business

The Arms Race over High-Def DVDs

Disney has signed on for Sony's new format. But Toshiba's rival HD format has drawn big support in Hollywood, too

By Ronald Grover

Get ready for another format war. Sony (SNE ) and its arch-rival Toshiba are on a collision course as the consumer-electronics giants work with the Hollywood community to make the next generation of high-definition DVDs.

Last week, three studios -- Warner Bros., Paramount, and Universal -- announced they had signed nonexclusive agreements with the HD Group, a consortium headed by Toshiba to make the new high-definition DVD format. But on Dec. 8, Walt Disney (DIS ) jumped to the other side of the fight, saying it had a nonexclusive agreement to begin producing its videos for a Sony-backed consortium. That group produces a competing version of high-definition DVD called Blu-ray. Disney gave no indication of when it will produce its videos for Blu-ray or the number of titles that it would put on the Sony-developed technology.

FILM VAULT.

  The Blu-ray disk, which Sony developed with Matsushita (MC ), is a new form of DVD that holds up to five times the content possible with current DVDs. It has extra space for bonus and interactive materials, including shopping over the Internet and playing games that interact with the DVDs. It's also copy-protected with new software considered tougher to break than current encryption methods, which can be bested by hackers. Blu-ray is likely to be available in early 2006.

This technology is being pushed by Sony and a large coalition that includes most of the industry's largest consumer-electronics and computer makers -- a key reason why Disney decided to go with it instead of the rival HD Group, says Peter Murphy, Disney's senior executive vice-president and chief strategic officer. "We want to get our product into the hands of as many people as we can, and a company with this many partners will do just that," he says. The agreement by Disney puts the Mouse House, with its huge treasure trove of animated films and movies by Miramax and Touchstone, in alliance with Sony and MGM, which it's in the process of acquiring.

The rival HD DVD format, which was developed by Toshiba and is being marketed along with NEC and Samsung, is expected to be on the market more quickly because it requires fewer modifications to existing DVD technology. It has three times the current space on a DVD for extras -- but is cheaper to produce, at least initially, than Blu-ray. Moreover, the three studios that signed on with Toshiba say they expect to begin selling some DVDs on the Toshiba-backed format later in 2005.

BETA DAYS.

  The fight is reminiscent of the 1980s' fight between Sony and JVC over the creation of the first-generation of video cassettes. Sony had pushed the larger version, called Betamax, while the industry eventually adopted the rival VHS standard first developed by JVC. More recently, a common version of the DVD format was developed, but Sony had to share much of the technology with Toshiba, which has as one of its partners Warner Bros.

Hollywood had hopes to avoid a format war this time around. But it now seems inevitable that the two sides will shoot it out.

Grover is BusinessWeek's Los Angeles bureau chief

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