Universal is deliberately prolonging the format war

Posted on Thursday, August 9, 2007 by MegaZone

Well, this isn’t really a surprise to anyone who has been watching their behavior, but it is official – Universal is deliberately sticking with HD DVD to prolong the format war.

In an interview with Scott Hettrick of HollywoodInHiDef.com, Universal’s president Craig Kornblau explicitly admitted to deliberately prolonging the format war.

Universal president Craig Kornblau told me this week that the studio actually wants the format war to continue.
He also said Universal is getting financial incentives to create exclusive HD DVD features such as the Xbox Live component for the upcoming “Heroes” release.
“I’m not going to tell you that we don’t cut financial deals with people every day,” he says.

Additionally:

However, now that the market has evolved as it has, Kornblau says the hi-def format war has been “the very best thing that ever happened for consumers, retailers, and, frankly, studios” — everyone except consumer electronics manufacturers — because it has driven prices down further and far more quickly than would have been the case if there had been only one format in the market.

Furthermore:

With Universal the only holdout in sticking with HD DVD exclusively, Kornblau reluctantly concedes that HD DVD’s position is just fragile enough that if Universal decided to release in Blu-ray now, it would have a serious, if not life-threatening impact on the future of HD DVD. So in addition to weighing how his decision will impact the studio, he now must also factor in the potential demise of the HD DVD format entirely if Universal would opt to release its movies in Blu-ray.

For now, that’s not something Kornblau is willing to risk.

This is mind-boggling, really. He’s the President of Universal, his responsibility is to the studio. He should not consider the potential demise of any format in his decisions, it isn’t his job to keep any format on life support. His job is to make the best decisions for the studio. If he’s making studio decisions designed to pump up other companies and artificially prolong the life of HD DVD, then he’s not doing his job.

There is still potential for Universal to change tack:

Even if, for the sake of argument, you go along with Universal’s belief that the format war is driving prices down more quickly, Kornblau admits that there is only a limited window of time for which this situation can be interpreted as beneficial for consumers, retailers, and studios. He says that window will start to close when players drop to a price of $200 and consumers start making their choice, which is what will guide Universal’s ultimate course.

Let me boil the interview down: “We know HD DVD is going to die, but if we admitted that now it would kill sales going into this holiday season. There isn’t enough time for Universal to realign itself and pump out BD, so our already terrible sales would be even worse. Instead, we’re going to prolong this war and see how many people we can sucker into buying a dead format walking. We’ll happily pocket their money, then next year we’ll announce that we’re adding Blu-ray support to our lineup. This will lead to the collapse of HD DVD, which will give us a graceful exit so we don’t lose too much face. The suckers who paid for HD DVD will be left high and dry, just like the suckers who bought DIVX instead of DVD 10 years ago.” Well, actually, most DIVX players could play DVD, so those weren’t a total loss. Maybe the suckers who paid for HD DVD players will be happy using them as upscaling DVD players.

I disagree with pretty much all of Kornblau’s arguments from the interview. He claims that only the format war has driven costs down – yet the PS3 is the best selling high-def capable player and still the lowest cost BD player (now tied with the Sony BDP-S300), and its pricing has nothing to do with the format war. At least not *this* one – it is all about competing with the Xbox 360. On top of that, as the interview points out, DVD player pricing dropped 20% in the first year and an additional 30% the second year – with no format war. Even without a format war there is competition between vendors that drives the price down, and there are strong incentives to bring the price down to increase market adoption. BD and HD DVD don’t just compete with each other, they also compete with DVD, VOD, etc.

He also argues that HD DVD’s interactive features are an important factor in Universal’s support. Yet Universal has done very little to *use* those features, so the argument is hollow. Warner and Paramount, who release both HD DVD and BD, have done more to use them than Universal has! If the features are so key – why aren’t you using them? And any advantage HD DVD has had is vanishing as updated BD profiles become mandatory with BD1.1 required for coming players and BD Live (connectivity) standard in many new players. On top of BD-J’s already superior capabilities compared to HDi.

And I simply think it is delusional to believe the format war is good for *anyone*, other than those invested in HD DVD.

The answer is simple: DO NOT BUY HD DVD.

Simply don’t buy HD DVD. Don’t buy players. Don’t buy media. *Especially* any releases from Universal. Do buy Blu-ray. Hit them in the wallet for deliberately prolonging this war. This holiday season buy Blu-ray, tip the scales even further toward BD. Starve HD DVD for money, punish Universal for their callous behavior in deliberately keeping the war going, and show them the error of their ways. If BD thoroughly trounces HD DVD this holiday season – which it shows every sign of doing – then Kornblau is going to have a lot of explaining to do to the shareholders. Especially if their releases tank. You can also let Universal know what you think directly.

Spending a dime on HD DVD simply prolongs the format war and puts off the inevitable. Think of it this way – the *best* you would get is a permanent split in the market. And then your HD DVD player would still be unable to play the majority of content out there. You’d still have to buy a BD player, or replace the HD DVD deck with some dual-format unit down the road. Whereas going with BD you get the vast majority of content – everything but Universal – and if the scales tip, you’ll inevitably get Universal’s content too when they switch to BD. Buying HD DVD is just wasting money in the long run – and probably not really that long a run at that.

(Picked up from Blu-ray.com.)

About MegaZone

MegaZone is the Editor of Gizmo Lovers and the chief contributor. He's been online since 1989 and active in several generations of 'social media' - mailing lists, USENet groups, web forums, and since 2003, blogging.    MegaZone has a presence on several social platforms: Google+ / Facebook / Twitter / LinkedIn / LiveJournal / Web.    You can also follow Gizmo Lovers on other sites: Blog / Google+ / Facebook / Twitter.
This entry was posted in Blu-ray/HD DVD. Bookmark the permalink.
  • http://chrisheer.wordpress.com Chris Heer

    Well it doesn’t surprise me that Universal is doing this…but it does surprise me that
    they admit it so freely.

    Also, over at thedigitalbits.com there’s a related article comparing Kornblau’s comments to those
    of Ken Graffeo’s at EMA. Graffeo seemed to hint that they’re getting pressure from their
    parents (NBC, GE, etc.) to perhaps go format-neutral. Most interesting of all was Graffeo’s
    comments about Spielberg — that Spielberg wanted to wait until there was a lot more market
    penetration with the hi-def formats…except one week later Sony announced the Blu-Ray (HD exclusive)
    release of Close Encounters, complete with an HD transfer approved by Spielberg, as well as a new
    interview with him specifically for this release.

  • Zach Carter

    I don’t see any problem with what they are doing. I would not be watching Hi Def movies today, if it weren’t for the cheap prices on the HD-DVD players. Without the competition, I would have had to wait much longer for the prices to come down. I don’t really feel that we need to be loyal to any format. I only bought the player, so my investment is relatively small. I get all my movies from Netflix, so it will not cost me much to switch if the other format wins, especially if the competition drives the player prices down far enough. In the meantime, there are nearly 300 titles to enjoy in either format, and regular DVDs are upconverted by my player.

  • C Williams

    The article was written by someone with a very Blue bent as you will note if you visit their site.
    The comments here take those very biased comments and tilt them even more.
    Read the entire article in context for yourself and you will find it is not quite so sinister.
    The header on the website says it all: “Built for Blu-Ray Powered by Blu-Ray Supporters”.

    This part was not noted here:
    “But Kornblau says Universal’s position is not driven by deals but by a long-term and consumer-focused strategy that is supported by Universal parent NBC and corporate owner GE. Universal never initially wanted a war, he says, which is why the studio made a decision years ago to back only one format.”

    I and several co-workers and family members like Zach above have been able to enjoy HDDVD since the rice is much lower.
    I only note this to try and balance the BluRay fanboy thoughts from hollywoodinhidef.com.

    The only thing new I saw in the article is very high level Universal confirmation that GE and NBC also firmly support their stance.

    I hope many more can enjoy the beauty of HD. For me and many others price is King.

    BTW TivoLovers is still cool even if its Blu :)

  • http://www.gizmolovers.com/ megazone

    It really isn’t clear that the format war has driven the prices down. It has certainly depressed the pricing on HD DVD decks – but only because Toshiba is desperate and they’re selling them at a loss in a failing attempt to gain market share. The Blu-ray camp seems to be content to sell decks at rational prices, not at a loss, and still outsell HD DVD.

    Player costs would be dropping no matter what. The vendors know that the lower the cost of the players, the more market penetration they have. And there is a lot at stake with regard to future revenue, so they want to get them down as fast as possible without losing money. And there is still competition – there are many Blu-ray vendors competing against each other for sales. There would be a price battle between them no matter what, just as there was between DVD player vendors. And the PS3 was, and still is, the BD price leader – and that pricing is independent of the player market. It was the cheapest BD player because Sony was taking a huge loss on it, because it needs to compete in the gaming market.

    There are also issues with the format war that can put *upward* pressure on pricing. With the market split, economies of scale are reduced. Since some pressing plants went with BD and others HD DVD, the total capacity for either format is reduced. That has created a scarcity of disc manufacturing capacity, which has increased production costs on discs. On top of that, many manufacturers have totally sat out the war, waiting to see who wins before investing in new gear. That further reduces capacity. If one format controlled the market then all of the capacity would be behind that format, and those waiting due to uncertainty wouldn’t have cause to wait – further increasing capacity. That would increase competition and drive down production costs faster. That, in turn, would drive down the cost of the titles faster.

    Also, the uncertainty has kept many consumers from adopting either format. How many more people would have high-def disc players if it weren’t for the format war? I know several people who are waiting for a clear winner before buying anything, and every market study and survey shows the same thing. If we hadn’t had this war, there would be broader adoption and the single format would be selling better than BD and HD DVD combined. That increased adoption would be creating more volume and competition and driving down prices.

    I just don’t think that the format war has had a major impact on pricing. If there had been one format then Toshiba would still be fighting Sony for market share, along with LG, Pioneer, Samsung, Sanyo, Denon, etc. And Microsoft would almost certainly have a BD drive for the XBox 360 to compete with the PS3, instead of an HD DVD drive, so that would still be a factor in pricing.

    All the format war has really done is delay the adoption of high-def media and reduced and diluted investment in the market. If all of the markets resources had been focused behind one standard, which would be more than BD and HD DVD combined because of the wait-and-see crowd today, how many more titles would we have available? How many more features would be developed? If studios weren’t worried about investing money in a ‘losing’ format or concerned over the risk, how much more would they spend competing on bonus and interactive features?

    Universal admits to propping up a failing format. They effective admit to defrauding their customers by selling them media in a format they know is going to die. They admit that only their artificial support is keeping the format alive, and that they’d re-evaluate that after the holidays. All signs point to BD massively outselling HD DVD this holiday season, as the vast majority of hot titles will be available on BD. If Universal follows through, then they’ll add BD next year – and HD DVD will collapse. So they’re deliberately taking money from consumers for products they know have a limited life, and deliberately not releasing content on the stronger format. That shouldn’t make the studio’s shareholders happy either – since they have a fiduciary responsibility to make the decisions that are in the best interest of the studio, not to provide corporate charity to prop up a format. Unless Toshiba is paying them off massively to compensate them for the losses due to the failure to sell Blu-ray, they’re not meeting their obligations to the shareholders.

    Even if they are being paid off, the format war is reducing market penetration and therefore reducing overall sales too. So they’re also damaging their own business in that way. The shareholders and their parent company (GE) should step in and remove the leaders for failure to fulfill their corporate responsibilities.

    The HD DVD camp has always been of the position ‘let the market decide’. Now we find that the market has effectively decided, so the HD DVD camp is artificially sustaining the war instead of answering the market. That’s two-faced.

  • http://www.gizmolovers.com/ megazone

    C Williams – Kornblau’s statements about support from GE & NBC are at odds with statements made by Universal EVP for Marketing, Ken Graffeo recently. See the coverage at The Digital Bits. Ken seems to say that GE is pressuring Universal to go Blu. And it looks like some of their directors, such as Spielberg, prefer Blu.

    For me content is king – of the major studios 7/8 available on BD, 3/8 available on HD DVD. And Universal, the only HD DVD exclusive, has been having a terrible few years so they have very little content of note anyway. Most of their films and shows have bombed, with a few notable exceptions such as Heroes. But I can TiVo that in HD, so I don’t have a strong need to pick it up on disc.

    HD DVD is short term gain for long term pain. If the format war drags on it will continue to suppress adoption and that will slow the price cuts to a halt. The only way to sustain continued price cuts is for adoption to increase, allowing for higher volume production. The end of the war would also bring in more of the second and third tier hardware vendors who have, to date, sat this one out letting the big boys slug it out.

  • Canoehead

    WEll, I have a PS3 and well as an HD-A2 that I got for $237, plus 5 movies. The HD-A2 was admittedly a total impulse buy, but I really want t watch Heroes in HD. I think Blu-Ray will win, but we’re looking at another 12 months at least. If HDDVD does die, I’ll hopefully be able to pick up a bunhc of disks on the cheap.

  • Christopher graber

    I have an xbox 360 and an HD-DVD player add-on. I can’t wait for heroes. And I applaud the CEO of Universal for his HD-DVD support. Instead of boycotting Universal for sticking with HD-DVD why not ask Disney and others to stop supporting only blue ray.

    I’m sure all studios have their reasons, and incentives, for supporting a particular format. Quit whining because you want heroes and you have a ps3. . .

  • Christopher graber

    BTW – this Megazone guy shouldn’t be writing articles. Pro-longing the war? Can’t the same be said of the blue-ray studios? My God. . . this is one stupid article (and what does it have to do with Tivo)

  • http://www.gizmolovers.com/ megazone

    It should be clear to anyone with two neurons to bang together that this site isn’t all about TiVo and it hasn’t been for a long time.

    As for the Blu-ray studios. No. Because Blu-ray has such a lead that even if all the BD studios went dual-format, which will never happy if only due to Sony and the studios they own, it wouldn’t end the war. Universal, on the other hand, could single-handedly end the war by releasing BD. If they did then all the major studios would have BD releases, and most would not have HD DVD releases, so the choice would be fairly clear. Yes, that means Universal has a lot of power in this war – they’re the keystone holding up HD DVD. If you can’t see that, that’s not my problem.

    As for ‘whining’ – I have no intention of buying Heroes on either format. I’ve already watched every episode in HD – on my TiVo Series3. There’s nothing in the discs that makes it worth shelling out for them. If I really wanted to watch them, I could buy an HD DVD player without blinking, or an XBox 360 and drive for that matter. It isn’t about the money, not for me anyway, it is about the larger impact of the war on adoption and the consumer confusion and frustration. As well as Toshiba’s selfish stance in triggering the war solely as a money grab – look into the history. I’ve been watching this ‘war’ since before it was a war, when there were still multiple proposals that had yet to gel into BD and HD DVD. To me the blame clearly lies with Toshiba, and to a lesser degree with NEC and Microsoft.

    You can applaud the CEO of Universal – though he wasn’t the subject of the article, that was Craig Kornblau, the President of Universal. But if they make decisions on the format to release based on anything except the best value for the corporation, overall, then they aren’t fulfilling their duties properly. Now, the long term impact is part of that decision, and maybe they really do think that HD DVD will be the best play long term and they are doing the right thing. But the bit about having to consider the future of HD DVD and worrying about the format collapsing if they pull out implies they’re considering more than the impact to Universal.

    By the way, it is Blu-ray, not Blue-ray. And, for that matter, it is HD DVD not HD-DVD – but I used to make the same mistake too.

    And I make no bones about it – I am an active supporter of Blu-ray Disc and I wish for the complete death of HD DVD. Plain and simple.

  • Christopher Graber

    1) I will give you a miss-spelling of Blu Ray, but HD-DVD and HD DVD, and HDDVD are all fine. As is Bray, blu-ray or BluRay

    2) “No. Because Blu-ray has such a lead . . .” Based on current sales, no one has a lead that couldn’t change
    in one holiday season.

    3) sorry for the confusion regarding this blogs title “Tivo Lovers” aka – who could of figured it was a blu-ray fan site?

    4) No CEO, President, etc cares one iota for something beside Universal and Universal stock. If they support HD-DVD, they have a reason

    5)”I wish for the complete death of HD DVD” uh, okay. Thats odd. I don’t care about Blu Ray. I may get a ps3 OR if the drives come down to 200 I may get a drive. Of course, i’m no fanboy. . .

  • Christopher Graber

    BTW – from my understanding it is Sony who caused the format war by refusing to turn over/give up certain standards like they did on DVD.

  • http://www.gizmolovers.com/ megazone

    The site started out as a TiVo community on Live Journal, which I still run. Then I started the site itself to house documents, reviews, etc. But I’ve always been into more than just TiVo, so as I started blogging more and more about non-TiVo items I split the site and the community and started a real blog here. The LJ community went back to being just TiVo content, and the blog here has all of those posts, plus whatever else I feel like covering – which tends to be DVRs other than TiVo, Blu-ray/HD DVD, Sling Media, Palm, and a little bit of random other tech. I haven’t changed the name because it is established after 5+ years of use. I’ve considered it and may still change it at some point.

    Officially, according to the two backing groups, it is Blu-ray or BD and HD DVD. I know people get both wrong all the time – I see BRD and HD-DVD most often.

    At this point HD DVD does have a slim chance – but it is pretty slim – to overcome BD. But with so much at stake, I don’t see it happening. If Toshiba make a desperate grab with $199 players – Sony would probably do something to counter. Either subsidize their own players to compete and/or offer some other promotion to boost BD player sales. They’ve already been narrowing the price gap from around $500 to around $200, and falling.

    Personally I expect them to either cut the BDP-S300 to $299 for the holidays, or release a new low-end player at that price point. Lower if Toshiba pushes prices down more. And the PS3 will probably see a cut or promo to effectively make it $399 or less for the holidays, in light of the sales jump when they went to $499 and the subsequent Xbox 360 price cuts.

    I wish for HD DVD to die because I hate format wars with a passion – and that is the only possibility for the end to the war I can see. BD is just not going away, period. Sony won’t let that happen, and it has too much industry backing – both CE and content industries – for it to die off. So the only option is a permanent split in the market and higher priced combo players (they’ll always cost more than a single-format player because of the need to license both formats plus dual-lenses or higher cost dual-format lenses) and retail confusion with both formats available. That’s not the future I want. So the only hope is for HD DVD to go away and leave the market to BD so we have one format. At this point I think any merger of the formats is just not going to happen. Though there is a chance HDi could be added to BD – which would be enough to get Microsoft to back BD. They’re said as much – that they’d be willing to back BD if the BDA adopted HDi as an option to BD-J.

  • http://www.gizmolovers.com/ megazone

    Early on there were several proposals for a ‘next-gen’ disc standard. Sony had one, which became the core of BD. Toshiba had one, which became HD DVD. Pioneer, Samsung, etc, all had something too. Pioneer joined up with Sony early on, and I think Samsung was also an early partner. They agreed to merge their proposals into one joint proposal. That was the start of Blu-ray. More and more vendors – TDK for example – joined up and brought their technology to the table. Blu-ray is truly a committee-based standard, and NOT a ‘Sony proprietary standard’ like a lot of HD DVD fans like to claim. Just one example – early BD proposals, and even the proto-BD systems in Japan used cartridges, because the media was fragile. TDK contributed their hard coating which allows BD to drop the cartridges because the media was more durable.

    Long before they were BD or HD DVD, the two sides shopped their proposals around the industry. Sony and their partners were far more successful in signing up additional partners and their team kept growing. Toshiba’s proposal just didn’t catch on. They got basic support from NEC, but the most support came from Microsoft because Toshiba and MS co-developed HDi. MS wouldn’t support Blu-ray because they adapted existing standards MHP/GEM to develop BD-J – MS hates Java.

    It was pretty clear that Blu-ray has the vast majority of the industry backing it. There were several public overtures to Toshiba to join up – but they rejected them. They publicly rebuffed the BD group and kept making claims that they’re superior proposal would attract partners before launch – just wait and see! Well, it didn’t happen. The industry stayed devoted to BD.

    The BDA was founded to govern the standards – just like the DVD Forum was founded to govern DVD. Note that most of the members of the BDA are *also* members of the DVD Forum. It was just felt that the structure of the DVD Forum didn’t fit the new teaming around Blu-ray.

    There is a misconception that the DVD Forum developed HD DVD – that is totally untrue. Toshiba took the final specs to the DVD Forum for a vote on making it the official next general spec from them. The BD team probably couldn’t blocked it with a nay vote – but they decided not to be political about it. The vote passed and the spec was rubber stamped as HD DVD. If anything, HD DVD is more proprietary than BD – it was developed almost entirely by Toshiba on their own, unlike BD which is very much a group effort.

    Why did Toshiba do this? Money. They were one of the primary developers of DVD. Toshiba and Philips co-developed most of DVD. Since HD DVD re-uses much of that technology, Toshiba would still get huge licensing revenues from HD DVD – as they do from DVD. Ironically, back when DVD was developed, Sony had a competing proposal. But Sony agreed to drop their proposal and sign onto the Toshiba/Philips standard to avoid a format way. Sony sacrificed the potential licensing revenue for the good of the market. But when the tables were turned, Toshiba decided not to do the same and instead to pursue a format war and to use consumers as pawns in the revenue war. They were very open about that too.

    There was a last minute attempt to avoid the war, when Toshiba realized it was not going to go well for them. But by that point the BDA had already finalized just about everything. Toshiba wanted to re-open discussions on major issues – such as BD-J vs HDi, even the physical structure of the disc, etc. No surprisingly the BDA rejected this – they’d just spent years working out a joint spec, with repeated offers for Toshiba to join – and here is Toshiba asking to redo major pieces at the last minute. Toshiba was basically offered a smaller piece, maybe adding HDi as an option to BD-J, some format tweaks, etc – but it would have left them a much smaller piece of the revenue pie. So they walked away and pursued the war anyway, for the sake of money.

    If Toshiba hadn’t been so pig-headed about it they couldn’t joined the BD group early on and would have been in a prime position to get their proposals incorporated into the final spec. Because they refused to participate until the last minute, then made unreasonable demands, they locked themselves out of BD and were left with the choice to start a format war or to admit they screwed up and license BD. The went to war.

    A lot of people hate Sony – and I’m no fan, I think the only Sony gear I own is the PS3 – but Sony really isn’t the villain in this play.