Sony have been dealt a major blow following a decision by Microsoft and Intel to support Toshiba’s HD-DVD format over Blu-Ray.
It is exepected that Intel & Microsoft will announce that they are backing the HD-DVD format developed by Toshiba over the Blu-ray standard championed by Sony, Matsushita Electric, Samsung and others. Microsoft announced in June that it would work with Toshiba to develop high-definition DVD players. Now, Microsoft and Intel say they will develop software and chips that will allow personal computers to play the next-generation DVD’s from Toshiba.
According to the New York Times the two companies said they had not ruled out incorporating Blu-ray technology in their operating systems and on their chips in the future. But they are convinced that as of now, the HD-DVD format discs can be produced more cheaply and more quickly than the Blu-ray discs, and are therefore likely to become the dominant technology. For the last two years, Microsoft and Intel have been careful not to alienate either camp in the format battle because they sell software and components to companies on each side. They also hoped that the electronics makers and Hollywood studios developing the formats would reach a compromise.
But the major Hollywood studios are now split between the formats, and electronics companies on both sides plan to start selling next-generation DVD players as early as December 2005. Sony also plans to include Blu-ray technology in its new PlayStation 3 game console to be released next year.
As the format standoff has deepened, demand for the current generation of DVD’s and DVD players has slowed, alarming Hollywood studios, which have come to depend heavily on disc sales. The studios, as well as electronics makers and computer manufacturers, expect high-definition discs to restart sales growth. But the lack of a resolution over the future format has slowed the changeover. “We were neutral for a long time,” Jordi Ribas, the director of technical strategy for Windows at Microsoft, said. “But we’re approaching the time when this has to come to market and from our standpoint, the earlier the better.”
As early as last year, however, some industry executives said that Microsoft was likely to side with the Toshiba camp.
Though Microsoft and Intel do not make DVD machines, they benefit from the sale of next-generation discs because consumers will also want to play the new discs on their PC’s. That means that the computer operating system will have to be designed to read those discs.
Microsoft and Intel say that Toshiba has proven that its discs can be copied onto hard drives and home servers and sent over home networks. The companies also favor the “hybrid” disc developed by Toshiba that includes a standard definition version of a movie on one side and a high-definition version on the other side.
Their decision to support Toshiba’s HD-DVD format also creates another fissure in the tug of war between the companies backing the two formats.
For instance, Dell and Hewlett-Packard, two of the world’s largest PC makers, are part of the Blu-ray group. Their computers, assuming they include Microsoft and Intel products, will be capable of playing HD-DVD discs. But if they want their machines to play Blu-ray discs, they may have to find a third-party to design software for them.
In addition to developing software to play HD-DVD discs on PC’s, Microsoft may also create software so its new Xbox game console, which will be released later this year, will be able to play HD-DVD discs.
In an exclusive interview with Tom’s Hardware Guide, one of Microsoft’s lead representatives on the DVD Forum Steering Committee said that decisions regarding whether his company and Intel would back and promote HD DVD as a high-definition video disc standard, were determined only within the last few days. Prior to some critical recent developments and announcements, both companies – which had proclaimed neutrality – may have been ready to back Blu-ray.
“Until now, we viewed ourselves more as a technology provider for both groups,” said Jordi Ribas, Microsoft’s director of technology strategy for Windows Digital Media, and a key developer of the VC-1 codec currently in use by both HD DVD and Blu-ray. He revealed that Microsoft and Intel had produced a list of what he called “key requirements for the success of next-generation DVD.” For several months, while those requirements were being circulated, both companies worked on developing key standards to be implemented by both formats. Ribas said he was directly involved with implementing the VC-1 codec, and also worked jointly with Disney to produce the iHD interactive layer considered by both camps, but eventually adopted only by HD DVD (Disney is a member of the Blu-ray Disc Association.) During that time, Intel and Microsoft both maintained their public neutrality. But very recently, from the two companies’ perspective, things started unraveling unexpectedly for Blu-ray. 
“Our decision is based mainly on where the formats are today,” Ribas said, referring to Microsoft. “A year and a half ago, both format organizations had very similar goals, and to some extent, the story of Blu-ray was actually very powerful. It had higher capacity, it had what we would consider benefits at the time. But then as time went on, and we’d seen what’s the reality of both formats today, and what were promises versus what’s proven and what’s real, that’s when we decided to make the decision.”
Blu-ray failed the Intel/Microsoft test in six critical areas, Ribas told us, referring to a document listing those areas that a Microsoft spokesperson provided to Tom’s Hardware Guide:
First, and perhaps foremost, is the ability for a consumer to make authorized copies of a legally obtained disc, in order to store the content on a hard drive and stream it to devices around the house. Intel particularly wants this capability for its Viiv home entertainment platform, announced last month. “We think it’s a great consumer win, and it’s a great industry win, to be able to ensure that with good copy protection, you can have so much functionality for the user,” Rivas told us. But when recently questioned about its support for these features, Ribas said, although Blu-ray had appeared supportive at one time, its current stance is now uncommitted.
Support for hybrid discs that can be read in both current DVDs and future players, was the second critical element. This would “future-proof” new releases, enabling consumers to buy DVDs that can play in today’s players, while also providing high-def content for tomorrow’s. “That’s something that both promised,” said Ribas, “but HD DVD delivered, and Blu-ray has not – and it seems it’s nowhere in sight. [Blu-ray has] claimed they have it in the lab, but to go from the lab to mass production is like night and day. There’s a lot of effort that needs to happen. So as of now, there’s nothing that leads us to believe that that’s going to be possible [from Blu-ray] at this point.”
Maintaining low production costs is a critical factor, which has been a key HD DVD talking point in light of current revelations about factory upgrade costs for Blu-ray. “For a long time, we actually thought that the Blu-ray Group had the upper hand in costs,” Ribas said, mainly because of the involvement in Blu-ray of most of the major Japanese CE manufacturers – Sony, Matsushita (Panasonic), Pioneer, and Sharp – as well as Philips. Here is where recent events played a critical role: In a development that was brought to light only this morning, two of the world’s leading China-based DVD player production facilities announced their support for HD DVD over Blu-ray. In press statements, these companies cited the relative openness of the DVD Forum compared to the Blu-ray Disc Association. “Now that we see China embracing HD DVD,” said Ribas, “we actually see that on the cost side, HD DVD will have an advantage, because the Chinese have been the ones who have lowered the prices, via the competition, for HD DVD players.” As much as 75 percent of DVD players sold in America today come from China, he added.
Maintaining low disc replication costs affects the consumer price for media, said Ribas, which would play into any price/performance evaluation. A disc production factory can make minor upgrades to its equipment, he stated, with the result being equipment that can produce both conventional DVD as well as HD DVD. Citing figures circulating this week throughout the industry, Ribas said it would cost as much as $1.7 million per production line to install Blu-ray disc production equipment, and as much as $2.0 million for each new mastering system installed. That’s a significant expense, he explained, for a business which only turns over a 10 percent margin.
The surprise entry in Microsoft’s and Intel’s list of failures is disc storage capacity. On paper, Blu-ray appears to have the advantage. But the two companies looked beneath the paper: Capacity, said Ribas, “used to be the biggest advantage of Blu-ray, and we believed it. We thought, they’ll get 50 GByte BD-ROM discs working, but it’s not happening, and it’s nowhere in sight. There are not even pilots. It’s only in the lab that they are building these discs.” With regard to demonstrated capacity, he told us, HD DVD-ROM actually leads BD-ROM by a score of 30 GByte to 25 GByte.
The final entry is interactivity standards. Although Microsoft and Disney jointly developed the iHD interactivity layer, based on XML – which is the glue that holds together the “Vista vision” of Microsoft’s future Windows platform – and even though Disney is a Blu-ray proponent, the Association chose instead to endorse BDJ, an implementation of Sun-s Java Mobile Edition. Ribas told us that the major studios – either publicly or quietly – are opposed to BDJ, citing its relative complexity and its lack of compelling new features compared to iHD. An optional commentary track for videos, for example, that superimposes the speaker’s image on-screen as well as providing audio, is one key iHD feature that BDJ will support only as an option, maybe. “Which means nobody will use it,” said Ribas.
“Intel was looking at similar issues,” said Ribas, “and [we] realized, ‘We are getting very close to getting these things into the market, we have to stop hoping or expecting or believing promises. We have to look at what’s real and what’s not.’ That’s where our decision came from.”
Ribas told us more about his and his company’s expectations for the future of video disc technologies and interactive media in general.