COMPANIES Hollywood studios enjoyed a bumper summer, thanks to several blockbuster sequels such as Spiderman 3 and Shrek 3. But the executives who control the industry have reasons to be fearful going into the crucial Christmas season.
The DVD market, which for 10 years has been a cash cow for Hollywood, particularly during the festive season, is running out of steam with sales for the first nine months of the year - 3.5 per cent down on 2006.
The decline comes as the entertainment industry waits for a winner to emerge in the battle between the formats vying to replace the DVD: Blu-ray and HD-DVD. Both are growing in popularity, but it is still too early to say which will succeed – like VHS in the 1980s – and which will share a fate with the doomed Betamax format.
For studios planning their strategies for next year, this is bad news. They are divided over which format to support. Privately, executives admit that the stand-off will continue into next year.
Walt Disney, 20th Century Fox and Metro-Goldwyn-Mayer have lined up behind Sony’s Blu-ray format. Universal is in the HD-DVD camp, which is being backed by a technology consortium that includes Microsoft and Toshiba. Paramount and DreamWorks Animation recently signed up to support HD-DVD while Warner Bros is the only studio supporting both sides.
Paramount and DreamWorks Animation are believed to have received as much as $150m for signing exclusive deals with the HD-DVD camp, which angered some of the studio members of the the Blu-ray camp.
One executive told the Financial Times the battle could have been resolved within months in Blu-ray’s favour had the two studios not signed up to HD-DVD.
The bad feeling between the formats increased this week when Michael Bay, the outspoken director of Transformers, Armageddon and The Rock, posted incendiary comments on his blog. In the posting Mr Bay, whose sequel to Transformers will only be available on HD-DVD, said Microsoft “wants both formats to fail so they can be heroes and make the world move to digital downloads”.
He added: “That is why Microsoft is handing out $100m checks to studios just [to] embrace the HD-DVD and not the leading, and superior Blu Ray. They want confusion in the market until they perfect the digital downloads.”
Jordi Ribas, general manager of the HD-DVD group at Microsoft, said it “provided no financial incentives to Paramount or DreamWorks”.
He added that Mr Bay’s “comments about our commitment to HD-DVD are similarly unfounded”, pointing to “major technology investments” the company had made in the format. Microsoft, he added, has more than 100 staff “dedicated to the success of HD-DVD”.
The two sides have exchanged similar barbs when analysing sales data. The Blu-ray Disc Association argues it is winning the hardware race, saying 2.7m Blu-ray capable players have been sold in north America, compared with 750,000 HD-DVD players.
It also says it has the upper hand in disc sales, with Blu-ray disc sales outselling HD-DVD by a two to one ratio in the year to date.
But the HD-DVD Promotion Group says the picture is skewed because of the number of Sony PlayStation 3s in the market. The PS3 is a Blu-ray player as well as a games console, but Ken Graffeo, co-president of the HD-DVD Promotions Group, says most PS3 owners do not use the Blu-ray function and will not buy as many discs.
“We have 65 per cent share of dedicated set top players in the US and about 70 per cent in Europe. Households that own a set top player are buying four [discs] per house compared with about one for the PS3 Blu-ray player.”
HD-DVD is winning on price: Wal-Mart sold 90,000 players just after Thanksgiving when it cut the cost of an early Toshiba model to $99. HD-DVD players now cost $199-$399 compared with the PS3, at $399.
But with Blu-ray accounting for 18 of the top 20 high definition titles sold this year, picking a winner is too close to call.
