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º vn recent years, high-definition (HD) television and HD optical discs

entered the market

º Two HD formats have appeared in the DVD market, both claiming to

be the rightful successor to the DVD throne:
± Blu-ray (developed by Sony/Phillips)
± HD DVD (developed by Toshiba)

º Measured by most K
#
  metrics these two technologies are

the same, except that Blu-ray has significantly larger capacity (66%).
± However, Blu-ray appears to have greater  $
 support

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º @hile the format war rages on, entirely different outcomes are
possible:
± LG has introduced a dual-format player and drive
± vnternet may replace the DVD as a movie delivery vehicle

º vnternational view: Japan (96% Blu-ray), Europe (pushing for open

licensing of both formats), China (proprietary HD format), vndia
(small $ market), South America (unknown); Xbox 360 but still no
PS3)

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 |  




º Before HD, vBM arbitrated a standard DVD format intended to 

a format war, but the outcome favored Toshiba regarding royalties,
leaving Sony unhappy

º vn response, Sony began developing the next generation of high-

definition optical media
± Toshiba followed suit with its own HD technology
± @hile there were many ³peace talks´, neither party reached
agreement

º Comparison: VHS vs. Betamax @ar

± Despite Beta¶s superior quality, VHS won the war because of its
strong ³content´ network

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 ´ 

  



º Certain format wars were never won, but instead compromised with
the introduction of multi-format technology

º DVD-R vs. DVD+R

± Multi-format DVD drives accommodate both

º CDMA vs. GSM

± Can make/receive calls regardless of technology
± Both prevalent around the world

º Flash Memory Formats

± Over 50 different kinds of flash memory
± All-in-one readers handle most types

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 ÿ
   
º Most performance metrics of these two technologies are the same

º Blu-ray storage capacity is more practical for HD movies

± One high-definition movie (~20GB) fits on just one Blu-ray layer
(25GB); while HD DVD requires two layers (2x 15GB)

 |

Storage
25GB (5 hrs of HD video) 15GB (2 hrs of HD video)
(single layer)
Storage
50GB (9 hrs of HD video) 30GB (5 hrs of HD video)
(dual layer)

Cost/Disc* ~$1.59 ~$1.45

Cost/GB* ~$0.064 ~$0.097

Disc Player
$500 (PS3) - $1000 $500 - $800
Price

* Sources: ProActionMedia, @esleyTech; single layer.

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 w 
   
º @hile both formats have support from various large companies, Blu-ray
has greater support from content providers that are critical to achieving a
network effect

º Consumers will follow the format of the CONTENT providers

 |

20th Century Fox, Apple, Dell,
Disney, LG, Lion¶s Gate, Paramount,
Content Network Paramount, Universal, @arner
Philips, Sony (Columbia and MGM),
@arner

Player Network LG, Phillips, Samsung, Sony LG, RCA, Toshiba

Sony PS3 (integrated), Electronic

Gaming Network Microsoft Xbox 360 (external)
Arts (EA)

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!
´
º Digital Rights Management
± Blu-ray K
 BD+, which
allows encryption keys to be
modified when they are hacked
± AACS is the copy protection
scheme used by both HD DVD &
Blu-ray. Took years to develop,
but broken in weeks

º Blu-ray more prone to error due to high

 
"
 
 aperture
º @ithout protective hard-coating, Blu-ray
 #$ is easier to scratch (data layer is closer
to surface)
|
 #$%
 #&%

Strategic Computing 7
 
'

º Sales trends illustrate Blu-ray gaining dominant market share

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´

( )

º Availability of Hardware (players)

± Blu-ray (with PS3) : HD DVD = 5 : 1
± Blu-ray sales up 700% since the
launch of PS3 and other players
‡ 687,000 PS3 sold in US

º Availability of Content
± 19 of the ³Top 20´ DVDs in 2006
were released by studios supporting
Blu-ray

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' 
º There are several players in determining a dominant network
º However ³Content is King´ and will largely determine the victor

Customers




( 
*
   
 



Competitors Complementors
 
HD Optical
 Ô
Disc Format
  

Ô! Ô" 







 Suppliers
Ô
 



 

 
 

    


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' 



º Key players with influence in the format war between HD DVD and Blu-
ray: the film industry, the adult film industry, and the video game industry

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Strategic Computing 11
 
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º Blu-ray has adopted a ³pre-emptive strike´ marketing strategy with its ³@ar
is Over´ advertising campaign

|
 

º ³The Look and Sound of Perfect´ º ³@ar is Over´ advertising

$150M advertising campaign campaign

º Xbox 360 supports external HD º PS3 internal Blu-ray player

DVD player
º Sony cutting player prices from
º Pornography industry $1K to less than $500
experimenting with HD DVD
º Future Blu-ray car players

Strategic Computing 12
 
 
º @hat are the drivers that will determine the future of this format war?

Ä    +  (
 

º   ± Blu-ray has º  

  ± º "    - Blu-ray,
greater support Blu-ray greater capacity BDA; HD DVD, DVD
Forum
º +  ± Similar pricing º   ± Promising
dynamic BD+ º Ä  ±European
º   
- encryption Commission (EC)
HDTV supports both seeking K
formats º    ± Blu-ray technology
offers proprietary
º v 
  ± coating to prevents
Japan sided with Blu- scratching
ray

Strategic Computing 13
 |

,


 

)

º TV remains the Limiting Factor for the time being

± High-definition provides far superior resolution; however, without
HD televisions the improvement in quality will go unnoticed.

 |

   
º Resolution (NTSC) º Resolutions
± 640 x 480i pixels ± 1920 x 1080p
º Audio ± Stereo, 44kHz ± 1920 x 1080i
± 1280 x 720p
º Audio - AC-3: 48 kHz
sampling rate, up to 8
channels, up to 18
Mbit/s

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 |ÿ

ÿ

º HD TVs expected to increase from 4M HHs in 2006 to 52M HHs in 2009

Strategic Computing 15
 |
|
´ 
' 
 

)

º @ith the PS3, Blu-ray is quickly approaching the chasm«

«but HD-DVD is lagging behind.

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 +  
   
v
*

º vnternet/flash memory may replace DVDs as the dominant media
delivery vehicle for movies
º ³DVD format will be irrelevant´ ± Bill Gates « may be replaced by
flash memory or vnternet

 
*

º LG Super Multi Blue Player and Drive
± Supports playback of both formats
± Available now for $1,199

º @arner Bros. Total HD

± Single disc compatible with both players
± Available 3Q 2007
± Costs marginally more than current discs

Strategic Computing 17
 ÿ
- 

º Blu-ray is positioned to win the format war because

± Stronger sales in the US and Japan
± Larger studio network providing film content (promise of superior
security BD+)
± PS3 integrated Blu-ray players
± Larger capacity of 25GB (vs 15GB)

º Questions & Answers

Strategic Computing 18