Tokyo it was announced that after 2010 all HD signals from HD DVD players will be
HDMI/DVI only and in 2013, all HD DVD signal transmission will require an HDCP
enabled digital display for all playback (Watch Impress, 2006), i.e. it will not be
possible to use HD DVD players’ component outputs and displays lacking an ICTcompatible digital input.
Mandatory Managed Copy
Managed Copy is a feature that guarantees consumers the possibility to make at
least one copy of their ROMs (e.g. to a hard drive, a backup disc also or a portable
device) as well as allowing the content to be played back remotely (e.g. over a home
network). Managed copy is mandatory (Mandatory Managed Copy – MMC) for HD
15
Chapter 3 - Background
DVD-ROMs (Interview with X. Pouyat, 2006). However, while the studios have to
offer managed copy (all content provided on HD DVD must give the users the option
of making at least one copy) they do have the option to charge for it (Fisher, 2005b).
Region Coding
HD DVD movies are currently (September 2006) not implemented with a region
coding system.
3.3.2 HD DVD – Company Support
The HD DVD Promotion Group consists of over 230 members (July 2006), and is
mainly led by Toshiba, NEC and Sanyo. Other members include Intel, Microsoft and
Canon. The purposes of the HD DVD Promotion Group are to (www.hddvdprg.com,
2005):
“ […] (a) promote the HD DVD format established by the DVD Forum, (b)
enhance the development of content and hardware made in compliance with
the HD DVD format, and (c) establish and expand the market for such
products. For such purposes, the Group shall conduct the following activities
("Purposes"):
i) provide useful information to companies that are interested in HD DVD;
ii) exchange ideas and share information concerning HD DVD among the
Group's members, subject to the antitrust policy issued by the Management
Meeting; and
iii) promote the HD DVD products.“
3.4 Blu-ray
The Blu-ray 4 disc (BD) was jointly developed by the Blu-ray Founders (BDF), a
variety of companies mainly led by Sony. In February 2002 the BD format was
announced by the BDF. The BD format was never submitted as a proposal for a HD
disc format to the DVD Forum. The BDF stated that the BD is a needed evolution for
the disc format, since DVD is not capable of the storage capacity required to record
and store HD video. The BD was designed to be a viable technology for a period of
at least 10 to 15 years, according to the BDF (Blu-ray Disc Founders, 2004).
4
The spelling of “Blu-ray” is not a misprint, since it is not possible to register dailyused term as part of a trademark.
16
Chapter 3 - Background
3.4.1 Blu-ray – Technology
Illustration 5: Blu-ray disc structure compared to CD, DVD and HD DVD. Used with
permission of the Blu-ray Disc Association. Copyright © Blu-ray Disc Association
Like the HD DVD disc, the Blu-ray disc has a 12 cm diameter; however, the thickness
of the cover layer is only 0.1mm. The reason for this, compared to the HD DVD’s
layer thickness of 0.6 mm, is to increase storage capacity. If the BD were to have the
equal thickness of HD DVD or DVD, it would lead to aberrations, which lowers the
recording capacity to about 10 GB instead of 25 GB. By making the thickness of the
cover layer 0.1 mm, the numeric aperture value of the lens can be raised to an
acceptable level and the storage capacity increased (Blu-ray Disc Founders, 2004).
The BD is, like HD DVD, read with a laser operating at 405 nm. However, the
numerical aperture of the lens is even higher than HD DVD’s: 0.85. This is to produce
a more focused laser spot size (the Blu-ray beam size is 0.58 µm), which is vital due
to the thin cover layer.
Compared to the HD DVD, the information on the Blu-ray disc is stored closer to the
disc surface, another reason for its superior storage capacities.
Like HD DVD, Blu-ray systems are backward compatible, meaning they are able to
play DVD video. This is arranged the same way as with HD DVD, including BD
players with dual laser diodes (see chapter 3.3.1).
The pre-recorded disc is called BD-ROM and has the intended use for distributing
movies, games and software. There is an eight cm version available for video
cameras and similar areas of use. For data storage, the recordable disc is called BDR, and the rewritable BD-RE. Both offer the same storage capacity as BD-ROM (see
17
Chapter 3 - Background
table 2).
Due to its thin data layer, Blu-ray discs come equipped with a scratch protection
called Durabis, which was developed by TDK Corporation. According to the BDA,
Durabis is supposed to have high scratch resistance.
Video
The BD-ROM format included support for video codecs are the same as the ones of
HD DVD: MPEG-2, H.264 (also known as MPEG-4 and AVC) and VC-1 (previously
known as Windows Media 9).
The maximum data transfer rate for BD is 36 Mbps and up to 54 Mbps for BD-ROM,
although the BDA has announced plans to raise the disc rotation speed, thus also
increasing data transfer rate, in the future (Blu-ray Disc Founders, 2004).
Like HD DVD, Blu-ray will support video resolution modes up to 1080p.
Audio
BD, like HD DVD, supports audio codecs LPCM, Dolby Digital, Dolby Digital Plus,
Dolby TrueHD, DTS and DTS-HD. However, BD can deliver up to eight (7.1) audio
channels of 24-bit/192 kHz compared to HD DVD’s maximum of 24-bit/96 kHz (Bluray Disc Founders, 2004).
Software
In 2005 it was decided that Java would be used to implement interactive menus on
Blu-ray discs; a more interactive approach compared to DVD videodiscs’ prerendered MPEG segments, selectable subtitle pictures and simple programmatic
navigation. According to the Blu-ray Disc Association, BD devices will be able to
update Blu-ray discs via the Internet, i.e. adding content that is not available on the
disc at pressing time. The Blu-ray version of Java language is called BD-J and will be
part of the Globally Executable Multimedia Home Platform (GEM) standard, a system
for interactive digital television.
Storage Capacity
The Blu-ray disc has more storage capacity compared to HD DVD, 25 GB per layer.
TDK has developed a quad layer BD-ROM prototype with a storage capacity of 100
GB and have also announced that they are developing of an eight layer disc with a
storage capacity of 200 GB (Blu-ray Disc Founders, 2004).
18
Chapter 3 - Background
Physical Size
BD-ROM, single
sided
Single Layer
25 GB
BD-ROM, double
30 GB
sided
8 cm BD, single
7.8 GB
sided
BD-R, single sided
25 GB
BD-RE, single
25 GB
sided
Table 2: Blu-ray storage capacities
Dual Layer
50 GB
60 GB
Quad Layer
100 GB (only
prototype available
at time of writing)
90 GB
15.6 GB
50 GB
50 GB
Content Distribution / Digital Rights Management
AACS
Blu-ray also features the content protection mechanism AACS as its core technology.
Blu-ray, however, has added two additional layers of protection, BD+ and ROM mark.
BD+ is also known as a Self-Protecting Digital Content (SPDC) system
(Cryptography Research, 2006)
BD+
BD+ is a safeguard against future content protection system breaches. It allows for
dynamic encryption schemes, meaning manufacturers have the opportunity to
change encryption schemes on new discs, if previous schemes are to be cracked, i.e.
a single crack will not open the entire BD spec for the duration of its lifetime (which
was the case with DVD’s CSS system).
BD+ allows discs to carry title specific security logic, i.e. each disc can contain
code that can be run on a BD player to allow or disallow playback, although the
players will return to normal once the disc is ejected (Fang, 2006).
Future versions of BD+ applications could download new crypto if the old one
is broken directly to the player. Theoretically, it could also be possible for a studio to
remotely disable all of the affected players, if a cryptographic breach for a company’s
software were to occur (Fang, 2006).
ROM Mark
The Blu-ray Disc Association has also agreed to add digital watermarking technology
to BD-ROMs. ROM Mark was designed to prevent large-scale piracy, e.g. videotaped
and pirated software sold on streets. The ROM Mark-feature will be built into all
ROM-producing BD devices. By utilizing the small differences in disc burners, ROM
Mark is able to tie disc security to the specific burner used to produce the disc. The
ROM Mark is a unique and undetectable watermark type of identifier produced and
included in the manufacturing phase. In the event that a watermark is detected, the
specific content can be prevented from being reproduced, with the purpose of
avoiding mass counterfeiting.
Both BD+ and ROM Mark features have gained popularity among software
companies, but some experts believe it will be anti-consumer (see chapter 5.6).
19
Chapter 3 - Background
Mandatory Managed Copy
Mandatory Managed Copy (MMC) will be part of the BD format’s features. The MMC
feature will enable consumers to make legal copies of their own BD movies that for
instance can be transferred to a home network. It is up to the studios to decide to
which extension the copy protection levels a BD title will be equipped with, i.e. the
amount of legal copies allowed for each ROM. It is, however, possible for the content
owners to charge for additional managed copies.
Before late 2005, the consumer’s copying options for Blu-ray were only
optional for the content providers to include or not. In October 2005, computer
company Hewlett & Packard publicly requested the Blu-ray Disc Association that
Managed Copy should also be implemented to the Blu-ray specifications with the
motivations ‘in order to meet the fundamental technical needs of the PC and help
create a seamless experience throughout the digitally connected home’ and ‘Unlike
with today's conventional DVDs, this feature allows consumers to make legitimate
copies of their HD movies and enjoy this content around the home or across their
networks. Making this feature mandatory will ensure a consistent consumer
experience across all next-generation DVD content’ The H&P request also included a
plea to the BDA to use iHD instead of Java. The BDA approved the Mandatory
Managed Copy request, but declined the request regarding iHD (Fisher, 2005a).
Image Constraint Image - ICT
As part of the AASC standard, BD players also provide the capability for the content
provider to implement ICT (chapter 3.3.1).
Region Coding
Blu-ray movies implement region codes (www.blu-raydisc.com), although fewer than
from those for DVD.
Region Code
1
Area
North & South America, Japan and East Asia (except China and
Mongolia)
2
Europe and Africa
3
Asia (except Japan, South Korea and Taiwan) and Oceania
Table 3: Blu-ray region codes
3.4.2 Blu-ray – Company Support
The Blu-ray Disc Founders was succeeded by Blu-ray Disc Association (BDA), which
was formed on October 4 2005. The BDA’s purpose is to support, promote and
develop further business opportunities for the BD format, or, according the BDA’s
association divisional structure model, the tasks for the members are to “create”,
“uphold” or “promote” the BD format (www.blu-raydisc.com, 2006).
The BDA consists of over 170 members (May 2006), including Apple, Dell, HP,
Hitachi, LG, Mitsubishi, Panasonic, Pioneer, Philips, Samsung, Sharp, Sony, TDK,
Thomson, Twentieth Century Fox, Walt Disney and Warner Bros - all of these listed
companies form the BDA’s board of directors (www.blu-raydisc.com, 2006).
20
Chapter 3 - Background
3.5 Comparing the formats
In a lot of ways, the format war between HD DVD and Blu-ray is a battle against cost
versus technology. To summarize the previous chapters, the technical specifications
for HD DVD and Blu-ray are similar in many ways. The major differences lie in disc
structure (BD being thinner), storage capacity (BD being superior) and DRM systems
(BD using two more DRM features).
As an introduction to this chapter, table 3.4 reviews each format’s technical
characteristics.
Parameters
Storage capacity
Laser wavelength
Numerical aperture (NA)
Disc diameter
Disc thickness
Protection layer
Hard coating
Track pitch
Data transfer rate (data)
Data transfer rate
(video/audio)
Video resolution (max)
Video bit rate (max)
Video codecs
HD DVD
15 GB (single layer)
30 GB (dual layer)
405 nm
0.65
120 mm
1.2 mm
0.6 mm
No
0.40 µm
36.55 Mbps (1x)
36.55 Mbps (1x)
1920 x 1080 (p)
28.0 Mbps
MPEG-2
MPEG-4 AVC
VC-1
Audio codecs
Linear PCM
Dolby Digital
Dolby Digital Plus
Dolby TrueHD
DTS
DTS-HD
Interactivity
iHD
Table 4: Technical summary of the formats
Blu-ray Disc
25 GB (single layer)
50 GB (dual layer)
405 nm
0.85
120 mm
1.2 mm
0.1 mm
Yes
0.32 µm
36.0 Mbps (1x)
54.0 Mbps (1.5x)
1920 x 1080 (p)
40.0 Mbps
MPEG-2
MPEG-4 AVC
VC-1
Linear PCM
Dolby Digital
Dolby Digital Plus
Dolby TrueHD
DTS
DTS-HD
BD-J
3.6 NTSC and PAL conversions
Film-based material is usually shot at 24 fps (frames per second) and each frame is
then shown twice (48hz), to avoid visible flicker effects. Global Video and television
standards NTSC (National Television System Committee - used in countries like
Japan, Korea, USA and Canada) and PAL (Phase Alternation Line – used mainly in
Europe and large parts of Asia) run respectively at 30 fps/60 hz (technically 29.97
fps/59.94hz) and 25 fps/50 hz. To transfer film-based material to NTSC and PAL, a
conversion has to be made (Taylor, 2002).
In the case of PAL, the movie is sped up 4.2% to match the 25 fps rate of
PAL video. Thus, PAL results in the transformed video running 4.2% shorter than the
original film (as well as the equivalent NTSC version, see below). This also results in
a pitch increasing of the soundtrack by 70.67%.
In the case of NTSC, a so-called 3:2 pulldown is conducted when converting
the 24 fps of the movie to the 29.97 fps of NTSC (Taylor, 2002). This is accomplished
in two steps. First, the film motion is slowed down by 0.1%, making the film travel at
23.976 fps. Now, there is 4 frames of film for every 5 frames of NTSC video
21
Chapter 3 - Background
(23.975/29.97 = 4/5). The four frames of film are then turned into five frames of
NTSC. This is done taking advantage of NTSC’s use of interlaced images. Every
NTSC frame is divided into two; one displaying the even-numbered lines of the image,
one displaying the odd-numbered lines. Thus, there are 10 interlaced NTSC field
images for every 4 film images. To fit the film images to the video signal, the NTSC
system alternately places one film frame across two fields, the next across three, the
next across two, and so on. This is repeated after each time four film frames have
been exposed and transformed into ten interlaced frames. A problem with 3:2
pulldown is that it results in a distortion called telecine judder, making camera
movements that were steady on film jerky on NTSC video. This is due to the
overlapping of some of the interlaced images.
Both HD DVD and Blu-ray are capable of showing film without performing a
3:2 pulldown or 4.2% speedup. In other words, the technology permits a capability of
outputting a 1080p/24 fps signal (even though doubled or tripled to avoid or eliminate
flicker). However, this depends on the characteristics and capabilities of the display.
For displays not capable of displaying 1080p, the video signal will be converted, for
instance using a 3:2 pulldown (making the signal 1080i/60 fps).
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Chapter 5 - Results
4 SUCCESS FACTORS
This chapter also focuses on information gathered from the literature review,
although focusing more on factors linked to the potential success of HD DVD and
Blu-ray instead of technical facts.
4.1 Production costs
According to Rick Marquardt, who previously was the Senior Vice President of
Warner Advanced Media Operations (WAMO) that helped the DVD format achieving
its wide success (Roberts, 2006), manufacturing BD discs would require an
estimated US$1.7 million cost per each existing DVD manufacturing line (Marquardt,
2005). Each major manufacturing facility would also require a minimum of two
mastering systems, at a minimum cost of US$2 million per system, according to
Marquardt. In comparison, Marquardt states that the cost to adopt existing product
lines at DVD manufacturing facilities to HD DVD-production would be minimal.
Marquardt says the cost of upgrading an existing DVD line is about US$150,000 and
a DVD mastering system can be upgraded for US$145,000.
Due to the lower (initial) production cost for HD DVD, the players also come
at a lower retail price. The first HD DVD player, Toshiba’s HD-A1, was listed at
US$499.99 upon release in the USA in April 2006. The first Blu-ray players, Sony’s
BDP-S1 and Samsung’s BD-P1000, were announced to cost respectively US$999.99
(sony.com, [2006-05-25]) and US$999 (amazon.com, [2006-05-25]) upon release
during the summer of 2006.
Whether the production costs will affect the outcome for the format battle in
the long run is uncertain. Most of the interviewees believe that it might be of HD
DVD’s advantage initially, but that in the end the customer decides what he/she
wants and the companies will produce accordingly (see chapter 6).
4.2 Distribution and success factors of DVD
The concept of home cinema has become massively popularized since the triumphs
of DVD and has caused a change in the distribution methods of video. According to
Ron Honick in his book Software Piracy Exposed, DVD sales and rentals on average
make twice as much in turnovers as the cinema industry. A paradigm shift has
occurred concerning the release dates for movies on different media. The theater-toDVD window is usually only several weeks or a few months now, something that
previously could last several months earlier (Honick, 2005). The cause for this is
piracy (illegal downloads of movies) and that an increasing number of consumers
prefer to rather watch movies on DVD than in cinemas. Peter Sealey, an adjunct
professor of marketing at the University of California-Berkley’s Haas School of
Business, believes that in the future this window will be non-existent and media will
be released simultaneously around the world; theatrically, DVD and pay-per-view
(Honick, 2005).
Video rental services that distribute DVDs via the post system have not only been
introduced to the market, but become extremely successful. The world’s largest video
subscription service, U.S. company Netflix, has a total inventory over 42 million discs
and mail 1 million DVDs daily to their 4,2 million subscribers (Breslau; McGinn, 2005).
Each day they receive an additional 100,000 new discs from Hollywood movie
companies. Netflix has announced that they will distribute HD DVD movies and Bluray movies when released. They have also told that they have started to invest in
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Chapter 5 - Results
online service applications, and will offer it when the time comes. They do believe,
however, that for the next few years DVD will continue to dominate:
“We anticipate that new devices and services for delivery of content will proliferate
over the coming years but believe that DVD, and its high definition successors, HDDVD and BluRay [sic], will continue to dominate the home entertainment experience
in the near term. At some point in the future, digital delivery directly to the home will
surpass DVD and we believe that our strategy of developing a large and growing
subscriber base for DVD rentals and our ability to personalize our library to each
subscriber by leveraging our extensive database of user preferences positions us
favorably to provide digital distribution of filmed entertainment as that market
develops.” (Netflix, Inc.,2006]
However, the Netflix CEO Reed Hastings, said the following at the Q2 2006 earnings
conference call:
‘Our view is that the current format war is unwinnable by either Sony or Microsoft in
the next several years. They are both powerful enough to maintain the stalemate.
Hopefully, early next year the single format studios will join Warner and Paramount in
becoming format agnostic. The press will declare the format war over and the
consumer adoption cycle for High Definition DVDs will begin in earnest’ (Hawk, 2006)
At a panel debate at the Milken Institute Global Conference in Los Angeles in April
2006, Peter Chernin, president and COO of News Corp., said that packaged media
(i.e. DVD) is underestimated despite indications the revenues of the format has
softened (Gruenwedel, 2006). At the same debate, Chernin also stated:
“The fact is people like holding DVD, it is an incredibly convenient distribution thing.
There is an assortment of DVDs generally within a mile of virtually every household
in America. […] I wouldn’t assume those things are going away overnight”
(Gruenwedel, 2006).
In May 2006, Frank Dudley at U.S. research firm Guideline conducted a study among
1,000 American consumers to better understand consumers’ perceptions and
preferences related to their consumption of movies. The study was titled ‘From Film
to DVD: How People Are Changing the Way They Buy and Consume Entertainment’.
The study concludes that the factor of increasing DVD sales is of importance,
although not the most important one.
Dudley states, referring to another survey conducted by
TheHollywoodReporter.com among 2,000 active American moviegoers that the main
factors among the asked consumers not to go the cinema are:
1. ‘The ticket prices are too high’ (47.4%),
2. ‘Recent movies haven’t been very good’ (44.4%)
3. ‘Lifestyle changes and less time to go’ (39.6%)
4. ‘Concessions are too expensive’ (36.5%)
5. ‘Too many ads before movie starts’ (26.7%)
6. ‘I’d rather wait for the movie on DVD’ (22.6%)
7. ‘People talk inside the theater’ (19.1%)
8. ‘Parking is a hassle’ (10.7%)
9. ‘Not enough variety at the closest theater’ (9.8%)
10. ‘Inconvenient start times’ (7.4%)
Source: TheHollywoodReporter.com, May 8, 2006
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Chapter 5 - Results
The main reason ‘The ticket prices are too high’ might be affected by illegal
downloads, i.e. the interviewees find movie tickets being too expensive in
comparison to free (although illegal) movie downloads.
The study further affirms that DVD spending and consumption is strong, referring to
that 85% of the interviewees typically watch movies at their homes.
Being asked ‘If there is a movie you want to see, which of the following do
you usually do?’ the results were as follows:
1.
2.
3.
4.
5.
6.
7.
‘Wait for the DVD rental’ (28%)
‘Go to the Theater before it comes out on DVD’ (22%)
‘Wait to buy DVD’ (21%)
‘See the movie in theater and maybe buy DVD’ (12%)
‘Wait for the movie to appear on cable network’ (6%)
‘Wait for the movie to come out on pay-per-view type service’ (3%)
‘None of the above’ (8%)
A majority of the interviewees prefers to wait for a movie to be released onto video.
This strengthens Honick’s observation on shortening Theater-to-DVD window.
When asked about the ‘Key influences for purchasing DVD’s’ the interviewees
answered accordingly:
1.
2.
3.
4.
5.
6.
‘It’s a movie I really want to see’ (68%)
‘Price’ (52%)
‘I want it in my collection’ (46%)
‘Bonus features (deleted scenes, alternate endings, etc.’ (20%)
‘Rebates/coupons inside the box’ (13%)
‘None of the above’ (12%)
Applying these figures to HD DVD/Blu-ray, content and price might also be among
the most important factors for consumers to purchase videos.
4.3 The Playstation 3 – Bringing Blu-ray into the homes?
The worldwide video game market is forecasted, by the San Diego-based market
research firm DFC Intelligence, to grow to around US$42 billion in 2010 from
US$28.5 billion in 2005 (Zeidler, 2006). In comparison, the US home video market is
valued to over US$24billion (VSDA, 2005).
Sony’s video game console Playstation 3 (PS3) will be included with a Blu-ray player.
This could have a significant impact on the format war, since its predecessor’s – the
Playstation 2 (PS2) – proven successful combination of game console and DVD
players. A lot of consumers bought the PS2 to gain both a video game system and a
DVD player to watch movies with, since the console cost was about the same or
lower compared to a typical DVD player, at the time. In less than a year (until the end
of 2000), Sony sold over two million PS2 consoles since its March 2000 introduction,
thus tripling the number of DVD players in Japan at the time (Taylor, 2002). The PS2
has had similar affects in other parts of the world, according to several of the
interviewees of this project. Though this time, the PS3 will be sold at a considerably
lower price compared to BD players. The two versions, equipped with either a 20 GB
HDD (Hard Disk Drive) or 60 GB HDD, will be sold at respectively US$499 and
US$599, compared to the almost double initial costs of the BD first BD players (see
chapter 4.1). Something that is worth noting, is that the 20 GB version will not be
equipped with a HDMI outlet, thus disabling the possibility of playing video games or
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Chapter 5 - Results
watching movies in HD (www.sony.com, 2006).
HD DVD backing Microsoft’s rivaling game console Xbox 360 is not equipped with a
HD DVD drive, although a separate drive will be sold later this year. The HD DVD
add-on will not support Xbox 360 games, only HD DVD movies, unlike the PS3’s Bluray drive that will support both games and movies.
Market analysis company Wedbush Morgan Securities believe that the format war
ultimately will be settled on the video game console market. In their 2006 industry
report ‘Flirting with Disaster, Will Sony’s Battle with Toshiba Determine the Outcome
of the Console Transition’ Wedbush’s Michael Pachter reaches the conclusion that
Sony, and it’s Blu-ray Disc format, will win the high-definition DVD war. The
prediction is due to Pachter’s belief that the PS3 will be the dominant console at the
end of the new console cycle (Zeidler, 2006). Pachter forecasts that Xbox 360 will
enjoy an advantage, due to its earlier launch (November 2005), for the next two
years, capturing 42% of the U.S. and European combined next-generation hardware
unit sales through 2007, but that PS3 sales will surpass Xbox 360 later on (Gaudiosi,
2006). Pachter states that the Blu-ray implementation with the PS3 will play a
significant role in that console’s ultimate victory, bringing millions of Blu-ray players
into homes the same way the PS2 spread DVD players. However, Pachter believes
that ultimately the outcome of the format war will depend on movie studio support:
“Should the studios embrace Sony’s Blu-ray standard for high-definition discs, we
think Sony will gain an insurmountable advantage over Microsoft. Should the studios
embrace Sony rival Toshiba’s HD DVD format, we think that Microsoft can maintain
its first mover advantage and will dominate software sales for years to come”
(Gaudiosi, 2006)
4.4 The Need for HD
Viewer’s perception of quality is partly determined by the context of what they are
used to, and what they can mentally or physically refer to. Viewers might rate a given
quality as excellent if it is the best they have ever seen, but rate it much less
excellent if they have just seen something considerably better. Thus, the acceptability
of standard definition television broadcasting and the need to broadcast HDTV is
determined partly by what else is available from media delivery (EBU, 2003). This
conclusion, made by the European Broadcast Union (EBU), is also valid for HD DVD
and Blu-ray; i.e. if HDTV transmissions become widely available 480-line resolution
DVDs might longer not be satisfactory to consumers with flat screens.
In the report ‘Further considerations on the impact of Flat Panel home displays on the
broadcasting chain’, the EBU tells of price acceptability thresholds and timescales for
flat panels. Consumer products which are successful often follow a sales pattern
which is characterized by an ‘S’-shaped or so called logistic curve. Sales follow three
phases following the logistic curve; modest or low sales until prices fall to a particular
threshold level, then rapid sales until a saturation point is reached, followed by a slow
saturation phase. If the logistic curve is to be applied on HD DVD and Blu-ray players,
the potential popularity of either format will greatly depend on the price. However,
content availability also plays a role for flat screen sales, according to the EBU. This
should also be valid for HD DVD and Blu-ray players. In summary, price and media
availability will greatly affect the success for HD DVD or Blu-ray.
Another relevant topic is the one concerning screen sizes. The average screen size
for LCD and Plasma screens available at retailers has grown since their introduction.
Naturally, larger screen sizes require higher resolution rates. Although, it is important
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Chapter 5 - Results
to remember that although increasingly larger screens become available for
decreasing prices, the domestic room constrains (the relatively inflexible room sizes
in domestic dwellings) may prevent viewers form buying screens larger than 45-50
inches, according to Drewery and Salmon (2004). Drewery and Salmon further
propose that it would appear profligate to propose a TV standard that “assumes a
significant domestic penetration of screens over 50 inches diagonal” and that “There
is a general consensus of opinion in the display industry that the preferred size for
large domestic TV screens is likely to set between 37 and 42 inches as the flatscreen revolution matures”. Drewery and Salmon concludes, for TV sets in the range
26 to 48 inch diagonal, the 1280x720p transmission standard would be optimum for
HDTV, thus making both 1080i and 1080p redundant for these screen sizes.
4.5 Adoption pattern models
Paul Saffo’s 30-year rule
According to technology forecaster Paul Saffo’s 1992 article ‘Paul Saffo and the 30year rule’, successful technologies take approximately 30 years from idea to
widespread cultural adoption. Saffo strengthens this 30-year rule by stating a 30-year
pattern is somewhat of a historical constant and has not changed substantially in four
centuries (he exemplifies by describing how Gutenberg’s invention of printing in 1457
led to Aldus’s definition of publishing in 1501).
In his article, Saffo also introduces the term Macro-myopia, a phenomenon
that sometimes occurs when new technologies are not instantly successful. Initially,
the technology’s potential is overestimated, and when the expectations are not
fulfilled, the technology’s potential is instead underestimated. Some technology
remains to be the technologies of the future forever, while others breakthrough later
on.
‘Macro-myopia is a strange phenomenon that causes us to overestimate the potential
short-term impacts of a new technology. And when the world fails to conform to our
inflated expectations, we turn around and we underestimate the long term
implications’ (Saffo, 1992)
Blu-ray and HD DVD can both be considered as new technologies, since of their
innovative use of blue laser, or not, since the disc media (in the forms of Compact
Disc, CD-ROM and DVD) itself is not a new technology.
Saffo says technology itself does not drive change at all; instead it’s our
collective cultural response to the options and opportunities presented by technology
that drives change. Applying this to the situation between HD DVD and Blu-ray,
several of the interviewees believe both products were created before there was an
actual need on the market (see chapter 6), therefore it is hard to predict how
consumers will react to these technologies.
According to Saffo, the 30-year period is divided into three phases, each with a
duration of a decade. The first ten years are characterized by a small market
penetration, discussions concerning the technology and lots of puzzlement and
excitement. During the second decade, the technology becomes more widespread
and its areas of use are experimented with. In the third phase the technology
becomes fully integrated and standardized into society and gets wide penetration.
Applying Paul Saffo’s model of adoption, HD DVD is said to be an evolution of the
DVD technology, while Blu-ray in the same way is stated as being revolutionary. In
either case, both technologies can be seen as positioned in the first phase, since the
characteristics ‘small market penetration, discussions concerning the technology and
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Chapter 5 - Results
lots of puzzlement and excitement’ all describe both formats’ current market position
well. (Results?)
Everett Rogers’ models on consumer adoption
Everett Rogers is well-known for his models on consumer adoption. Rogers has
proposed a model of Characteristics of an Innovation or Change (Wikipedia, 2006):
•
•
•
•
•
Relative Advantage – The degree to which an innovation is perceived as
better than the idea it supersedes.
Compatibility – The degree to which an innovation is perceived as being
consistent with existing values, past experiences, and needs of potential
adopters.
Complexity – The degree to which an innovation is perceived as difficult to
understand and use.
Trialability – The degree to which an innovation may be experimented with on
a limited basis.
Observability – The degree to which the results of an innovation are visible to
others.
If applied to HD DVD and Blu-ray, superseding DVD and SDTV, the Characteristics
of an Innovation or Change could look as follows:
•
•
•
•
•
Relative Advantage – The relative advantage of both HD DVD and BD
compared to DVD is mainly that the previous two are capable of transmitting
High Definition video. Other characteristics that could be seen as advantages
include interactivity supporting software, high density discs and superior
(lossless) sound.
Compatibility – Both HD DVD and BD could be seen as considerably
consistent with existing values and past experiences of potential adopters,
since they are quite similar in their areas of use (disc-stored video with userfriendly interface). Though, it’s more difficult to foresee if the needs of
potential adopters can be seen as consistent, compared to the popularity of
DVD. High Definition is probable to breakthrough among the general public
due to the increasing sales of TFTs and the spreading of HDTV. However, it
is uncertain to tell how consumers will prefer how to receive High Definition
video, since there are other options.
Complexity – This depends highly on the user-friendliness of the interfaces of
HD DVD and BD systems. If similar or identical to DVD (which is probable,
since the marketing is targeting similar or same consumer groups), the
complexity for both HD DVD and BD should be considered to be low. iHD and
BD-J is said to produce graphical and easy navigated menus by their
respective promotional group.
Trialability – This will initially be mainly affected by the availability at retailers.
Observability – The general awareness of HD DVD and BD is hard to
measure, because of their limited existence on the market.
Rogers believes adopters of any new innovation or idea can be arranged in the
following categories, according to his Diffusion of Innovations model (Wikipedia,
2006):
•
•
•
Innovators (2.5%); Venturesome, educated, multiple info sources, greater
propensity to take risk
Early adopters (13.5%); Social leaders, popular, educated
Early majority (34%); Deliberate, many informal social contacts
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Chapter 5 - Results
•
•
Late majority (34%); Skeptical, traditional, lower socio-economic status
Laggards (16%); Neighbors and friends are main info sources, fear of debt
When graphed, the rate of adoption formed an s-shaped curve that shows a
cumulative percentage of adopters over time: slow at the start, more rapid as
adoption increases, the leveling off until only a small percentage of laggards have not
adopted. The speed of technology adoption is determined by two characteristics p,
which is the speed at which adoption takes off, and q, the speed at which later
growth occurs. The percentage of adopters takes off when the rate of adoption is
between 10-25%. Early adopters may cause the adoption rate to lead to full market
penetration.
HD DVD and BD could be seen as successful products, if applying them to
Rogers’ models. At the time of writing (August 2006), adopters of HD DVD and Bluray are consisting of early adopters, according to a majority of the interviewees of this
thesis (see chapter 6). Since the groups of innovators and early adopters combined
only consist of 16% of the market, according to Rogers’ model, both HD DVD and BD
might reach widespread adoption shortly, if the amount of early adopters continues to
rise.
Rogers has also proposed a five stage model for the Diffusion of Innovations
(Wikipedia, 2006):
1.
2.
3.
4.
5.
Knowledge – Learning about the existence and function of the innovation
Persuasion – Becoming convinced of the value of the innovation
Decision – Committing to the adoption of the innovation
Implementation – Putting it to use
Confirmation – The ultimate acceptance (or rejection) of the innovation
Applied to HD DVD and BD adoption, many consumers are only in the first phase of
this diffusion model, i.e. they are learning about the existence and function of the
innovation, again referring to a majority of the interviews conducted (see chapter 5).
4.6 The New Paradigm
German economist Klaus Oestreicher states in the column ‘The New Paradigm’ that
business life cycles have become shorter and more disruptive. Previous business
development models included the following phases:
1
2
3
4
5
Birth/Constitution
Growth
Maturity
Age/Descent
Death/Dissolution
According to Oestreicher, the New Paradigm model excludes the Age/Descent phase
altogether, meaning that businesses die after reaching maturity on the market.
Oestreicher claims that it takes just a few years for the average organizational lifespan of a company to be reduced by two-third.
Applying this marketing model on the DVD market, according to market analysis
company IDC expected that in 2007 DVD player sales will decline for the first time
due to growing saturation worldwide (Dvd-recordable.org, 2003), and could therefore
be on its way being replaced by the HD DVD and Blu-ray or some other video
distribution channel.
However, even if the DVD market is soon to becoming saturated, the
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Chapter 5 - Results
following replacement media, the successor, must be able to offer new qualities to
convince customers (Bell, A.E. and Cookson, C.J., 2004). This could be the case
both with BD and HD DVD, since both (compared to DVD) offer superior video and
audio quality, more advanced software support (enabling interactivity in menus and
bonus material sections), Internet connection capabilities and improved capacity for
data storage. However, how the consumer will subjectively consider these factors as
relevant enough remains to be seen.
In an interview with Klaus Oestreicher conducted in June 2006, Mr. Oestreicher
stated that the New Paradigm model in some ways is applicable to the formats HD
DVD and Blu-ray. Oestreicher initially said that the proposal of the two formats is a
one-way asymmetric 5 suggestion by the industry instead of a two-way symmetric
development (after Grunig & Hunt’s four public relations models, described in
Managing Public Relations (1984)) between industry and market demand and
expectation. Klaus Oestreicher stresses that the legitimacy of the new formats is
uncertain, and that several questions concerning this matter can be raised, e.g.
consumers’ unpredictable choices.
•
•
‘Are the new formats really something needed or only the approach of the
industry to “pocket” money? The well-informed consumer today may become
an unpredictable partner in this endeavor.
Will the regular DVD be offered further, or will it disappear from the shelves?
That may become a serious threat that consumers buy less, if they are forced
to buy new formats and they may rely more on recorders, especially those
equipped with hard drives.’ (Interview with Klaus Oestreicher, 2006)
Mr. Oestreicher refers here to the shortening release cycles from Cinema to DVD to
TV as well to The Cluetrain Manifesto – The end of Business as usual (Levine et al,
2000; www.cluetrain.com).
Subsequently he referred to Kevin Kelly’s 1997 and 1998 articles in Wire
Magazine on the ‘New Rules for the New Economy’6 (also available in Kelly’s book
New Rules for the New Economy (1998)), saying there will be a strong parallel
influence of these rules:
“I can imagine that these rules will hit the new formats in full consequence, especially
by the chain of cause – effect. The dream behind everything here, to re-establish the
lost profit pools, may be destroyed e.g. by the rules “Follow the Free”, “The Law of
Generosity” or “The Law of Plenitude”. (Interview with Klaus Oestreicher, 2006)
As to implementing the model on the format war, Klaus Oestreicher thinks it will be
particularly applicable in the terms of the latter parts of the format’s life cycles.
“Many hi-tech authorities consider the new formats as the last battle of discs, facing a
near (3 – 4 years) sudden death. I am reluctant to support this quantitatively, but I
have no doubt that the disc has arrived in the very last cycle of its life. As others, I do
5
One-way asymmetric: a system that allows an organization to put out its information but not
to receive feedback from its publics about that information.
Two-way symmetric: a model that advocates free and equal information flow between an
organization and its publics, leading to mutual understanding and responsiveness. (Lane,
2003).
6
‘The New Rules of the New Economy’ describes a new kind of complex economics systems,
where non-linear economic growth is more important than linear, and where the prices for
many products and services are free (e.g. free software downloads) (Gronlund, 1999).
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Chapter 5 - Results
not expect a smooth decline, but a sudden end by interruptive technologies, as my
Life Cycle model suggests.” (Interview with Klaus Oestreicher, 2006)
4.7 Adoption Hindrance
US online DVD trading company Peerflix Inc. conducted a survey on 1,100 of its
active users about how likely they are to buy a Blu-ray or HD DVD player or discs in
2006. Peerflix chose survey subjects who said they buy an average of five DVDs and
rent an average of seven DVDs per month. The respondents were predominantly 25to 44-year-old males with jobs, a wife and no children. Most had DVD collections of
at least 50 discs and about a third also rented DVDs online (Reuters, 2006). In other
words, the respondents were mainly considerably active movie consumers.
The results of the study were officially announced on May 3rd 2006. The
survey showed that about one in five may buy high definition DVD players or discs in
2006. Six percent of the respondents said they were “very likely” and thirteen percent
were “somewhat likely” to buy a HD player in 2006. Peerflix’s vice president of
marketing, Daniele Levy, commented the numbers as surprisingly small, considered
the respondents were “die-hard DVD fans” (Reuters, 2006). Levy believed that the
adoption of the new technology was hampered by the high price of HD DVD and Bluray players compared to standard DVD and the competing standards situation.
Tom Adams, chief executive of Adams Media Research, stated that the
figures would be a fraction of the Peerflix’s survey results, if the same survey were to
be conducted on a random sample of the general population, meaning that the
Peerflix’s survey’s respondents were “heavy movie fans” that were “not too
concerned about the format war” (Reuters, 2006).
The Peerflix survey might indicate that the HD disc format adaptation might
be hindered by the format war, which is seemingly causing uncertainty among
customers, and thus signifying a potential slow growth for both HD DVD and BD the
forthcoming few years, something a majority of my interviewees also believed (see
chapter 5).
4.8 Piracy
Multimedia is the most problematic media to secure from piracy (Honick, 2005). Until
now, copy protection technologies for multimedia products have always sooner or
later been deciphered.
An 18-month study completed in 2005 by LEK Consulting has found that lost
sales from worldwide piracy of DVD movies and downloads totals $6.1 billion a year.
The study showed that Mexico is the largest market for pirated movies (rather than
Russia and China7 that previous studies done by the MPAA (Motion Picture Society
of America) have showed). It also found that the movie studios lose the most profits
in the home video market rather than theatrical distribution (DVD Intelligence, 2006b).
These figures show that piracy is of great concern for the home video industry.
Many believe that the next step in video distribution is via the Internet, to consumers
with broadband connections (Honick, 2005). It is basically about the same technology
used for successful online music distribution ventures like iTunes. The costumer
downloads or streams a movie via its Internet connection. On May 22 the first legal
movie downloading service, a collaboration between the companies Universal and
film2home.se, became available in Sweden. However, this is not a new distribution
channel. Movies have popularly been spread via PTP (peer to peer) services of FTPs
7
According to a 2006 study carried out by the MPAA, piracy in China cost film-makers an
estimated $2.7 billion in 2005. The study estimated 93% of all movie sales in China were
pirated versions (DVD Intelligence, 2006d).
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(File Transfer Protocol) for years, although this has been a matter of illegal copies. A
lot of targeted consumers are already used to receive movies via downloading, for
free. Therefore, price will be of outmost importance concerning future levels of piracy.
If customers are forced to pay DVD prices to download and watch a movie, then
piracy may be the more attractive alternative (Honick, 2005).
If the DRM (Digital Rights Management) systems of HD DVD and Blu-ray ROMs are
to be cracked definitely, then nothing is standing in the way for illegal distribution the
same way DVDs has been spread until now. According to Ron Honick, all copy
protection only lasts a finite time and eventually becomes broken. However, both
AACS and BD+ are much more complex systems than the static CSS of DVD. BD+
has the ability to change encryption schemes continuously. AACS and BD+ also
allow updating individual key registers for separate titles.
One of this thesis’ hypotheses is that the, in many ways restrictive, DRM
systems of HD DVD and Blu-ray have the capability to cripple user privacy and
interoperability (see Chapter 6.5).
4.9 Other disc format contenders
Besides HD DVD and Blu-ray disc, there are several other formats with high
definition/density capacity.
4.9.1 FVD – Forward Versatile Disc
The Forward Versatile Disc is a red laser based disc system developed in Taiwan
jointly by the Advanced Optical Storage Research Alliance (AOSRA) – which
consists of 29 Taiwanese disc manufacturers and media firms - and the governmentfunded Industrial Technology Research Institute (ITRI). The format was announced
on April 5 2004 in Taipei. The disc share more similarities to DVD compared with BD
and HD DVD; the laser wavelength (650 nm) and the pit length (0.40-0.44 µm) are
both the same as with DVD. But the track width has been shortened slightly to allow
a 5.4GB of storage per layer as opposed to 4.7GB for DVD. The specification for FVF
allows for up to three layers for total of 15GB in storage (OES, 2003). Another
difference is that the more bit compressing efficient WMV9 codec is used for FVD, as
opposed for the support of the storage craving MPEG-2 for DVD. Resolutions 720p
and 1080i are supported. A dual layer FVD disc can store up to 135 minutes of 1080i
video, according to the AOSRA (Smith, 2005).
The FVD was launched in different parts of Asia during the spring of 2006,
although the backers would like to see the format adopted in the west (Smith, 2005).
4.9.2 EVD – Enhanced Versatile Disc
The EVD is a Chinese disc format, constructed with the purpose of freeing domestic
manufacturers from the royalty payments they will need to make to Western
companies in order to produce HD DVD and/or BD-compatible players. The format is
developed by multi-company partnership Beijing E-world Technology and is
supported by the Chinese government, the latter making EVD the optical disc
standard in China (Clendenin, 2006). EVD uses the MPEG-2 codec to read high
definition content. EVD discs can pack up to ten layers that store 5 GB each. At the
CeBIT expo in March 2006 Beijing E-world Technology announced that the first EVD
players were to be released at the end of 2006 (Clendenin, 2006).
4.9.3 VMD – Versatile Multilayer Disc
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The Versatile Multilayer Disc is a red laser based disc system developed by the
company NME (New Medium Enterprises). The main characteristic for the VMD is its
use of many layers, up to 20 layers per disc, allowing storage capabilities up to 100
GB (DVD Intelligence, 2006c; NME, Inc., 2006), thus making it possible to store
several HD format movies on a single disc. NME has signed content agreements in
India, China, Russia and South America (HiddenWires, 2006) and has also
announced in May 2006 that over VMD 100 titles will be released in the United
States during 2006 (DVD Intelligence, 2006c). According to NME, a VMD player will
have a retail price at approximately US$150, i.e. considerably lower than both BD
and HD DVD players. At
4.9.4 HVD - Holographic Versatile Disc
HVD is also an advanced optical disc technology, It is still in the research stage. It is
created by Japanese company Optware and has a promoting group called HVD
Alliance, based in Yokohama, Japan. HVD technology is based on collinear
holography, whereby two lasers, one red and one blue or green, are collimated into a
single beam (HVD Alliance, 2006). The first laser (red) is used as a reference beam
to read servo information, while the second (blue or green) reads data encoded as
laser interference fringes from a holographic layer near the top of the disc. The HVD
has a transfer rate of 1 Gbit/s.
Using a laser cone with a 200 µm diameter enables storage capabilities up to
one terabyte (Optware, 2004). Optware was due to release a 200 GB HVD disc
during the summer of 2006. However, the first HVD drives were to be priced as high
as US$30.000 (CDRinfo.com, 2005).
4.10 Comparison to a Previous Format Battle; VHS and Betamax
The format battle between HD DVD and Blu-ray has on many occasions been
compared to the rivalry between VCR (Video Cassette Recorder) formats VHS and
Betamax. The VHS/Betamax battle took place during the late seventies and early
eighties, with VHS as the final victor. Sangin Park (2003) at the Seoul University has
conducted a study on the U.S. home VCR market during the years 1981-1988 and
summarized his conclusions in ‘Strategic Maneuvering and Standardization in the
Presence of Network Externalities: A Simulation Study of the VRC Case’. Park states
that the VHS/Betamax struggle is an example of de facto standardization in the
presence of network externalities.
Network externalities are categorized as either direct or indirect (Park, 2003).
In the presence of network externalities, an increase in the users of a product raises
the consumer’s utility level and therefore the demands for that product directly (as in
the case of fax machines for example) or indirectly (via an increased variety of
available movie titles as in the case of VCRs). The number of users is called a
network size, and the user’s benefit from the network size is called a network benefit
(Park, 2003).
Park states that in the case of durable goods, the consumer may take into account
not only the current utility but also the expected future utilities derived from the use of
a product. This could be applicable to both HD DVD and Blu-ray, since both can be
considered as durable goods. Park finds that an increase in the network advantage
of VHS helped tipping toward its favor in the standardization process, and in the early
1980’s, the network advantages of VHS was mainly due to its expected dominance in
the future. I.e., when consumers are certain of which of Blu-ray and HD DVD, if any,
will be the most dominating future format, a raise in sales might be to be expected.
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Park states further that the only real difference between the two formats in the early
1980’s was in installed based accumulated prior to the network externalities (via the
consumer’s use of prerecorded videocassettes, mainly movie titles). Park infers that
the small difference in the installed bases amplified the difference in sales between
VHS and Betamax via network externalities and then was reinforced to be bigger.
Applying this to the HD DVD and Blu-ray format battle, the amount of movie titles and
software titles might be crucial for each format’s success. This will depend on the
strategic maneuvering of sponsoring firms, mainly the big movie studios and software
companies.
Both in 1983 and 1987 Betamax tried to push sales with aggressive marketing
methods and slashed prices, in order to try to compete with VHS’s increasing
dominance on the VCR market. The push in 1983 created a temporary interruption in
the process of tipping toward VHS. But, it was neither sufficient nor lasting. In 1984,
the yearly increase in the relative sales of VHS to Betamax had recovered. The push
in 1987 was more aggressive but turned out to be late. It had almost no effect on the
tipping and de facto standardization of VHS.
This historical example raises an interesting hypothetical scenario. If HD DVD
were to have a lead in selling players and movies due to lower prices (i.e. enjoying a
larger network size than BD) and BD players are sold at competing prices with HD
DVD players (probably at a loss) as a response, the timing might be crucial for Bluray’s success. If the push comes too late, as in the case of Betamax, the efforts
might be without any results.
According to Park, the tipping process toward VHS was not affected by the
big average price/quality advantage of Betamax in 1987, when Betamax conducted
it’s most aggressive marketing push. This implies the significance of an applications
barrier to entry in the presence of indirect network externalities (Park, 2003), i.e. the
consumer’s average benefit from available software products (network benefits), the
potential rival even with a significant cost or quality advantage may not enter the
market since the opponent’s network advantage dominates the potential entrant’s
advantage in cost or quality.
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5 RESULTS
This chapter summarizes the qualitative methods used in the study. In this phase,
various company representatives, analysts, technicians, economists, technical
journalists, and other persons with knowledge in Blu-ray and HD DVD, were
consulted and interviewed.
5.1 Introduction
The purpose of using qualitative methods, in the shape of in-depth interviews, was to
gather facts, information and opinions regarding HD DVD and Blu-ray not available
through the literature review. Since a lot of the factual information was already
gathered in the literature review phase, most interviews tended to focus on open-end
questions with opinion-based subjects.
The analysis of the interviews has been divided into the following sections. Each
section summarizes and analyzes the answers received from the interview
respondents.
5.2
5.3
5.4
5.5
5.6
5.7
5.8
Consumer Adoption and alternatives to HD DVD and Blu-ray
Potential Success Factors
The impact of the Playstation 3
Production costs / Economy
Digital Rights Management / Copy Protection
Differences in technical features - Pros and cons
Future scenarios for HD DVD and Blu-ray - Which format will prevail?
5.2 Consumer adoption and alternatives to HD DVD and Blu-ray
German economist Klaus Oestreicher assumes U.S. consumers are more ready
than European ones regarding HD DVD and BD adoption. He believes both
technologies are too expensive for consumers, since a compatible screen is needed,
besides the players themselves, to take advantage of the High Definition features of
HD DVD and BD.
‘Main hindrance [sic] is that not only a new player is needed, but a compatible screen,
too, bringing investment to a considerable amount’ (Interview with K. Oestreicher,
2006)
Oestreicher thinks although the increasing introduction of HDTV in many countries
might popularize HD DVD and BD, both formats are being launched too early.
Oestreicher believes both formats follow a one-way asymmetric suggestion by
manufacturers to consumers, who have not asked for the new formats in their
majority, i.e. there is no guaranteed consumer interest in the formats, since both
formats where developed before any consumer request was made.
Oestreicher also believes that HD DVD/BD adoption might be hindered due to
consumers being surfeited by other new technology.
‘[…] the new formats are a) too early and b) already now threatened massively by
interruptive technologies, such as downloads, mpeg4, Internet2, etc. I see some
parallels to the useless approach of digital VHS-cassettes.’ (Interview with K.
Oestreicher, 2006)
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Klaus Oestreicher thinks there will be business with the formats, but only for a very
short period. He stresses that neither discs nor players are being heavily promoted,
something that would be necessary in order to achieve a decisive market advantage.
Oestreicher also believes the availability of content will be of great importance for
both formats, referring to the low acceptance that followed the CD launch in the 80s,
due to initial the lack of content.
Graham Sharpless, at Optical Disc Technology Ltd, says it is clear that DVD sales
have peaked and that there will be a need for a new format within a few years. He
thinks the arrival of HDTV will stimulate demand for a new format with HD video,
better audio, better graphics, more advanced interactivity and online connectivity.
Since both HD DVD and Blu-ray provide these features, both could become the
successor to DVD.
Graham Sharpless believes U.S. customers are ready to invest in HD DVD or
BD, since DVD looks inferior to HDTV, although the format war might hinder
consumer adoption, due to uncertainty in format selections:
‘[…] two competing formats will not help the majority of consumers who, whether or
not they would want a new format, will probably postpone any decision until the dust
settles.’ (Interview with G Sharpless, 2006)
Sharpless thinks few European consumers will be interested in a new format, at least
not until 2007, since European HDTV is currently less advanced compared to the U.S.
version.
Anders Appelqvist, CEO at the Swedish Consumer Electronics Association
(Konsumentelektronikbranschen), believes ten percent of the DVD players of
Swedish and European households will support High Definition in 2010-2011. He
refers to a continuing spreading of HDTV support among Swedish and European
broadcasters during 2006 and 2006, especially among movie channels and channels
broadcasting the 2006 World Cup. Appelqvist thinks HD technology will have its
definite breakthrough in Sweden and Europe in 2008, due to the Olympic Games in
China.
Christian Magdu, editor in chief and co-founder of the Swedish DVD website
www.dvdforum.nu, does not think there will be any consumer rush for HD DVD
and/or Blu-ray upon release in Sweden and Europe. He says both formats require
additional investments (a HD-ready screen) for consumers, bringing the initial costs
up to a level that is too high, especially considering the general consumers’ lacking
knowledge of HD technology. Magdu exemplifies this by saying it’s hard for amateurs,
and even for experts, to see differences between 720p and 1080p on screens
smaller than 70”. He believes the early adopters group will purchase players upon
release in Europe and Sweden, but points out that they are not a majority of the
consumers. Magdu prognoses HD DVD and/or Blu-ray may breakthrough
considerably in Sweden and Europe in approximately two to three years, when HDTV
also will be more common.
Shane Greenstein, an Elinor and Wendell Hobbs professor at the department of
Management and Strategy, writes in the essay ‘Format wars and complexity’ about
how the standardization of the installed base affects the strategic role of standards in
transitional technology markets. Shane Greenstein was asked if he believes
consumers are ready and willing to invest and upgrade from DVD to HD DVD or Bluray technology, considering the high standardization rate of DVD. His reply:
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‘The sales of DVD players to new users is reaching saturation, and is now fueled
primarily by replacement demand. That does not imply anything about user
willingness to upgrade, but it suggests that the market is ripe for it if the upgrade
offers sufficient improvement. Both format sponsors are counting on that user desire
to pay for the upgrade.’ (Interview with S. Greenstein, 2006)
Shane Greenstein shares Klaus Oestreicher’s and Rob Enderle’s point that there is
no certain consumer interest or willingness to invest in either HD DVD or Blu-ray,
even if there is a replacement demand for DVD, e.g. High Definition-supporting
technologies.
In his article ‘Format wars and complexity’, Shane Greenstein discusses
complex standardization strategies companies might carry out during format wars.
He explains the opposite market situation to format wars, what is called an
autonomous market, and exemplifies this with the VHS to DVD transition. Since DVD
was the result of a technical compromise between all the major hardware
manufacturers and movie studios, the DVD format could peacefully grow in strength
and user base. In contrast, the market rivalry between HD DVD and Blu-ray leads to
more rabid marketing strategies. Shane Greenstein considers these strategies being
complex:
‘Both parties make their technologies backward compatible with DVD, at a bit of
expense. Both parties went to extraordinary lengths to sign up others. Both parties
invested in expectation formation activity’ (Interview with S. Greenstein, 2006)
Xavier Pouyat, Program Manager at Microsoft Corporation (supporting HD DVD),
believes consumers are ready to invest in high definition sources, referring to
increasing LCD and Plasma display sales and high definition game consoles and
how viewers find Standard Definition image quality being inferior on TFT displays.
‘Some disappointments and frustration appear when these consumers are watching
Standard Definition on HD displays’ (Interview with X Pouyat, 2006)
Xavier Pouyat thinks consumers will invest in HD sources (broadcast and physical
media), as they invested in HD displays. He thinks physical HD discs will be a
premium source for HD content compared to HDTV, like DVD propose a better image
quality than SDTV, due to discs’ allowance of non real-time audio and video
encoding and higher bit rates. He also thinks the possibility of HD interactivity
features (using HD DVD as example) might be an important factor, even for
consumers who do not have HD displays. Xavier Pouyat thinks the transition to HD
will take time, comparing it with the transition from VHS to DVD.
Wolfgang Gruener, managing editor at TGdaily.com speaking at the behalf of the
TG writing staff, believes consumers will adopt the formats over time and that early
adapters will invest in HD technology before regular consumers.
‘At this time, price matters to the mainstream consumer, who will certainly not buy a
$500 HD DVD player, $30 HD DVDs or a $1000 Blu-ray player. Early adopters
however will’ (Interview with W. Gruener, 2006)
He says new technologies are always pricey due to production ramps and slower
sales, and that manufacturers usually try to use these early stages of their product to
bolster profit margins. He thinks price matters to the mainstream consumer, who will
not invest in HD DVD or Blu-ray until the prices come down significantly.
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‘Over time, prices will come down and you are likely to see $250 (1080i) HD DVD
players next year and $500 (1080p) Blu-ray devices’ (Interview with W. Gruener,
2006)
Gruener says the TG staff sees an emergence of a segmentation of the market – in
mainstream (1080i, 720p) and enthusiast (1080p).
Nathan Mook, technical journalist at Betanews.com, believes consumers are ready
for high definition technology, but says also that as long as there are two competing
formats, the formats will have a hard time taking off.
‘Consumers do want high-definition DVD (they are snapping up high-definition TVs),
but they don't yet see the value in it. It's too expensive, and there isn't enough
content yet. It will be years until we see any decent adoption numbers, unless
Toshiba and Sony figure out some way to join forces […] Consumers just aren't
ready yet with the fragmentation of the two formats. Right now customers will be the
early adopters and enthusiasts’ (Interview with N. Mook, 2006)
Richard Forno, a principal consultant for KRvW Associates, security commentator
and author, thinks consumers will not invest in Blu-ray or HD DVD technologies until
their prices are the same as, or close to, current DVD prices. He thinks the format
war will lead to uncertainty among consumers, hindering adoption.
John Zubrzycki, principal technologist at the Technology Group at BBC New Media
and Technology, says the BBC have noticed the increased availability of large flat
panel displays and have read about the sales predictions in the press. In order to
investigate whether consumers are ready for HD, the BBC has started a HD trial
channel named BBC HD. BBC HD is currently (summer, 2006) broadcasting on
satellite, cable and a limited trial on terrestrial in the London area (the trial will last up
to one year). The BBC are also transmitting HD over the broadband Internet using
multicasting and have made HD programs available for download in a trial of their
interactive player named iMP, however these are separate from the traditional
broadcast trial.
John Zubrzycki says that the aims of the trial is to investigate the technical
issues related to broadcasting HDTV as well to gauge the public’s appreciation of
HDTV. At the end of 2006, BBC will be assessing the results of the trial. The BBC
needs to be sure that its viewers would watch HDTV before committing to
broadcasting a permanent HD service, since the organization is funded through a
public license fee, Zubrzycki also told of.
John Zubrzycki continues on the impact caused by the changing media
consumption habits among consumers, referring to the impact of broadband Internet,
file downloading, peer-to-peer networks, media centers, programmable digital video
recorders and mobile devices. He sums it all up by saying that consumers want to
consume content when and where they want it. The restrictive features of AACS, and
the other new DRM systems, might affect this consumer request in a negative way.
Tim Cutting is the CEO and founder of Niveus Media Inc., a U.S. hardware company
that has chosen to, at least initially, support HD DVD instead of Blu-ray.
‘We chose HD-DVD because of it’s superior Video quality (at least at launch) over
Blu-ray, it’s managed copy feature (coming in ’07), and the fact that all the pieces
were available to us to get started on development, which was not the case with BluRay.’ (Interview with T. Cutting, 2006)
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Tim Cutting believes consumers that have enough money and are interested in high
resolution video and audio are ready to invest in high definition disc format. Those
not falling into this category, or those who not want to invest in a format that may still
have a battle with Blu-ray, will wait. Tim Cutting thinks HD DVD’s biggest competitors
are Blu-ray and the general confusion over HD technology.
Rob Enderle, principal analyst at U.S. firm Enderle Group, also believes the formats
have been put on the market before any consumer request has arisen.
‘Right now they (consumers) aren’t as a group interested in these formats they don’t
seem to address a problem, unlike the original DVD which addressed portability and
pricing problems, they don’t seem to address a consumer sourced problem’
(Interview with R. Enderle, 2006)
Rob Enderle doubts consumers will move on to either HD DVD or Blu-ray. He
believes consumers do not find them compelling enough and that other technologies
are coming that may provide better alternatives. Enderle believes holographic
memory is coming on strong and may arrive soon enough to keep HD DVD and Bluray from ‘successfully driving this evolutionary change though the market’ (Interview
with R. Enderle, 2006).
Bryan Greenway, creator of hometheaterblog.com, feels that some consumers are
ready to invest in high definition disc formats, referring to Toshiba’s first HD DVD
player HD-A1’s sales rank at amazon.com, which he says indicated a minor but
growing interest in pre-recorded HD content. However, Bryan Greenway believes
these sales have come mainly from early adopters and that they are not
representative for general consumer groups. He thinks it will take at least a year
before either format will become widely adopted.
In a long term view, Bryan Greenway believes blue laser technology will
replace the current red laser based one. However, he thinks this transition will barely
be noticeable for the general consumer:
‘I think eventually consumers will purchase a “DVD Player” and won’t even
necessarily be aware their purchasing a new (blue laser) technology, it will feel as
seamless as any other minor hardware upgrade’ (Interview with B. Greenway, 2006)
Lars Haglund, Senior R&D Engineer at Production Technology at SVT
Technology/R&D, tells that SVT (Swedish license fee-funded television) believe that
consumers are ready for High Definition technology. He tells that SVT has conducted
studies (referring to Villa & Home Fair Study in combination with reports from
Stanford Resources) several years ago that showed that global average selling
prices of flat panel screens will reach a level that Swedish consumers accept during
year 2007.
Hartmut Gieselmann, editor at German computer magazine CT Magazin, thinks
many European customers that have bought a widescreen-TV and a DVD-player the
last few years, are still happy with their equipment. He also thinks the still low
availability of HDTV in Europe will hinder widespread HD technology adoption.
However, Gieselmann thinks purchasers of flatscreens will find that PAL-movies do
not have sufficient image quality, and then consider an upgrade to BD or HD DVD.
But, the formats’ incompatibility will be hindering adoption. Gieselmann says neither
HD DVD nor Blu-ray will succeed as long as there are no combo-players that are
capable of playing both formats.
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Jan-Willem Aldershoff, founder of online disc media community CDfreaks.com,
thinks once the prices drop for HD DVD and Blu-ray, they slowly will become widely
adopted.
‘I think we will need about five years for these formats to be as mainstream as the
DVD now is in the western world.’ (Interview with JW Aldershoff, 2006)
Aldershoff says when people see HD content they are easily converted, and that the
idea of having more storage space on a single disc will also attract consumers.
Jessica Wolf, senior reporter at HomeMediaRetailing.com, also believes Blu-ray and
HD DVD technology will mainly be purchased by early adapters initially, and that
average consumers will wait until prices drop significantly. Jessica Wolf says it will be
a long time, at least 5-7 years, before any mass adoption of the format/s will be
visible. However, she does believe the overall transition to HD technology will occur:
‘ […] people are upgrading their TV sets all the time, especially with the FCC analog
signal cut off (supposedly) coming in 2009 (in the U.S), why not upgrade all the way
to HDTV if you have to get a new set anyway? Plus network and cable TV are
offering more HD content all the time which will make consumers want/expect that
same picture quality in their packaged entertainment’ (Interview with J. Wolf, 2006)
Jessica Wolf thinks HD DVD and/or Blu-ray might replace DVD with regard to future
purchases. However, she believes consumers will keep their current DVD collections,
even if they make all new purchases in HD DVD or Blu-ray.
‘I don’t think you are going to see what we saw with DVD, that is, people repurchasing their VHS libraries and replacing it with DVD. The quality upgrade was
much more significant in that format switch’ (Interview with J. Wolf, 2006)
According to Jessica Wolf, standard definition DVD looks good on a HDTV set; if
using an upconverting high definition player it’s possible to upgrade the DVD image
to 720p, which is defined as a HD resolution.
Jessica Wolf thinks content holders will keep producing DVDs for a considerable time.
She refers to the fact that some movie studios are still producing VHS titles.
Considering digital downloading, she thinks there are several factors hindering any
current mass adoption: broadband access, download speeds, virtual storage space,
DRM issues, content availability and TV output connectivity. However, Jessica Wolf
thinks the confusion of two high definition disc formats in the market could potentially
stymie all high definition media adoption, leaving consumers open to get interested in
another type of media distribution, for instance via digital downloads.
David Holtzman, a social technology expert, Newsweek columnist and writer,
doesn’t believe the general group of consumers is ready for HD DVD and Blu-ray
technology, even though early adopters might be willing to purchase.
‘There’s always a very small percentage of the consumer market that will buy
something new just because it is new. I occasionally do that myself. This “early
adopter” group is not indicative of the behavior of mainstream consumers ‘ (Interview
with David Holtzman, 2006)
Don Lindich, U.S. national columnist and author of the book series ‘Digital Made
Easy’, doesn’t believe the general public is ready for either format yet, referring to
digital TV adoption in the U.S.
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‘Market penetration of digital TV is only 19% in the USA. So out of the TV-owning
public, less than one in five is even a potential customer’ (Interview with D. Lindich,
2006)
Don Lindich expects “early adopters”-consumers to start investing in early 2007, or
whenever the second generation of players comes out.
Lindich does not believe either technology will replace DVD, but exist
alongside it, comparing it to how audio formats SACD (Super Audio Compact Disc)
and DVD-Audio coexist with CD. Like Jessica Wolf, Don Lindich is of the opinion that
consumers do not want to replace their entire collection of DVD movies and that
DVDs still produce an “outstanding picture quality”. He thinks the DVD format is a
great format that is much-loved by consumers and has a hard time seeing HD DVD
or Blu-ray replacing DVD entirely in that matter.
‘I think we will see about a 50-50 split when the new formats mature, i.e. 50% DVD
and 50% blue laser’ (Interview with D. Lindich, 2006)
Kenneth Fisher, editor-in-chief at arstechnica.com, has not yet seen any signs of
strong interest in the formats and doesn’t expect consumer demand for them until
more cable and satellite subscribers are also viewing HD. He thinks, however, that
blue laser disc formats will ultimately replace the current red laser based DVD.
Chris Morris, director of content developer at CNNmoney.com, does not believe the
majority of consumers are ready to invest in high definition disc players, since the
high retail prices. Chris Morris says it will be years before a mainstream audience
begins to embrace either technology, when at least one of the two systems reaches a
price point that is tolerable to customers. Although he thinks blue laser technology
ultimately will replace red laser based technology and that some early adopters will
invest in players as the products are launched, he says the format war will be of a
hindering factor.
‘[…] the format war will probably dissuade people from becoming early adopters’
(Interview with C. Morris, 2006)
Jan Ozer, contributing editor at PC Magazine, believes consumers are ready for Bluray and HD DVD, though not motivating it any further
Scott Wilkinson, video editor at home entertainment magazine The Perfect Vision,
believes early adopters are ready to invest in the formats, but the larger public wait
until there is a clear winner. He thinks blue laser disc formats will be the leading
source of pre-recorded high definition media, unless online content delivery takes off.
’I don’t see this happening until and unless bandwidth to consumer homes increases
by a factor 10 as it is in much of Asia’ (Interview with S. Wilkinson, 2006)
5.3 Potential Success Factors
The outcome of the format war between VHS and Betamax was due to de facto
standardization in the presence of network externalities (chapter 3.9), according to
Sangin Park at the Seoul University (2003). Park states that the only real difference
between the two formats in the early 1980’s was in installed based accumulated prior
to the network externalities (via the consumer’s use of prerecorded videocassettes,
mainly movie titles). The respondents were asked how important a success factor
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they believe the studio support and release rate for home video titles for HD DVD
and Blu-ray will be for the outcome of the format war.
Klaus Oestreicher says if any of the formats will be able to win, then it will be by
releases:
‘That involves a) to achieve the majority of studio support […] and b) by the titles, i.e.
massive blockbusters may turn the picture in favor of one or the other format’
(Interview with K. Oestreicher, 2006)
Klaus Oestreicher also stresses the importance of the movie industry, commenting
the potential importance computer software and video games, with statistics on disc
manufacturing.
‘[…] 83% of all discs manufactured are movies; within them are 80% Hollywood
releases. Any other party has hence little significance. By awareness and news value
PC or games companies might have the value for a report, but not the strength of
major influence’ (Interview with K. Oestreicher, 2006)
Graham Sharpless believes the movie studio support will be very important for each
format’s success, stating ‘any format is no use without software’ (Interview with G.
Sharpless, 2006). Graham Sharpless further says the studios will not distribute
software unless there is a sufficient number of players in use, and that studio support
towards either format can easily change.
‘[…] the studios can switch their allegiance more readily than hardware
manufacturers. They only need authoring capability, which is available for both
formats, and a replicator to make the discs. At present this is easier for HD DVD than
for Blu-ray’ (Interview with G. Sharpless, 2006)
Shane Greenstein says both the release rate of games and movies will matter for
the success of each format and that the crucial time for this will be in a year or two.
Greenstein believes the release of old movie titles will be of importance, since that
tells of which movie studio is building the bigger library.
According to Shane Greenstein, the format war outcome between VHS and
Betamax in the U.S. was also due to a difference in distribution networks, each
format using different retail outlets and strategies. Greenstein notes the formats also
had different price points and strategic marketing campaigns, with Sony’s Betamax
being more expensive and claiming higher quality. Sony also had smaller production
networks, which affected the outcome of the format war.
Wolfgang Gruener says available content for the formats will be important and
convince many hesitant consumers. Gruener then stresses the difference in
complexity regarding HD DVD and Blu-ray compared to VHS and Betamax, pointing
out that factors like storage capacity and versatility, copy protection and scalability
differences between the formats did not exist with VHS and Betamax. Gruener thinks
manufacturers are now deceiving the average consumer, making the consumer less
informed about the product he or she is going to buy as with the coming HD
generation.
‘Technology has become too complex to understand for a majority of the population
and you see manufacturers taking advantage of that’ (Interview with W. Gruener,
2006)
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Nathan Mook thinks movie studios will play a critical role for each participant in the
format war.
‘ […] consumers will base their buying decisions on what movies are available.
Getting titles on store shelves is the only way either format will be of interest to
consumers’ (Interview with N. Mook, 2006)
Richard Forno is of the opinion that the adult film industry is the reason VHS was
more popular at the mass-market level despite Betamax being referred by video
professionals. He thinks it’s important for HD DVD and Blu-ray supporting companies
to release as much as possible to show consumers they are serious about their
format of choice.
Tim Cutting thinks the release rate of home videos for HD DVD and BD will be
important in the long run for both formats, saying early adopters do not see an
advantage to one side over the other at the initial period of release of the formats.
Bryan Greenway says studio support will be important for HD DVD and BD, but
notices a smaller time difference in introduction compared with VHS and Betamax. A
considerable gap of time (approximately a year) differed between the introduction of
VHS and Betamax, according to Bryan Greenway, compared to the lesser time
difference for HD DVD’s and BD’s introductions (approximately two months).
‘This time the two competing formats are being launched within a few months of each
other. Consumers will have the ability to compare the formats side by side’ (Interview
with B. Greenway, 2006)
Bryan Greenway says the players themselves will play an important role as well as
the available titles.
‘ […] with Blu-ray players coming in at twice the price of HD DVD players, I Think
many consumer will vote with their wallets, and wait for the studios to come around’
(Interview with B. Greenway, 2006)
Hartmut Gieselmann says ‘without films no format can survive’ (Interview with H.
Gieselmann, 2006), and stresses that Hollywood will support any format that will
increase their profit, i.e. the studio support could easily be changed. Hartmut
Gieselmann then mentions the possibility of one format to succeed as a film format
and the other for data storage in computers.
Jan-Willem Aldershoff believes studio support could be very important for each
format, but also says it will be of even greater importance that the movies can be
played on an affordable device.
Jessica Wolf thinks studio support, in the long run, will be the winning factor in the
format war. She is skeptical to the hypothesis that the market is able to bear two
formats since it is not cost-effective (if all major studios were to support both formats).
Jessica Wolf says a player compatible of playing both formats could end the format
war. She thinks the movie studios have made a mistake dividing their support among
the formats, since they are not efficiently ‘keying off the most successful product
launch in history, the DVD’ (Interview with J. Wolf, 2006).
‘They have a rapt and avid audience of buyers. DVD converted the industry from a
rental mode to sell-through, allowing studios to keep more profits from their movie
aftermarket than ever before. Part of the reason DVD was so successful is because it
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came out in one format, with a concerted universal message. The way to keep that
momentum going, the way to capitalize on all these prongs of the DVD market was to
launch ONE next-generation high-def format, with a concerted, far-reaching and
exciting marketing plan. […] The DVD will make it to the high-def market, but
Hollywood could have brought far more people along far quicker with one format’
(Interview with J. Wolf, 2006)
David Holtzman disagrees with Park’s assertion; instead believing (like Richard
Forno) that one of Beta’s demise was due to their unwillingness to allow adult content
to be recorded on their tapes:
‘[…] thereby locking themselves what quickly grew into 50% of the rental market. I
expect to see something similar with Blu-ray. No one talks about it, but the adult film
industry is the single biggest determining factor in who wins the format war’
(Interview with D. Holtzman, 2006)
David Holtzman also points out there is a critical price point for these players when
considering widespread adoption. He says early adopters will spend thousands of
dollars, but that the price point for widespread adoption would be around $500 US.
Don Lindich thinks studio support and the release rate of home videos will be very
important. He claims BD has an advantage due to its more extensive studio support
(at the time of interviewing), but also believes studio support for HD DVD will improve
if BD loses the war for early adopters.
Ken Fisher is of the opinion that once consumers start caring for the formats, the
studio support and release rate are going to be of utter importance. He thinks the
issues that separate the two formats will be largely lost on consumers, instead
leaving selection of titles to play the deciding role of the war.
Chris Morris thinks studio support will be critical for the outcome of the format war.
‘If studios overwhelmingly support one format, consumers will follow. Content,
ultimately, is king – and if you have new movies, with attractive features on one
format and retreads of films people already own or have chosen not to own on
another, people will opt for the one with newer releases’ (Interview with C. Morris,
2006)
Jan Ozer does not think either standard will do well until a unified standard is
announced. He thinks the threat of obsolescence will keep the mass-market
consumers away from choosing either of the formats. Jan Ozer believes that without
a unified standard, there will not be sufficient units sold to get the price down to
mass-market levels.
Scott Wilkinson says studio support and release rates will be very important for the
outcome of the format war, although he believes it is more of an important factor
whether or not consumers will wait for a clear winner before buying.
5.4 The impact of the Playstation 3
As discussed in chapter 3.5, Sony’s videogame console Playstation 3 (PS3) will be
equipped with a Blu-ray player. Since the Playstation 2’s major influence on the DVD
market (see chapter 4.3), a potential parallel is easy to draw to the Playstation 3. The
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interviewees were asked their thoughts and theories on what the effect of the
Playstation 3 will have on the format war.
Graham Sharpless says the Playstation 3’s impact will not be a major blow to the
HD DVD camp nor other Blu-ray manufacturers since it is due to be released in late
2006 at a price higher than the least expensive HD DVD players, although saying it
still could be the deciding factor between the two formats.
Anders Appelqvist says the PS3 will affect the Blu-ray format in the same positive
way as Xbox 360 will help HD DVD.
Christian Magdu thinks the Blu-ray support of the PS3 will be the deciding factor for
the format, since the built-in Blu-ray player of the PS3 will expand the installed user
base of the format. Christian Magdu says Sony is a strong brand on the gaming
market and states the Playstation 2 is the most sold DVD player in the world.
Shane Greenstein believes if the PS3 launch goes badly it is over for Blu-ray. If it
should go well, it will give Blu-ray a major advantage.
‘PS3 has to have a big launch. If it does no, that could be a killer for Blu-ray. If it does
launch well, then nothing will ever kill Blu-ray and the key question will be whether it
dominates or splits with HD DVD’ (Interview with S. Greenstein, 2006)
Wolfgang Gruener believes the PS3 will help to shed positive light on Blu-ray,
calling it a ‘marketing vehicle for Blu-ray and related standards such as HDMI’
(Interview with W. Gruener, 2006), but says it will not be a decisive factor, as it may
have limited reach; since he thinks the PS3 has priced itself out of the mainstream
market and into the enthusiast gamer space.
Nathan Mook thinks the PS3 will be a boost for Blu-ray in Japan, because of Sony’s
dominance, but says the effect of the PS3 in the U.S. is unclear.
‘Because Sony has priced the PS3 so high ($599), it’s unlikely it will serve to pull in
entry-level consumers. DVD players can be had for under $50 these days, and highdefinition just isn’t good enough to warrant such an expense. And even consumers
that eventually buy PS3s will be faced with spending $30 for BD vs. a $15 DVD,
which will slow adoption’ (Interview with N. Mook, 2006)
Rob Enderle believes the PS3’s integration with a BD player initially made many
believe it would make Blu-ray the winner, but since the retail price was announced
many think Blu-ray instead will sink the PS3.
‘Game systems typically hit volume at $200, the Xbox 360 is twice this and clearly
feeling the drag. The PS3, fully configured, is a whopping 3X this price and it is the
Blu-ray component that cause it to drift up and out of the price target’ (Interview with
R. Enderle, 2006)
Bryan Greenway does not see the PS3 as very relevant for the outcome of the
format war. He does not believe film interested consumers will purchase a game
console to watch movies on, thus making the PS3’s major problem that it is mostly
intended for games. Bryan Greenway says the high price may result in low sales,
‘further mitigating any real benefit the PS3 would have on Blu-ray’s acceptance in the
marketplace’ (Interview with B. Greenway, 2006).
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Hartmut Gieselmann says consumers who will buy a PS3 will mainly be gamers, i.e.
making it not an important factor for the outcome of the format war.
‘They (referring to gamers) might buy one BD-film to try it out, but as we have seen
on the PSP with the UMD-films, this is not enough for the BD to succeed. They need
proper pricing, the right films and the right picture quality’ (Interview with H.
Gieselmann, 2006)
Jan-Willem Aldershoff believes the PS3 might have an enormous effect on the war,
depending on the pricing. He says the PS3 is likely to be sold amounts in the millions,
which will provide Blu-ray with a large installed user base.
‘This makes it profitable for content providers to create content as they now have
users that can play their discs without the need of buying an additional device’
(Interview with J-W. Aldershoff, 2006)
Jessica Wolf says the PS3 could be a quite important factor for the format war. She
says the PS3 will be an affordable entry point to Blu-ray for most consumers, even
those not considered gamers.
‘PS3 is going to be a surefire way to get Blu-ray hardware into the market, whether
that was the main purchase intent or not’ (Interview with J. Wolf, 2006)
According to Jessica Wolf, many gamers upgraded from PS One to PS2 and will do
the same now, going from PS2 to PS3, giving Sony a ‘huge potential Blu-ray installed
base’ (Interview with J. Wolf, 2006). She also believes the PS3 will draw many causal
or even non-gamers as well as gamers, since there will be a high perceived value for
the machine, considering its Blu-ray component.
David Holtzman believes the PS3 will have no effect on the format war and that if
Blu-ray fails as a format, Sony will support the opposing format with a subsequent
release.
Don Lindich does not believe the PS3 will be of importance to the format war at all.
‘People buy game consoles to play games, not watch movies!’ (Interview with D.
Lindich, 2006)
Ken Fisher thinks the PS3 will be very important to the outcome of the format war. If
the PS3 is to fail, Ken Fisher believes more studios will choose to support HD DVD
instead.
Chris Morris says the PS3 could be of critical performance, the same way the PS2
brought the DVD player into a lot of homes. He does however believe its high price
point will hinder adoption, slowing Blu-ray’s installed base.
Scott Wilkinson says the PS3 will be very important to the format war, without
commenting it any further.
5.5 Production costs / Economy
According to Rick Marquardt (see chapter 4.1), upgrading an existing DVD
manufacturing facility to Blu-ray disc production would cost US$1.7million per each
existing DVD manufacturing line and an additional upgrade cost of US$2million per
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each mastering system. In comparison, the same upgrades would cost US$150,000
for each manufacturing line and US$145,000 for each mastering system for HD DVD
production.
Furthermore, Marquardt asserts that ‘No one – the studios, the disc
manufacturers, the consumer electronics manufacturers – can afford a format war
today”, and motivates why he favors HD DVD: “HD DVD offers predictable, reliable
manufacturing; high capacity; predictable, manageable costs; verifiable quality,
enormous familiarity worldwide, and billions of dollars that the consumer will not have
to pay that will instead be converted into profits for the entire home video
entertainment industry’ (Marquardt, 2005).
The respondents were asked whether they believe these production cost
differences might affect the progress for each format or not.
Klaus Oestreicher says the difference in production costs will not affect the progress
of any of the formats, referring to discussions he has had with manufacturers and
replication lines where he has been told that sales or upgrades of replication lines is
at a bottom which has lead to bankruptcies for several replication line manufacturers.
‘Replication line manufacturers report that nearly no sales take place at all.
Everybody is waiting for a signal before making any investment in any direction’
(Interview with K. Oestreicher, 2006)
Klaus Oestreicher thus believes the decision makers will be the content owners,
telling what format they want to use to distribute their products, and later the
consumer, who ‘regulates the market by his demand’ (Interview with K. Oestreicher,
2006).
Regarding the Blu-ray players initially higher retail cost compare to HD DVD,
Oestreicher says it will be of significance for each format’s success. He thinks the
‘reluctant consumption spending’ (Interview with K. Oestreicher, 2006) will benefit the
less expensive format, but it must been seen in combination with the quantity of
software offered and the combination of player and disc price.
Graham Sharpless says HD DVD is an evolution of DVD that is both easy and
inexpensive to produce, while Blu-ray is a revolutionary format that is considerably
more expensive to manufacture. However, he thinks the key to success for any
format lies in high production numbers.
‘It should be remembered that CDs and DVDs are cheap because of the technology
and because of the billions of discs that have been made and sold. The next
generation needs to sell in a similar way for prices to become affordable’ (Interview
with G. Sharpless, 2006)
Anders Appelqvist thinks one of the HD DVD format’s strengths lies in its low
investments required and the possibility to make a swift transition when changing
disc production from DVD to HD DVD.
Shane Greenstein says he does not know how Marquardt’s claim of the higher
production costs for Blu-ray might affect the outcome for each format, but that the
difference in retail price will not matter much for early users although it will matter to
wider consumer groups when they start adopting either of the formats.
Xavier Pouyat comments on the difference in manufacturing costs by concurring
with Marquardt’s claim that a current DVD replication facility cost effectively can be
used for HD DVD replication with little or no modification. Xavier Pouyat also
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mentions other aspects that he claims will ‘participate on the cost effective approach
of HD DVD’ (Interview with X. Pouyat, 2006):
‘- iHD implementation costs. iHD is based on XML and JavaScript, so we are
confident on that fact development tools will be widely available at low cost. Microsoft
already propose at no cost a iHD simulator software to help iHD developers test their
application.
- Total player cost. The overall HD DVD playback cost is attractive. As a
consequence, on US market (sic), the Blu-ray player from Samsung is twice as
expensive as the HD DVD Toshiba player’
(Interview with X. Pouyat, 2006)
Wolfgang Gruener believes the difference in production costs over time is negligible.
‘In the end, the consumer will decide what he wants and manufacturers will produce
accordingly’ (Interview with W. Gruener, 2006)
Wolfgang Gruener comments on the difference in retail price of first-generation HD
DVD and Blu-ray players by saying HD DVD supporters are buying their way into the
market since ‘those devices are sold well below their manufacturing cost’ (Interview
with W. Gruener, 2006). Gruener says he speculates that the difference in price also
reflects differences in player capabilities, such as 1080i/1080p.
Nathan Mook thinks that the pricing of the players will play a major role for each
format’s success in a long term view, while it is not a major factor in the beginning
since he believes home theatre enthusiasts (i.e. early adopters) are more likely to
pay more for these types of products. He thinks the difference in production costs is
of significant importance and is not certain if Blu-ray production will be able to come
down in pricing levels that can compete with the ones of HD DVD.
‘The real question is whether Blu-ray can get the price down to compete with HD
DVD in the long run, as its production costs are quite higher’ (Interview with N. Mook,
2006)
Richard Forno says a greater obstacle than manufacturing costs is making
consumers interested in the new formats and getting them to switch to them from
DVD.
‘The industry will always be out on a short-term financial limb as it moves to position
emerging technologies for the mainstream’ (Interview with R. Forno, 2006)
Tim Cutting claims both sides (the companies supporting one or both of the formats)
are using manufacturing costs as part of a ‘mudslinging game’ (Interview with T.
Cutting, 2006) and that both of the formats’ players are being subsidized in order to
increase adoption. He says this is possible due to the financial power of the
participating companies.
‘The truth is that the large OEMs 8 that create products for price sensitive markets will
subsidize the products if they need to get them into consumers’ hands. The Sony
Playstation 3 is a prime example’ (Interview with T. Cutting, 2006)
Rob Enderle thinks the difference in production costs makes HD DVD a lower risk,
since the technical aspects of the formats are basically equal.
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Original Equipment Manufacturer
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Bryan Greenway says production costs should logically affect studio support but that
there has been no evidence of that yet. He believes the benefit of HD DVD’s lower
replication costs will not be passed on to the consumer until the later stages of the
format war, after the manufacturers and studios have recouped their tooling and R&D
expenditures.
Hartmut Gieselmann believes Europe will see many HD DVD movie ROMs
production facilities since European filmmakers cannot afford investing in BD facilities
at the moment (except for Sony in Austria). He thinks major BD supporting
companies, like Sony, TDK and Mitsubishi, will work together with subcontractors,
which will result in BD disc costs going down eventually.
Jan-Willem Aldershoff thinks the production costs could be a very important factor,
although he says the pricing of the movie playing devices will be of bigger importance.
He thinks pricing of players and movies could be more important, as the availability of
exclusive content to each format and that it is difficult to say if any format will be able
to compete on pricing once production increases.
‘[…] at this stage it is hard to say if it’s possible for any camp to really compete on
pricing. It could be once the Taiwanese and South Korean companies (most of them
are Blu-ray supporters) ramp up their production that there will be a big price
difference. These companies are known to be able to produce relative cheap,
however HD DVD companies will likely also outsource to either Chinese or
Taiwanese companies. Most of these companies follow their market and don’t really
have a strategy that makes them pick one side’ (Interview with J-W. Aldershoff, 2006)
Jessica Wolf does not believe the difference in production costs matters to the major
backers for Blu-ray or the consumers, as long as it does not affect the retail prices
too much. She says the format backers on both sides have plenty of hubris to keep
going regardless of costs of manufacturing for a significant time. She refers to what
Reed Hastings, the CEO of Netflix, said at the company’s second quarter earnings
call of 2006:
‘Our view is that the current format war is un-winnable by either Sony or Toshiba the
next several years – both are strong enough to hold out for some time’ (Interview with
J. Wolf, 2006)
Jessica Wolf agrees with this sentiment, saying one consequence will be that the
breadth of content availability will become severely limited.
‘It will be hard for smaller indie suppliers to fill in the release schedule for the market,
as they do now for DVD. It will be far too costly for them to produce both formats for
too long’ (Interview with J. Wolf, 2006)
David Holtzman states the difference in manufacturing costs will be of no
significance to the outcome of the format war.
‘The DVD market is in the billions. The retooling cost is an anticipated business
expense that will wash out in the bottom line over a period of years’ (Interview with D.
Holtzman, 2006)
Don Lindich says the supporting companies of Blu-ray discs have ‘deep pockets’
(Interview with D. Lindich, 2006) which will result in that the difference in
manufacturing costs will not affect the progress of the format. Don Lindich points out
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that a more important factor is when and if Blu-ray manufacturers start replicating
dual-layer 50GB BD discs.
‘What will affect the progress is being able to replicate the dual-layer 50GB discs
reliably. Take away the dual-layer discs and other than extra bandwidth, Blu-ray has
NO technical advantage over the HD DVD format’ (Interview with D. Lindich, 2006)
Ken Fisher does not expect the production cost factor to have any impact on any of
the formats’ progress. He thinks the movie studios seem to have chosen which
format to support based primarily on DRM schemes rather than costs.
Chris Morris says over time manufacturing upgrade costs will be absorbed and retail
prices begin to fall. He expects the retail prices for HD DVD and Blu-ray will begin to
fall approximately at the same time and at the same rate.
‘Since Blu-ray and HD DVD are launching at roughly the same time, I’d guess those
will fall at roughly the same rate, assuming the manufacturers set up smart deals with
their vendors’ (Interview with C. Morris, 2006)
Jan Ozer does not believe the difference in production costs will affect the outcome
of the format war.
‘[…] bigger companies will make the transition and smaller companies will either
follow or ultimately go out of business’ (Interview with J. Ozer, 2006)
Scott Wilkinson says the difference in production costs will be of concern in the
initial stages for both formats, but as capacity ramps up, these differences will
become less important.
5.6 Digital Rights Management / Copy Protection
Both HD DVD and Blu-ray are supporting the new content protection system AACS
(see 3.7 and 3.3.1), a system developed with the purpose of updating CSS, the
inferior and static DRM system of DVD. Blu-ray is also supporting DRM systems BD+
and ROM Mark (see 3.3.2). These systems have the possibility to affect users’
privacy and possibilities of interoperability in a restrictive way. The new contentprotection schemes could, depending on the content holders choice of level of
implementation, be the first time any consumer electronics purchaser, not just those
who try to break copyright laws, could be penalized. The interviewees were asked in
what way and to what extent they believe this will occur or not and in what way they
believe piracy should be dealt with.
Klaus Oestreicher doubts piracy will decline with the new DRM systems, saying all
content copy protection systems have been neutralized up until now. He refers to
technical experts he has spoken to, telling him that a copy protection system will not
be efficient unless it protects at the source, i.e. the moment of pressing the disc by
using an individual protection per disc.
Anders Appelqvist says he has no knowledge of AACS but that he in general
believes DRM systems do not have any market effect. He compares to the Swedish
satellite operators Viasat’s system Videogaurd and Canal Digtal’s system Conax,
stating the services’ price and content affects the consumer’s choice more rather
than the copy protection systems.
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Wolfgang Gruener finds that discussions concerning the new DRM systems are
kept under cover. He thinks the hardware manufacturers blame the content industry,
the content industry is quiet about its intentions and that consumers will be
disappointed once they discover the limitations the DRM systems are capable of
causing.
‘The strategy right now, as it appears to us, is to keep the topic quiet and avoid an
outcry in the population. My guess is that people will be extremely unpleased with the
new copy mechanisms, but it will be too late when they find out – by that time, they
already have their device and probably will get used to it’ (Interview with W. Gruener,
2006)
Wolfgang Gruener is certain hackers will decipher the new DRM systems and that
this will probably occur before the end of 2006.
Nathan Mook thinks piracy has increasingly gotten worse and that AACS is not likely
to change that.
‘People will always find a way to break protection if they try hard enough. It (AACS)
may stop casual pirates (friends copying DVDs for each other), but not professional
ones’ (Interview with N. Mook, 2006)
Nathan Mook says the more advanced DRM systems of HD DVD and Blu-ray could
affect consumers’ privacy and interoperability, at least not in the early stages of the
technologies’ life spans.
‘I don’t think Blu-ray or HD DVD are going to bring about major new restrictions, but it
could very well happen in the future. If the movie studios got their way, players would
require an Internet connection and have to authorize themselves before each play.
Luckily, that hasn’t happened just yet’ (Interview with N. Mook, 2006)
Nathan Mook thinks the studios need to worry less about DVD ROM copies for
personal use, e.g. consumers watching a DVD on their computer or copying it to their
laptop, and instead worry more about the global piracy problem in countries like
China, Russia and Eastern Europe, where pirates can ‘sell their fake DVDs on the
street in the same spot every day for 6 months’ (Interview with N. Mook, 2006).
He also thinks the movie studios need to learn from the music industry, i.e.
start offering legal downloading services.
‘Digital music piracy was rampant because there was no viable offering from music
labels. iTunes offered the first such option and look what happened: it is huge. The
movie industry needs to offer a decent download service over the Internet, and not
the restrictive junk they have no. Consumers are willing to pay for what they want,
but if they can’t find it, they will just turn to P2P (Peer-to-peer networks) and buying of
the street’ (Interview with N. Mook, 2006)
Richard Forno says the new DRM systems will affect both consumers’ privacy and
interoperability.
‘I feel it will seriously affect customers’ perceived privacy and continue to disrupt
interoperability. DRM is being used more to preserve the entertainment industry’s
centralized industrial age business models in the decentralized age of information’
(Interview with R. Forno, 2006)
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Richard Forno is certain these systems will be deciphered eventually, given time and
resources. He thinks the best way for the movie studios to take on piracy is to
primarily go after the organized piracy rings, claiming it is within those the major
financial losses occur, instead of going after casual pirates, i.e. individuals
downloading or swapping songs or movies to a limited extent.
‘[…] in their efforts to prevent any losses (e.g. through DRM) the studios end up
treating everyone as a criminal first – ergo, fair uses get ignored for the sake of
profitability and marketplace dominance. Controlling or influencing the deployment of
DRM integrated with technology (e.g. CSS, region coding, etc) makes it a very broad
“fix” to a problem that’s really only dangerous in a small percentage of the population’
(Interview with R. Forno, 2006)
Richard Forno believes future DRM will contain more invasive technologies and
procedures until it will face a consumer backlash, when consumers ‘wake up and
realize they are being used by the industry in question’ (Interview with R. Forno,
2006).
‘Like the broadcast flag, newer DRM technologies/laws will get snuck into ‘must pass’
legislative initiatives to help ensure its enactment quickly and without much public
scrutiny’ (Interview with R. Forno, 2006)
Tim Cutting says DRM has the ‘ability to cripple and empower the user depending
upon the usage model the consumer expected or desired’ (Interview with T. Cutting,
2006). He thinks it is too early to comment on how the movie studios will choose to
inhibit, or expand the versatility of the content they produce on HD DVD or Blu-ray.
Rob Enderle believes the DRM systems of HD DVD and Blu-ray will both affect
consumers’ privacy and interoperability and lower adoption rates. Rob Enderle thinks
HD DVD appears better with its less restrictive system compared to Blu-ray’s
additional DRM systems. He says the ICT feature9 creates a huge problem with
existing HD hardware and provides yet another barrier of adoption.
He thinks studios, in order to prevent piracy, should focus on pirates and on
services that provide easy discounted ways for consumers to legally share media.
Bryan Greenway does not believe the DRM systems of HD DVD and Blu-ray will
affect the privacy of consumers, since he thinks it is not likely that personal data will
be stored in either player. Regarding interoperability, Bryan Greenway believes it will
affect consumers to the degree that they are restricted to play only one format in one
format-supporting player only, unless a universal player is developed.
Bryan Greenway is most certain the new DRM systems will be deciphered
eventually.
He thinks the sizes of HD DVD and Blu-ray ROMs alone are a piracy
deterrent and believes studios should take advantage of this factor instead of using
what he calls ‘intrusive DRM tactics’.
‘[…] some DRM is necessary, the trick is finding the balance between what’s
reasonable to consumer and practical for the studios’ (Interview with B. Greenway,
2006)
Hartmut Gieselmann is very critical to the new DRM systems of HD DVD and Bluray. He states AACS is one reason why HD DVD and Blu-ray player systems react
slowly. Gieselmann says consumers are used to the easy access of the DVD and
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Image Constraint Token; see chapter 3.3.1
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that this was the main reason for the success of DVD, and that consumers will not
buy a system that is reacting slower than a DVD player. Gieselmann also believes
the potential restriction to make legal copies will hinder both formats’ success.
‘[…] no one will pay extra for HD-quality where you can’t make a copy to save the
original’ (Interview with H. Gieselmann, 2006)
Hartmut Gieselmann is of the opinion that ‘DRM will kill the success of HD DVD and
BD as it did on (sic) SACD (Super Audio Compact Disc) and DVD-Audio’ (Interview
with H. Gieselmann, 2006).
Gieselmann says it is easy to decipher the DRM systems, if you play back a
movie over Windows XP using ‘a root kit to hide your hacking programs’ (Interview
with H. Gieselmann, 2006). Although he says it’s possible to copy HD DVD’s and
Blu-ray discs, he does not believe HD DVD and Blu-ray rips will be popular in piracy
movements, since it is easier to copy DVDs (in terms of file sizes) and that these
provide good enough quality for most people.
‘It’s again similar to SACD and DVD-Audio. These systems were cracked, but you
don’t find any rips on the Internet, because mp3 or audio-CDs are good enough’
(Interview with H. Gieselmann, 2006)
Hartmut Gieselmann thinks a reason for declining cinema visits the last years is
because the quality of the movies has worsened, rather than increasing piracy, and
that the best way to deal with lowering revenues is to lower the price of DVD movies.
Jan-Willem Aldershoff thinks the new DRM systems are likely to be deciphered,
although there are possibilities to renew the protection again ‘e.g. by blacklisting
players and making it impossible to play discs on cracked players’ (Interview with JW Aldershoff, 2006).
‘It will be interesting to see if the companies dare to blacklist players as legitimate
users might find this unfair’ (Interview with J-W Aldershoff, 2006)
Jessica Wolf says the new DRM systems will inhibit behavior, because they are
contrary to the consumer’s mindset and that the studios are taking big risks
implementing more intrusive and renewable DRM systems. She thinks content
holders look at DRM as a control issue when they instead should be looking at it as
an access issue.
‘They (the content holders) should be coming from the point of view of “how can we
deliver and monetize the usage desires of the consumer”. I think consumers have
trained themselves, through music, to expect to be able to rip content and manage it
through several devices and maybe burn one copy’ (Interview with J. Wolf, 2006)
Jessica Wolf says consumers will expect to be able to transfer purchased video to
other devices (e.g. portable video players) but that the content holders are not
prepared, neither technologically nor emotionally, to do that yet.
She is certain the DRM systems of HD DVD and Blu-ray will be deciphered
eventually.
Jessica Wolf says the majority of video piracy is not digital or virtual, it is
physical; i.e. mass-burned illegal DVDs sold on the streets, especially in the Asia
Pacific region. She says better policing of theaters, preventing camera recording of
feature films, and a use of watermark systems could curb that kind of piracy.
As for the average consumer, Jessica Wolf believes the best way to prevent
piracy is to provide them with DRM that works with their expectations.
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‘The best DRM is completely invisible, it is something the user doesn’t even know is
there, because she or he hasn’t either encountered it by doing something they are
not allowed to do or it hasn’t stopped them from doing something they WANT to do
with it’ (Interview with J. Wolf, 2006)
David Holtzman is very critical to the DRM systems of HD DVD and Blu-ray,
especially the additional ones for Blu-ray.
‘I would wish that consumers boycott Blu-ray or any other format that compromises
their legal rights under the DMCA10 and the Fair Use Doctrine as well as their moral
rights as a purchaser of content. Realistically, I don’t think most people will care’
(Interview with D. Holtzman, 2006)
David Holtzman predicts the DRM systems of HD DVD and Blu-ray will be
compromised within two years.
He thinks content holders should change their business model to reflect what
he claims is ‘the reality of the new digital world’ (Interview with D. Holtzman, 2006).
‘Digital devices only achieve their greatest value when they can be loaded with
interchangeable content that can easily be exchanged with the consumer’s other
electronic devices. The studios should figure out how to get paid once by every
consumer for each product and then let it go. Their inherent greed, trying to milk
another dollar for every copy instead of every consumer, is what’s causing the
problem. They can actually increase their revenue by changing their model to support
new devices and desired consumer usages’ (Interview with D. Holtzman, 2006)
Don Lindich says the DRM systems of HD DVD and Blu-ray will not affect
consumers’ privacy and possibilities of interoperability, as long as the players are not
hooked up to the Internet or a phone line. He thinks studios will find great resistance
to this type of technology, if they are to implement it.
Don Lindich believes these DRM systems will be deciphered quickly.
He thinks movie studios should concentrate on producing good products and lower
their prices, that current DRM is enough to keep common people from pirating and
that serious pirates will never be stopped.
Ken Fisher says that the studios always seemed more interested in the DRM aspect
of HD DVD and Blu-ray than other technology aspects, like codec support, format
unification and standards for quality. He does not think the DRM systems of HD DVD
and Blu-ray will affect the privacy of consumers, although believes consumers will
come to expect interoperability as the popularity of portable media increases. He
thinks managed copy could be successful, e.g. for charging consumers for mobile
versions of an already purchased ROM, if the pricing is right.
He expects some deciphering will occur, although he is uncertain to what
extent it will be.
Ken Fisher thinks commercial piracy is the result of poor pricing and
availability and that a low-cost, uniform distribution system, a la iTunes, would
probably do wonders against piracy.
Chris Morris says it is possible the DRM systems of HD DVD and Blu-ray will affect
consumers’ privacy and possibilities of interoperability, although it would surprise him.
He believes the systems will be deciphered eventually.
10
The U.S. Digital Millennium Copyright Act
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Jan Ozer does not believe the DRM systems of HD DVD and Blu-ray will affect
consumers’ privacy and opportunities of interoperability.
He thinks these systems will be deciphered eventually.
Jan Ozer says the studios should do what they can to prevent casual piracy
and then go after the mass marketers of pirated goods.
Scott Wilkinson is not certain whether the DRM system of HD DVD and Blu-ray will
affect the consumers’ privacy, although he says it might be possible for someone to
monitor what consumers watch. He is certain the systems will affect interoperability in
terms of making legal copies and streaming content around the home.
Scott Wilkinson says it is only matter of time before these DRM systems will
be deciphered and that there is no such thing as an uncrackable encryption.
He thinks the studios should spend less energy on piracy and focus more on
other matters.
5.7 Differences in technical features - Pros and cons
HD DVD’s and Blu-ray’s technological features are similar in many ways, although
they differ in others (chapters 3.3.1 and 3.3.2). The respondents were asked in what
ways they believe the technologies differ and what pros and cons they think each
format has.
Klaus Oestreicher says the core problems of both HD DVD and Blu-ray technology
is that they are evolutionary technologies, instead of being revolutionary.
‘They are intended to be released at a time, where other technologies make
revolutions. Technologies, which can be used to transport the content of discs, too, in
so far unknown speed and quality’ (Interview with K. Oestreicher, 2006)
Klaus Oestreicher refers his statement by exemplifying with the major Hollywood
Studios, who he thinks currently are ‘entering the virtual world of downloads by
preparation of according download sales channels’ (Interview with K. Oestreicher,
2006).
Oestreicher is, because of his statement that the formats be outrun by other
revolutionary technologies, skeptical that neither of the formats will succeed.
‘The (regular) DVD was the media with the quickest market diffusion ever, I judge
subjectively that both HD formats will be the ones with the shortest life cycle ever’
(Interview with K. Oestreicher, 2006)
Graham Sharpless calls Blu-ray a revolutionary format and finds Blu-ray’s biggest
pros being capacity and, eventually, copy protection. He says Blu-ray’s major
challenge is to make discs, particularly dual layer versions, and points out that its use
of Java has been criticized.
Graham Sharpless calls HD DVD an evolution from DVD and says its
strengths include that dual layer discs are available at an early stage, players are
significantly cheaper compared to Blu-ray and that HD DVD ‘offers everything
needed for movies and capacity is not a problem if MPEG-4 AVC or VC-1 video
coding is used’ (Interview with G. Sharpless, 2006). He finds the cons of HD DVD
being a weaker copy protection, but is uncertain whether this is an issue, and that in
the long run HD DVD’s lower capacity could be a disadvantage ‘unless the
announced triple layer version becomes a reality’ (Interview with G. Sharpless, 2006).
He does not believe consumers will notice the limited capacity of HD DVD compared
with Blu-ray, unless the format is used for archiving data.
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Graham Sharpless thinks both formats could become the successor to DVD.
Anders Appelqvist says the strength of HD DVD is the fast and inexpensive
upgrades needed for manufacturing, while Blu-ray’s strength is its bigger capacity
compared to HD DVD.
Christian Magdu thinks the strengths for both formats are improved picture and
sound quality, while the weaknesses include first generation tech errors and that it
will take time before consumers will be interested in purchasing either technology. He
thinks High Definition technology will become popular in two to three years.
Shane Greenstein says the pros for HD DVD are lower retail prices, which he
believes will remain for a while, and an earlier market introduction.
Shane Greenstein thinks Blu-ray’s strengths are that the format will be
technically superior in the long run and that Japanese firms prefer to work with Sony
than Microsoft, i.e. resulting in a stronger company support.
Xavier Pouyat says Microsoft, and its other supporters, are supporting HD DVD for
the following reasons:
‘Managed Copy: Guaranteed feature that gives consumers the freedom to make
copies of their discs to a hard drive or home server. Allow copies to be played on
portable devices
“Future-proof” compatibility:. HD DVD “hybrid disc” technology allows to store
both high-definition and standard-definition versions of a film
Proven low-cost, high-volume manufacturing: HD DVD discs use essentially the
same manufacturing equipment as existing DVDs
Superior capacity: HD DVD-ROM discs will offer dual-layer 30GB discs at launch,
compared with BD-ROM discs, which will be limited to 25GB
Superior interactivity: HD DVD discs will offer greater interactivity using iHD
technology, allowing for enhanced content, navigation and value-added functionality
for high-definition films
Superior format for notebook PCs: The compatibility of HD DVD with standard
DVD facilitates and simplifies development of slim disc drives for integration in
notebook PCs, one of the fastest-growing segments of the PC market’ (Interview with
X. Pouyat, 2006)
Xavier Pouyat says the launch of HD DVD in Japan and the US has resulted in ‘an
excellent market reaction’ (Interview with X. Pouyat, 2006) and that the studios that
have developed HD DVD titles so far are very happy with the video and audio quality
of the new format. Xavier Pouyat says consumers seem happy with the first HD DVD
players on the market, manufactured by Toshiba, although startup time and remote
control features need improvements.
He says the lack of 1080p output in the Toshiba player has no impact on the
video overall quality, since the 1080i signal is ‘only used for transport between the
player and the display, an the 1080p signal is reconstructed in the display (Interview
with X. Pouyat, 2006).
Wolfgang Gruener says it is probably too early to make a final judgment on the both
formats, referring to that some Blu-ray components are still in the finalization phase.
He says the current downside of HD DVD is its first generation’s players’ restriction to
1080i and that it requires high-end TVs to make up for the difference, while the
current weaknesses of Blu-ray devices have problems with color quality. He believes
the availability of Wi-Fi or LAN (Local Area Network) interfaces may become more
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important as the possibility to connect the players with a home network and a
broadband Internet connection increases.
Nathan Mook says the HD DVD strengths consist of its compatibility with existing
manufacturing processes, the iHD software used for interactive features, mandatory
Managed Copy, that no other DRM than AASC is required and the lower cost of
production and lower retail prices. He says the weaknesses are that the discs have
lesser capacity and a lesser movie studio support compared with Blu-ray.
Nathan Mook says the strengths of Blu-ray consist of larger capacity discs, a
wider variety of movie studio support, that there are many hardware players in
development and that the PlayStation 3 will include a Blu-ray player. On its
downsides he lists a much more complicated and expensive manufacturing process,
that discs and players are more prone to error (‘laser has to be closer to disc, discs
need extra scratch protection’ (Interview with N. Mook, 2006)), the use of BD-J
software, more restrictive DRM and the high retail price for players and discs.
Nathan Mook finds HD DVD being the better format.
‘It may not support 50GB (which is largely unnecessary for movies), but it works with
existing production lines and doesn’t have the technical problems that Blu-ray has’
(Interview with N. Mook, 2006)
Nathan Mook finds the iHD software being an important factor for HD DVD being the
superior format, saying it provides a better viewing experience and makes authoring
of HD DVD simple. He says he has been spending a long time talking to both sides
regarding iHD and BD-J. He tells that the Blu-ray side feels Java ‘is more entrenched
and has existing development tools that will help it along’ (Interview with N. Mook,
2006). Mook agrees with this statement, but stresses that other factors are to take
into consideration. He says that JEM (what BD-J is based off) was designed for
interactive television in Europe and has JAVA applications that will never be used.
This has some negative effects, according to Mook:
‘A) each Blu-ray player will require a Java Virtual Machine to handle the interactive
features. B) because of the vast open feature set of Java, player manufacturers can’t
run a test suite and make sure their system won’t crash no matter what (some studio
could program a special feature that could theoretically crash a player). C) creating
special features will require actual Java programmers, and will not be a simple task’
(Interview with N. Mook, 2006)
Nathan Mook says iHD was designed from the ground up for HD DVD. He finds it
fast, easy to learn and that manufacturers can run a test suite and ensure the iHD
content will not cause any errors.
Nathan Mook believes interactivity is going to change the way consumers
watch movies in the future. He says DVDs took a step forward with special features
(claiming it has become a driving factor in sales), but that the new formats will take
this even further. He thinks the two choices in software standards will affect the
content.
‘[…] a studio who has to program a whole DVD in Java isn’t going to bother doing the
same in iHD, and vice versa’ (Interview with N. Mook, 2006)
Richard Forno thinks the biggest pro for both formats is the possibility to save space,
i.e. use fewer discs for storage compared to DVD.
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Tim Cutting says the strengths of HD DVD are major support by Microsoft and Intel
(‘two of the biggest, most influential companies in the PC industry’ (Interview with T.
Cutting, 2006)) and the feature of guaranteed managed copy.
He says Blu-ray’s strengths are major support from Sony and Pioneer (‘two of
the biggest, most influential companies in the CE (Consumer Electronics) industry’
(Interview with T. Cutting, 2006)) and that it is included in the PS3.
Tim Cutting sees the only con with the formats being that consumers and
manufacturers have to make a choice between them.
Rob Enderle thinks the strengths of HD DVD are retail prices and manufacturing
costs and that it has ‘anticipated “fair use”’ (Interview with R. Enderle, 2006), while
the main weakness is low capacity.
He thinks the strengths of Blu-ray are higher capacity and support from Sony,
while the weaknesses are retail prices and manufacturing costs and that there is no
fair use model (due to more restrictive DRM systems).
Bryan Greenway lists HD DVD’s pros as lower player cost and lower disc replication
costs while its cons being lesser movie studio support and first generation players’
lack of a 1080p output.
He thinks Blu-ray’s list of pros consists of studio support and larger theoretical
disc capacity, while it’s cons consists of player price and inclusion of a Blu-ray drive
in the PlayStation3.
‘[…] gamers are being subjected to a format war they neither asked for nor benefit
from. It might seem like shrewd marketing on Sony’s behalf but if it results in fewer
players sold due to the price, one has to wonder…is Sony willing to lose PlayStation
base in order to further Blu-ray?’ (Interview with B. Greenway, 2006)
Bryan Greenway says HD DVD is an evolution of DVD and that it should be enough.
He tells he is skeptical to why a new technology, referring to Blu-ray, is needed to
replace DVD.
Hartmut Gieselmann thinks Blu-ray is good for data storage, but that the picture
quality of the first BD movies is bad. Gieselmann says HD DVD has great picture
quality, but that the first generation players are annoying to handle. He thinks a socalled ‘killer feature’ will be needed if Blu-ray or HD DVD is to replace DVD.
He thinks the new possibilities for more advanced menus are overestimated
and believes many content holders will use them over extendedly, resulting in
‘annoyingly complicated, non-intuitive menus’ (Interview with H. Gieselmann, 2006).
Jan-Willem Aldershoff says the advantages of HD DVD are the support from
Microsoft and pricing. He thinks the advantages of Blu-ray are support by a majority
of big electronic companies and that it is more technologically advanced, has a larger
capacity, faster data transfer rates and more durability compared to HD DVD.
Although Jan-Willem Aldershoff mentions more strengths with Blu-ray, he
says the outcome of the format war is very uncertain and hard to predict.
Jessica Wolf thinks a major strength of HD DVD is the name-recognition factor of
the DVD brand.
‘DVD was the most rapidly adopted consumer product ever. People still love it. From
a marketing perspective, HD DVD is very intuitive. It’s DVD and it’s HD, it makes a lot
of sense to the buyer’ (Interview with J. Wolf, 2006)
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Jessica Wolf is of the opinion that pricing is also an advantage of HD DVD. She
thinks the HD DVD format’s weakness is that there are problems with the first
generation players.
Jessica Wolf says the main advantage of Blu-ray is major consumer
electronics company and content holder support.
Regarding the HD DVD use of iHD and Blu-ray’s use of BD-J, Jessica Wolf
thinks the different software standards will not affect the end user.
‘I’ve seen many demos featuring iHD and Java and it basically looks the same on the
screen’ (Interview with J. Wolf, 2006)
Jessica Wolf thinks there is no significant difference from HD DVD and Blu-ray based
on hardware and technology alone. She thinks the retailers are very powerful
decision-makers at the early stages of each format’s lifespan.
‘If I walked into a Best Buy, knowing little about either format, I would be strongly
guided by the suggestions and explanations of the salesperson. What if that person
has a preference toward one or the other format and it comes through during the
transaction?’ (Interview with J. Wolf, 2006)
David Holtzman points out that technological distinctions rarely drive adoption,
referring to the conflict between Betamax and VHS.
Don Lindich says the strengths of HD DVD are image quality, low manufacturing
costs and pricing of players, while its weaknesses are limited capacity (30GB for a
dual layer disc) and less manufacturer and studio support compared with Blu-ray.
Don Lindich says the strengths of Blu-ray are strong manufacturer and studio
support and the potential for 50GB dual layer discs, while its weaknesses are the low
picture quality of the initial releases, that only 25GB discs are available (currently),
the format’s poor reputation (Lindich describes this with the words ‘over-promise
under-deliver’) and that ‘Sony has too much control over the format’ (Interview with D.
Lindich, 2006) .
Ken Fisher thinks the strength for both formats is HD video and the weakness is
‘oppressive DRM schemes that prevent fair use’ (Interview with K. Fisher, 2006)
Scott Wilkinson says the pros of HD DVD are picture and sound quality, that duallayer discs are available at launch and its use of VC-1 and H.264 video codecs and
advanced audio codecs at launch, while its con is that the first generation players
from Toshiba are slow to operate.
He thinks the pros of Blu-ray are its higher capacity per layer, its higher bit
rate and its broader industry support, compared with HD DVD, while its con is its
weak introduction to the market, referring to the following factors:
‘[…] hobbled Samsung player, poor mastering in some cases, single-layer discs only,
no advanced audio codecs required, most titles use MPEG-2 only, which is less
efficient than VC-1 and H.264’ (Interview with S. Wilkinson, 2006)
5.8 Future scenarios for HD DVD and Blu-ray - Which format will prevail?
At the final stage of each interview, the interviewee was asked to answer which
format, if any, he or she believes will prevail in the format war and to motivate their
answer. The interviewees were also asked if they believed it is possible for both
formats to coexist on the same market.
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Klaus Oestreicher says the outcome of the format war will depend much on the
sales strategy of players. He thinks the fact that the formats are incompatible might
result in difficulties for the formats to coexist.
‘If compatible players for both formats will be offered that will be the best for all
market participants in my view and should erase all problems between the formats,
i.e. they can coexist. If a specific player will be needed for each format, I have a lot of
doubts that any format will win’ (Interview with K. Oestreicher, 2006)
Klaus Oestreicher says he currently (June 2006) does not see that any format might
win, neither the means by which a victory might be achieved nor that companies
change production and support to the opposite format, unless serious market
reasons will make such a step necessary.
He states many hi-tech authorities consider the new formats as the last battle
of discs, facing a near (3-4 years) sudden death. Klaus Oestreicher says he is
reluctant to support this quantitatively, but does believe the disc media has arrived in
the very last cycle of its life. He does not expect the disc media’s life cycle to make a
smooth decline, but a sudden end caused by interruptive technologies, referring to
his own Life Cycle model (chapter 3.7).
Graham Sharpless is uncertain of what the outcome of the formats will be. He says
if Blu-ray is given time, it may ultimately be the winner, but it will be costly for its
supporters. Graham Sharpless finds Blu-ray being better for recording and archiving
data, thus thinking it will be more appealing to computer companies. He then
stresses that studios CES and computer companies could change their allegiance
easily.
He thinks HD DVD is an affordable format that provides almost everything the
studios want, and that if it is a matter of expediency he sees no reason why HD DVD
should not win.
Regarding dual format players, Graham Sharpless says they will be very
expensive and thus not reach success, referring to the unsuccessful DVDAudio/SACD hybrid players, and that it is therefore unlikely that dual format players
will allow both formats to survive. Although he thinks it will be difficult for both formats
to coexist, Graham Sharpless believes it may take considerable time for one format
to die, due to the strong company support of both format camps.
He says Blu-ray and HD DVD may be the last physical formats, but stresses
that if consumers are too confused since there are two formats, they may not
become mainstream products at all, driving consumers to the internet and
downloading of HD videos as well as SD and audio instead.
Regarding holographic discs, Graham Sharpless says it is unlikely to become
the next generation format for consumers as cost is very high and is likely to remain
high.
Anders Appelqvist says it is possible for two formats to coexist, but that this is
probable to hinder adoption and increase costs. He did not comment on what he
believes will be the outcome of the format war.
Christian Magdu does not believe a two-format market is credible in the long run,
stating that it has never been particularly successful historically, with the exception of
game consoles. He believes Blu-ray has a greater chance of winning, mainly
because of the PlayStation3 and its better company support, including the adult film
industry.
He says he believes HD technology will become a success eventually but it
will take significant time, mainly due to the high upgrading costs currently required
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and that most consumers have just recently invested in DVD and are content with its
quality.
Shane Greenstein chooses not to forecast the outcome of the format war, saying
there are too many possible scenarios available. He thinks it is possible and likely for
the two formats to coexist if the firms sufficiently differentiate their formats.
He says it is important for Blu-ray to resolve the basic issues with backing
something that is technically superior in the long run but not in the short run and bring
down the cost quickly. If Blu-ray succeeds in doing this, it will have a good chance on
the market, but if technical issues keep coming up and costs do not come down, Bluray may have a difficult time in the market place, according to Shane Greenstein.
Wolfgang Gruener says it is nearly impossible to say which format is at an
advantage or not and that there are very strong supporters on both sides. He
believes the format battle will last longer than VHS against Betamax and that both
formats will coexist at least a few years.
‘You already see the first announcements for hybrid players and you see Sony and
Toshiba covering their bases with making sure that they access to a manufacturing
capability of the competing format (Sony/NEC and Toshiba/Samsung)’ (Interview with
W. Gruener, 2006)
Nathan Mook believes the formats will coexist for a while, until players begin
supporting both formats.
‘At that point, there will likely be a unified “high-definition DVD” branding that covers
both formats, so consumers will not have to choose. Long term, both Sony and
Toshiba know a fragmented market is not viable, but neither want to give up just yet’
(Interview with N. Mook, 2006)
Richard Forno is uncertain what the outcome of the format war will be. He thinks
until there is a unified standard it will be a slow and confusing time for the DVD
industry, creating confused and angry customers. Ergo, he thinks it will be difficult for
the formats to coexist.
‘Customers don’t want to have to think before buying a movie or music album. They
want to grab it off the shelf and know it will play on their hardware’ (Interview with R.
Forno, 2006)
Tim Cutting does not comment on how he believes the outcome of the format war
will be. He says it is possible for both formats to coexist, as long as there are drives
for them. Although he thinks it might not be popular for retailers to support various
formats of the same film.
Rob Enderle thinks if one format is to win HD DVD has currently the better odds, but
that it is equally likely both formats will lose. He says both formats cannot exist
indefinitely.
He states that much of the data that surrounds both formats is manufactured
with regard to customer demand and cannot be relied on. He says there may be no
market for these formats.
‘Existing DVD may be good enough for the next 5 years’ (Interview with R. Enderle,
2006)
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Rob Enderle the future of movie consumption and data storage will consist of a
combination of electronic delivery and very high capacity solid-state storage.
Bryan Greenway thinks HD DVD will prevail.
‘[…] consumer video isn’t a new invention and it surely doesn’t need to be reinvented, I feel that Toshiba’s evolution versus revolution approach will come out on
top’ (Interview with B. Greenway, 2006)
He believes it will not be easy for either format, since both Sony and Toshiba seem
willing to invest large amounts of capitol to ensure they will dominate.
He is doubtful that both formats can coexist on the same market, referring to
the current status of the disc media market:
‘Right now DVD serves as both the preferred movie playback format and a popular
optical disc storage medium for consumers. […] if HD DVD was to become our
preferred movie format and Blu-ray handled the storage needs of consumers; it
would splinter an already solvent market. I just don’t see consumers willing to gear
up with two formats to accomplish what one does today’ (Interview with B. Greenway,
2006)
Hartmut Gieselmann believes HD DVD has the better chance of succeeding as a
movie disc, saying it costs less to manufacture and offers a better picture quality due
to the use of VC-1 over MPEG-2. He thinks Blu-ray is better for data storage since,
stating is possible to write 50 GB on one disc and the data safety is improved over
DVD. Hartmut Gieselmann says before a combo drive is introduced and the prices
have come down, DVD will remain the leading format.
Hartmut Gieselmann believes neither HD DVD nor BD will succeed, because
he thinks the development of both formats was more focused on DRM than
improving the usability for the consumer. He says the picture quality upgrade is not
enough for consumer to invest in either format and that, using an upscaler, it is
possible to watch DVD movies in HD quality.
Hartmut Gieselmann also points out that sometimes films loose their magic
when using higher resolutions, since the flaws of for instance inferior CGI (Computer
Generated Images) effects become much more visible compared to when shown in
SD.
Jan-Willem Aldershoff says it is possible for two formats to coexist, referring to the
different recordable DVD formats, but says it creates confusion for consumers. He
says even though it is possible to make devices that support both formats it is not
marketing wise an option for either camp at the moment.
He thinks it is hard to predict how the format war will develop and says it
depends a lot on marketing and being on the market at the right time.
Jessica Wolf thinks both formats could exist if the catalog of titles and pricing were
the same for each format, referring to coexisting video game formats. She believes
whichever format that maintains the most content support will win, but stresses that
there is a chance, given enough consumer confusion and lack of education or
marketing support, in the next decade the market could bypass any HD physical
format altogether and clamor for online services, which are capable of delivering HD
content directly to a HDTV set.
Jessica Wolf believes Blu-ray will win the format war since of its more
extensive content holder support.
David Holtzman expects HD DVD to win for three reasons:
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Chapter 5 - Results
‘1) Sony has made colossal marketing mistakes in the last few years. They’ll
probably not handle this well.
2) BD+ will be compromised and when it is, it will be a major scandal, because
consumers will find that the copy protection on their discs have compromised their
players and possibly their entire entertainment system.
3) The name “HD DVD” sounds better to consumers; it sounds like a small,
incremental leap from what they have now. Blu-Ray will scare them and sales
people will spend too much time educating consumers on what it is, so they’ll go for
the easy sale and lead them to HD DVD (if commissions are equal, of course)’
(Interview with D. Holtzman, 2006)
Don Lindich does not think there will be a winner, believing there will be ‘an
SACD/DVD-Audio style stalemate’ (Interview with D. Lindich, 2006). He says there
also might be a scenario where HD DVD becomes the standard for HD films and BD
for data storage and computer applications.
He says BD was heavily favored to win the war initially, but believes that HD
DVD is capable of winning if the supporters ‘act fast and capitalize on BD’s mistakes,
and the Blu-ray group does not start improving quickly’ (Interview with D. Lindich,
2006)
Ken Fisher says he currently (August 2006) believes Blu-ray will be the dominating
format, but says it is too early to tell.
Chris Morris says he does not know which format will win. He thinks the
PlayStation3 will help Blu-ray, but does not see a compelling reason for consumers
to upgrade.
‘HD adoption rates are certainly on the rise, but it’ll be a while before they’re
universal (The sets are still prohibitively expensive for many people). And
progressive scan DVD players put out pretty sharp pictures. Truth be told, I haven’t
heard a real demand from the mainstream for these systems. It will happen
eventually, but people seem pretty happy with their inexpensive DVD players and
cheap DVDs right now. And neither Blu-ray nor HD DVD has made any sort of
compelling argument yet about why they should give those up’ (Interview with C.
Morris, 2006)
Jan Ozer says it is ‘pathetic’ that the DVD industry could not work out their
differences before now. He believes because of the format playback incapability, the
lack of a unified standard will have a far mote dramatic effect on HD DVD and Blu-ray
adoption than the ‘+R/-R fiasco’ (Interview with J. Ozer, 2006).
Scott Wilkinson says he is leaning toward HD DVD as a winner currently, due to
‘Blu-ray’s serious stumbles at launch’. He does however believe Blu-ray could make
a comeback, saying ‘Sony is betting the farm on it, so they won’t give up easily’.
63
64
Chapter 6 - Analysis
6 ANALYSIS
This chapter analyzes and summarizes the results of the interviews. The analysis is
divided into the same areas as the Results section.
6.1 Summary – Consumer Adoption and alternatives to HD DVD and Bluray
The overall opinion of the interviewees is that the general group of customers is not
ready to invest in either HD DVD or Blu-ray technology. Most interviewees believe
U.S. customers are more willing to invest in HD DVD or Blu-ray technology,
compared to European consumers, at the early market stages of the technologies.
For the majority of consumers, the initial retail pricing of both HD DVD and Blu-ray
players and media is too high, in particular when compared to the widely adopted
DVD technology. Early adopters, often owners of large digital flat HDTV-compatible
screens, are more likely to buy HD DVD or Blu-ray players before owners of
analogue TV sets, since the latter will not benefit from any noticeable image quality
enhancements (only sound and bonus material) while the former will benefit from an
significant image quality enhancement compared to SDTV and DVD.
A few interviewees were more critical towards the technologies, referring to
the popularity of DVD, meaning it will be difficult to replace and that consumers do
not yet see the value in high definition technology altogether.
As to whether blue laser disc technology will replace red laser based one,
most interviewees believes this will be the scenario, although it will take considerable
time (anything from one year up to five years). A majority of the interviewees thinks
the format war will hinder general adoption considerably, if not altogether, something
other media distribution technologies (like digital downloads) may profit from.
The overall outcome of this interview phase can be summarized into the following
main points:
•
•
•
•
•
•
The two incompatible formats are causing confusion among consumers and
may hinder adoption considerably
U.S. consumers more ready than European ones
Early adopters will be the only ones purchasing in either technology upon
availability
Flat screen (Plasma/LCD) screen owners are more likely to invest in BD/HD
DVD
Widespread market penetration within the span of 1-4 years
Other technologies (like digital downloads) might benefit from consumer
confusion caused by the format war
Statistics
The respondents who did not comment or were not asked the question ‘Do you think
customers are ready and willing to invest in high definition disc formats? If not, when
do you believe they will be ready (if ever)?’11 are excluded from the statistics.
The term ‘ready’ below is meant to indicate that the technologies succeed in
reaching widespread adoption, i.e. reaching the majority groups of consumers
discussed in Everett’s Diffusion of Innovations model.
11
John Zubrzycki and Lars Haglund are excluded from the statistics since their questions
focused on HD adoption in general, without focusing on HD DVD and Blu-ray
65
Chapter 6 - Analysis
1. Interviewees believing consumers (excluding early adopters) are ready for
purchasing HD DVD and/or Blu-ray technology when available: 2 (9%)
2. Interviewees believing consumers (excluding early adopters) will be ready for HD
DVD and/or Blu-ray technology eventually: 14 (67%)
3. Interviewees believing consumers will never be ready for HD DVD and/or Blu-ray
technology: 1 (5%)
4. Interviewees uncertain of the current and future public interest in HD DVD and/or
Blu-ray technology: 4 (19%)
Early adoption, upon
Uncertain m arket introduction
9%
19%
No adoption
5%
Eventually, w ithin a
few years
67%
Illustration 6: “When will HD DVD and/or Blu-ray technology reach majority consumer
groups, if ever?”
6.2 Summary – Potential Success Factors
The interviewees are unified in believing major movie studio support and release
rates of home videos will be of considerable importance in the outcome of each
format. Some commented that the pricing of the players will also be important,
particularly in combination with content availability. Many of the interviewees believe
the confusion among consumers, caused by the two formats, might postpone disc
and player sales.
Two of the interviewees (Forno and Holtzman) stressed the importance of the
adult film industry’s format support, David Holtzman calling it ‘single biggest
determining factor in who wins the format war’.
The overall outcome of this interview phase can be summarized into the following
main points:
•
Major movie studio support and availability and release rate of home videos
will be of major importance to the outcome of the format war
66
Chapter 6 - Analysis
•
•
•
•
The format war might cause confusion among consumers making them
postponing any format supporting decision
No studio’s format support is written in stone and can easily be changed
Player pricing is also of major importance, particularly in combination with
content availability
The adult film industry, a potential determining factor in who wins the format
war?
6.3. Summary – The impact of the Playstation 3
The opinions of the respondents regarding the potential impact of the PS3 are mixed,
although many believe the PS3 may be of great importance for the outcome of the
BD format - increasing the installed base of Blu-ray players considerably - although
some think the PS3 is too expensive to become a widespread product. Several
interviewees say the PS3 will mainly be bought by gamers, making it a less important
factor in the format war.
The overall outcome of this interview phase can be summarized into the following
main points:
•
•
•
Depending of the outcome of the launch phase of the PS3, it could increase
the installed base of Blu-ray players or hinder Blu-ray adoption.
The PS3 is a considerably expensive game console product, probably due to
its Blu-ray components
The pricing of the PS3 will be of major importance for its potential success
Statistics
The interviewees who did not comment or were asked the question are excluded
from the statistics.
1. Interviewees believing the Playstation 3 could be of crucial importance, both
positive and negative, to the format war: 9 (56%)
2. Interviewees believing the Playstation 3 will be of no or negligent importance to the
format war: 5 (31%)
3. Interviewees uncertain of the Playstation 3’s effect on the format war or saying it
will be visible during the product’s market introduction phase: 2 (13%)
67
Chapter 6 - Analysis
Uncertain
13%
No or negligent
im portance
31%
Crucial im portance
56%
Illustration 6: What importance (negative or positive) will the Playstation 3 have on
the outcome of the format war?
6.4 Summary – Production costs / Economy
The respondents’ opinions are somewhat divided regarding the potential effect of
production costs, although most believe the difference in production costs between
the two formats will not affect the success of either format in a longer perspective.
Several respondents point out the factor that there are many financially wise strong
companies supporting Blu-ray, thus being able to afford the (initially) high production
costs. Many believe a more crucial factor will be the consumer’s choice of format
support, from which the companies will produce accordingly.
The overall outcome of this interview phase can be summarized into the following
main points:
•
•
The difference in production costs may affect the progress of each format
initially, but not significantly further ahead, once production ramps increase.
An extensive number of capital strong companies are backing up both
formats, enabling high initial manufacturing investments.
Statistics
The interviewees who did not comment or were asked the question are excluded
from the statistics
1 Interviewees believing the manufacturing will affect the format war significantly: 1
(5%)
2 Interviewees believing the manufacturing costs will only affect the format war a
limited time: 8 (42%)
68
Chapter 6 - Analysis
3 Interviewees believing the manufacturing costs will have no or very limited effect on
the format war: 8 (42%)
4 Interviewees uncertain of what effect the difference in production costs will have: 2
(11%)
Significant
Uncertain
im portance
11%
5%
Only affecting a
lim ited tim e
42%
No or little effect on
the w ar
42%
Illustration 7: What effect will the manufacturing costs have on the format war?
6.5 Summary – Digital Rights Management / Piracy
A majority of the interviewees believes the DRM systems of HD DVD and Blu-ray will
affect both the consumers’ privacy and possibilities of interoperability, although most
of the respondets are uncertain of to what extent this will occurr. Some even believe
these factors will affect the outcome of the formats’ success, claiming the DRM
systems are too restrictive and not consumer-friendly enough. Regarding
interoperability, some respondents believe consumers are likely to expect more
interoperability regarding purchased content, due to the increasing popularity of
portable media. Several respondents say the new DRM systems make it possible to
monitor what consumers watch.
All of the interviewees believe the DRM systems will be deciphered eventually.
Most of the Interviewees are of the same opinion that movie studios should
focus on organized piracy, instead on concentrating on hindering casual copying.
The overall outcome of this interview phase can be summarized into the following
main points:
•
•
•
The DRM systems of HD DVD and Blu-ray are likely, or at least have the
possibilities, to affect the consumers’ privacy and possibilities of
interoperability, due to their restrictive nature
The effect on consumer privacy and interoperability will depend on the
content holders future choices regarding DRM feature implementation.
The DRM systems will be deciphered eventually
69
Chapter 6 - Analysis
•
AACS features like ICT may create problems with existing HD hardware
Statistics
The interviewees who did not comment or were asked the question are excluded
from the statistics
Interviewees believing the DRM systems of HD DVD and Blu-ray will affect users’
privacy: 6 (35%)
Interviewees believing the DRM systems of HD DVD and Blu-ray will not affect users’
privacy: 3 (18%)
Interviewees uncertain if the DRM systems of HD DVD and Blu-ray will affect users’
privacy: 8 (47%)
Yes
35%
Uncertain
47%
No
18%
Illustration 8: Will the DRM systems of HD DVD and BD affect users’ privacy?
Interviewees believing the DRM systems of HD DVD and Blu-ray will affect users’
possibilities of interoperability: 8 (47%)
Interviewees believing the DRM systems of HD DVD and Blu-ray will not affect users’
possibilities of interoperability: 1 (6%)
Interviewees uncertain if the DRM systems of HD DVD and Blu-ray will affect users’
possibilities of interoperability: 8 (47%)
70
Chapter 6 - Analysis
Yes
47%
Uncertain
47%
No
6%
Illustration 9: Will the DRM systems of HD DVD and BD affect users’ possibilities of
interoperability?
6.6 Summary – Differences in technical features - Pros and cons
The respondents mention several different aspects they consider being a strength or
weakness for either formats, although many of them are reoccurring.
Many of the interviewees believe the main strengths of HD DVD include
pricing, low manufacturing costs, name recognition, simpler production process, iHD,
the Mandatory Copy feature and the support of Microsofts, while its weaknesses
include factors like limited storage capacity, weaker company support and that there
currently is no 1080p player available.
With Blu-ray, several interviewees thinks the strengths being its (theoretical)
superior storage capacity, its more extensive company support and the
PlayStation3’s imbedded Blu-ray player, while many find the cons being high pricing
and manufacturing costs, a more complicated production process and the use of
MPEG-2. Several respondents think HD DVD is a suitable format for purchasable
video, while Blu-ray is preferable when it comes to data storage.
The opinions on the software iHD and BD-J, used for interactive menus and
extra features, are also somewhat divided. Some believe both software versions will
result in too complicated and unnecessary menus, while a few think interactivity is
going to change the way consumers watch movies. According to Nathan Mook, iHD
was designed specifically for HD DVD, while BD-J is based on JEM, software
designed for interactive TV.
The overall outcome of this interview phase can be summarized into the following
main points:
71
Chapter 6 - Analysis
HD DVD pros
• Low production manufacturing costs/easier manufacturing process
• Low pricing (of first generation of players)
• Name recognition
• iHD
• Less restrictive DRM
• Support from Microsoft
HD DVD cons
• Limited storage capacity (30 GB for a dual layer ROM disc)
• Lesser company support compared with Blu-ray
Blu-ray pros
• (Potential) Superior storage capacity
• Strong overall company support, from both CES manufacturers and content
holders
• Sony and the PS3
Blu-ray cons
• High manufacturing costs and high pricing
• Complicated manufacturing process
• The use of MPEG2
6.7 Summary – Future Scenarios of HD DVD and Blu-ray - Which format
will prevail?
A majority of the interviewees (70%) were uncertain what the outcome of the format
war, saying factors like sales and marketing strategies will be crucial for each
format’s progress. Several respondents think players capable of playing both formats
might settle the war and may result in a unified, universal HD disc based format.
Most of the interviewees believe the formats will coexist for at least a couple of years,
but that it will be more difficult in a longer perspective.
The overall outcome of this interview phase can be summarized into the following
main points:
- The outcome of the format war is hard or impossible to predict, due to the
uncertainty of numerous factors like marketing strategies, release schedules etc.
- A player capable of playing both formats might put an end to the format war,
resulting in a unified disc based HD format.
- Both formats are probable to coexist for at least a couple of years, due to extensive
company support for both sides.
Statistics
1 Interviewees believing HD DVD will become the dominant format: 2 (10%)
2 Interviewees believing Blu-ray will become the dominant format: 2 (10%)
3 Interviewees believing neither format will become the dominant format: 2 (10%)
4 Interviewees uncertain of which format will become the dominant format: 14 (70%)
72
Chapter 6 - Analysis
HD DVD
10%
Blu-ray
10%
Neither
10%
Uncertain
70%
Illustration 10: Which format will win the format war?
6.8 Conclusions
The HD DVD and Blu-ray disc format differs mainly in the terms of manufacturing
costs (Blu-ray being more complex and thus more expensive to produce) and
theoretical storage capacity (HD DVD being inferior). None of these differencing
factors are probable to affect either format’s potential progress on the market. It is
currently difficult to foresee a winner in this format battle, since both formats have
massive company support and are similar in their technical capabilities. Another
aspect making the forecast more complicated is that both formats were created
before there was any consumer demand for a High Definition-capable disc format
product. The consumer reactions to these formats are thus unpredictable. The format
war is causing confusion and uncertainty among consumers, making them probable
to postpone any purchase of either format. Initial high retail costs (particularly
compared with DVD) and potentially restrictive digital rights management
technologies, where future generation of players may render it possible for content
holders to conduct detailed monitoring of consumers’ viewing habits or restrict HD
playback, are also feasible to hinder adoption of either format.
Unless a unified format or player is developed, both formats might loose to
another kind of storage media, probably not a physical one (e.g. downloads and
home media networks).
73
74
Chapter 7 – Suggestions For Future Research
7 SUGGESTIONS FOR FUTURE RESEARCH
The nonprofessional, unbiased research fields of HD DVD and Blu-ray technology
are considerably young, thus making future research a necessity. This thesis has
investigated technical features and differences between the formats and presented
future scenarios and issues for both formats. There are other issues that play into the
fields of Blu-ray and HD DVD. Here are some suggestions:
- To what extent are there displays available that support respective
technology?
- Is there enough HD broadcasting to justify a transition from SD (DVD) to HD
(Blu-ray and HD DVD)?
- How will the analog off-air shut off affect HD technology’s progress in
countries where it is about to happen?
- What do consumers think of the formats in terms of perceived picture and
audio quality and usability?
- To what extent will HD DVD and Blu-ray be compatible with home media
servers, which require content to be copied to the hard drives so that they can
stream video throughout the house, or portable devices?
- How is the new DRM systems prone to affect users? What lies in the future
of DRM?
According to research conducted by Understanding & Solutions, the U.S. home
entertainment market will grow to $30 billion, with standard DVD bringing in more
than $15 billion of the grand total, while Blu-ray and HD DVD discs will garner about
$10 billion (J. Wolf, 2006).
Another suggestion for future research is to investigate to what extent HD
DVD and Blu-ray will exist next to DVD and non-physical storage, e.g. download-toburn options for motion pictures.
75
76
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19-06-2006 (e-mail): Graham Sharpless (UK), Optical Disc Technology Ltd –
www.opticaldisctech.com
21-06-2006 (e-mail): Anders Appelqvist (SE), CEO CEKonsumentelektronikbranschen
25-06-2006 (e-mail): Christian Magdu (SE), Editor in Chief/Co-founder of
www.dvdforum.nu
27-06-2006 (e-mail): Shane Greenstein (US), The Elinor and Wendell Hobbs
Professor - Department of Management and Strategy, Kellogg School of
Management, IL
27-06-2006 (e-mail): Xavier Pouyat (FR), Program Manager – Microsoft Corporation
28-06-2006 (e-mail): Wolfgang Gruener (US), Managing Editor – TG Daily
29-06-2006 (e-mail): Nathan Mook (US), Journalist – BetaNews.com
29/30-06-2006 (e-mail): Richard Forno (US), Principal Consultant for KRvW
Associates, security commentator and author
30-06-2006 (e-mail): John Zubrzycki (UK), Principal Technologist, Technology Group,
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06-07-2006 (e-mail): Tim Cutting, CEO & Founder – Niveus Media Inc.
11-07-2006 (e-mail): Rob Enderle (US), Principal Analyst – Enderle Group
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16-07-2006 (e-mail): Lars Haglund (SE), Senior R&D Engineer - Production
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19-07-2006 (e-mail): Hartmut Gieselmann (DE), Editor – CT Magazin
21-07-2006 (e-mail): Jan-Willem Aldershoff (NL), Founder – CDfreaks.com
27-07-2006 (e-mail): Jessica Wolf (US), Senior Reporter – Home Media Retailing
02-08-2006 (e-mail): David Holtzman (US), Social Technology Expert/Writer
(www.davidholtzman.com/www.globalpov.com)
03-08-2006 (e-mail) Don Lindich (US), US national columnist/Author of ‘Digital Made
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08-08-2006 (e-mail) Kenneth Fisher (US), Editor-in-Chief – arstechnica.com
17-08-2006 (e-mail) Chris Morris (US), Director of Content Developer –
CNNMoney.com
23-08-2006 (e-mail) Jan Ozer (US), Contributing Editor – PC Magazine
26-08-2006 (e-mail) Scott Wilkinson (US) – Video Editor, The Perfect Vision
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TRITA-CSC-E 2006: 162
ISRN-KTH/CSC/E--06/162--SE
ISSN-1653-5715
www.kth.se