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Warner goes Blu-ray only starting June; Paramount next?

At the eve of the Consumer Electronic Show in Las Vegas, Warner announced that it will go Blu-ray exclusively for all its new high-definition titles released after May 2008, thus ending its dual-format policy. Unconfirmed reports suggest Paramount could follow suite.

“Warner Bros’ move to exclusively release in the Blu-ray disc format is a strategic decision focused on the long term and the most direct way to give consumers what they want,” said Barry Meyer, Chairman & CEO, Warner Bros. “The window of opportunity for high-definition DVD could be missed if format confusion continues to linger. We believe that exclusively distributing in Blu-ray will further the potential for mass market success and ultimately benefit retailers, producers, and most importantly, consumers.”

Warner Home Video will continue to release its titles in standard DVD format and Blu-ray. After a short window following their standard DVD and Blu-ray releases, all new titles will continue to be released in HD DVD until the end of May 2008 when the contractual agreement entered with Toshiba to support the HD DVD format expires.

“Warner Bros has produced in both high-definition formats in an effort to provide consumer choice, foster mainstream adoption and drive down hardware prices,” said Jeff Bewkes, President and Chief Executive Officer, Time Warner Inc., the parent company of Warner Bros. Entertainment.

“A two-format landscape has led to consumer confusion and indifference toward high definition, which has kept the technology from reaching mass adoption and becoming the important revenue stream that it can be for the industry,” said Kevin Tsujihara, President, Warner Bros Home Entertainment Group. “Consumers have clearly chosen Blu-ray, and we believe that recognizing this preference is the right step in making this great home entertainment experience accessible to the widest possible audience."

The company said sales of Blu-ray discs in the US generated $169 million last year, while sales of discs in the HD DVD format totaled $103 million. About 60 percent of Warner's sales of US high-definition discs were Blu-ray titles and the other 40 percent were HD DVD, said Tsujihara. Outside the U.S., the divide was far wider, with Warner's Blu-ray discs outselling titles in HD DVD in Britain and Japan, among other markets.

Sales of set-top high-definition disc players in the fourth quarter of 2007 also factored into Warner's decision.
The company saw an acceleration in sales of Blu-ray players at the end of the quarter, particularly in December, Tsujihara said. "We always viewed set-tops as the most significant indicator" of consumers' format preference, he said.

Based on current sales trends continuing for both set-top Blu-ray Disc players and the BD-equipped PlayStation 3 game console, Blu-ray Disc software sales could hit $1 billion this year, according to proprietary research from 20th Century Fox Home Entertainment. Should those trends continue, the number of BD devices in US homes could hit the 10-million mark by the end of 2008.

"Warner Bros has worked very closely with the Toshiba Corporation in promoting high definition media and we have enormous respect for their efforts. We look forward to working with them on other projects in the future,” Tsujihara added.

Toshiba, who spearheaded the competing HD DVD format, is unlikely to welcome this overture anytime soon. Warner is a founding member of the DVD Forum that designed the DVD format, then finalised the hidef version – HD DVD. The studio's decision could move into a legal minefield, as Toshiba's terse statement is hinting.

"Toshiba is quite surprised by Warner Bros' decision to abandon HD DVD in favor of Blu-ray, despite the fact that there are various contracts in place between our companies concerning the support of HD DVD. As central members of the DVD Forum, we have long maintained a close partnership with Warner Bros. We worked closely together to help standardize the first-generation DVD format as well as to define and shape HD DVD as its next-generation successor."

The statement goes on: "We were particularly disappointed that this decision was made in spite of the significant momentum HD DVD has gained in the US market as well as other regions in 2007. HD DVD players and PCs have outsold Blu-ray in the US market in 2007.

"We will assess the potential impact of this announcement with the other HD DVD partner companies and evaluate potential next steps. We remain firm in our belief that HD DVD is the format best suited to the wants and needs of the consumer."

In the fight for market supremacy, monetary incentives have been a part of the strategic equation of the belligerents since the inception of the next-generation formats. Toshiba is reported to have offered Warner 'substantial incentives' to come down on its side – just as it gave Paramount and DreamWorks Animation a combined $150 million in financial incentives for their business, according to two executives with knowledge of the talks, quoted by the New York Times.

Warner's Tsujihara declined to comment on whether any payments were offered for support of Blu-ray. “This market is absolutely critical to our future growth,” he said in a telephone interview with the New York Times. “You couldn’t put a number on that.” However, rumours are already circulating which put this number to $400-500 million, even higher.

Clouds over HD DVD are getting even darker if a report in the Financial Times that Paramount Pictures, one of the last two Hollywood studios committed to HD DVD could switch side shortly is correct. Paramount Pictures denied the report. "Paramount's current plan is to continue to support the HD DVD format,'' said a spokeswoman for Paramount.

Paramount could reportedly defect because a clause in its contract with the HD DVD camp allows the studio to switch to Blu-ray if Warner Bros dropped its support of Toshiba's standard.

To date, Paramount Pictures and Universal Pictures have deals in place to continue releasing their movies exclusively on HD DVD, as does DreamWorks Animation. Indeed, Warner will also continue to release its titles on both formats until the end of May when its contractual commitment with Toshiba to support HD DVD expires.

The decision was enough of a surprise for Toshiba to cancel its planned press conference in order to "reassess the situation." However, the company has since reiterated its continuing commitment to pushing the HD DVD format and was in talk with key retailers.

Visitors to the Las Vegas CE show will still have the HD DVD logo well into their sight: Toshiba sponsored the CES bags!

Story filed 08.01.08

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