Dead End: HD-DVD

Abstract

The last physical format war in consumer electronics lasted about two years. HD DVD had cheaper players, an earlier start, and the backing of Toshiba, NEC, Microsoft, and Intel. Blu-ray had more capacity, Disney and Fox, and a Blu-ray drive inside every PlayStation 3. On 4 January 2008, at the Consumer Electronics Show, Warner Bros. announced it was going Blu-ray only. Forty-six days later Toshiba quit, taking a loss of about ¥110 billion. Universal switched formats the same day Toshiba conceded and Paramount the day after, which is a fair measure of how much studio loyalty had been worth. The format that actually won was already running: Netflix had started streaming a year before Warner’s announcement.

Two Blue Lasers

DVD had made the studios rich. US DVD sales peaked in 2005 at $16.3 billion, 64% of the American home video market. On the large HDTV sets arriving in the same years, DVD’s 480 lines were visibly soft, and everyone in the industry knew a high-definition disc was next. The question was whose.

HD DVD came from Toshiba and NEC and stayed close to DVD’s physical structure. It used a 405 nm blue-violet laser instead of DVD’s 650 nm red one, packing 15 GB per layer and 30 GB on a dual-layer disc. Its great practical advantage was manufacturing: existing DVD lines could be converted cheaply.

Blu-ray came from a consortium around Sony that included Samsung, Panasonic, Pioneer, Philips, Hitachi, Sharp, LG, and TDK. It used the same laser wavelength but a thinner cover layer and tighter track pitch, reaching 25 GB per layer and 50 GB dual-layer. It needed new production equipment, which cost more up front.

Both delivered 1080p. The capacity difference mattered to studios deciding on bitrates and extras, and to nobody watching a film.

The Camps

The war was a content licensing contest wearing hardware.

Behind HD DVD: Toshiba and NEC as developers, Microsoft (which preferred HD DVD’s content protection and sold an Xbox 360 add-on drive), Intel, Universal Studios, and from August 2007 Paramount and DreamWorks Animation, which took a reported $150 million combined in incentives and marketing commitments from Toshiba to go exclusive.

Behind Blu-ray: Sony, the consumer electronics consortium, Disney (with Pixar and Miramax), 20th Century Fox, and Lions Gate. Apple sat on the Blu-ray Disc Association board from 2005 and never shipped a Blu-ray drive in a Mac; Steve Jobs called the licensing “a bag of hurt” in October 2008.

Warner Bros. released in both formats and said it would follow the consumer. It was the largest studio by market share, which made it the only vote that could end the argument.

The PlayStation 3

Sony put a Blu-ray drive in every PlayStation 3, launched November 2006 at $499 and $599 against an Xbox 360 at $299 to $399. The drive was a large part of that gap, and the financial press treated it as a self-inflicted wound in the console market.

In the format war it settled the question. By the time Toshiba conceded, roughly 10.5 million PS3s had shipped against about 1 million standalone HD DVD players. Every PS3 was a Blu-ray player whether or not its owner ever bought a disc, and Blu-ray titles were outselling HD DVD releases about 2:1 in the United States and 3:1 to 4:1 in Europe.

Microsoft’s answer was an external HD DVD drive for the Xbox 360, $199 at launch in November 2006. About 316,000 sold in the US through the end of 2007, and Toshiba’s own president put the worldwide figure near 300,000. A separate $199 accessory does not compete with a drive that ships inside the console.

Paramount, Bought

Paramount’s August 2007 switch to HD DVD exclusivity, taking DreamWorks Animation with it, put Transformers and Shrek on one side of the war and proved the mechanism everyone suspected: studio allegiance had a price, and it was around $150 million for two studios. Paramount’s chief executive Brad Grey denied a payment had been made. The reporting held.

Having established that allegiance could be bought, the HD DVD camp had also established that it could be bought back.

The Warner Decision

Warner announced on 4 January 2008, the day before CES formally opened, that it would release high-definition titles exclusively on Blu-ray, running out its remaining HD DVD releases and dropping the format entirely by June. Toshiba had been negotiating for months with an offer along the lines of the Paramount deal. It failed.

The HD DVD Promotional Group cancelled its CES press conference and its planned show event within two days. Its pavilion stayed open on a show floor where the outcome was now common knowledge.

The retail decisions followed within five weeks. On 11 February Netflix said it would stop buying HD DVD discs and phase out its inventory, and Best Buy said it would recommend Blu-ray to customers. On 16 February Walmart said it would sell Blu-ray only by June.

Why CES

Warner picked the venue deliberately. CES is where the retail chains place their orders for the year and where the trade press is assembled in one building. An announcement there on 4 January reached every buyer, every studio executive, and every reporter at once, before the show’s own news cycle started. It also meant the HD DVD camp had to react in public, on the floor, with its own launch event already scheduled.

Toshiba Quits

On 19 February 2008 Toshiba announced it would stop developing, making, and marketing HD DVD players and recorders, with shipments ending by the end of March. President Atsutoshi Nishida: “We carefully assessed the long-term impact of continuing the so-called ’next-generation format war’ and concluded that a swift decision will best help the market develop.” The company promised continued support and service for existing owners.

Universal announced for Blu-ray the same day, after two years of exclusivity to HD DVD. Paramount followed on 20 February, five months after taking the money to leave.

The cost showed up in Toshiba’s accounts over the following weeks: a forecast operating loss of ¥65 billion on the business plus a one-time charge of ¥45 billion, about ¥110 billion or $1.1 billion in total for the fiscal year.

Microsoft discontinued the Xbox 360 HD DVD drive on 23 February and cleared the remaining stock at $49.99 from the 25th, with warranty support continuing. It did not switch the console to Blu-ray. Microsoft spent the following years on downloads and streaming instead, which turned out to be the correct read of where the market was going.

Six weeks from Warner’s announcement to Toshiba’s surrender was fast for a format war. Betamax and VHS fought for a decade. The speed measured how completely the content had moved: with Warner, Fox, Disney, and Lions Gate on Blu-ray and Universal leaving, HD DVD had no blockbusters left to sell.

Blu-ray Won a Shrinking Market

Netflix had launched “Watch Now” on 16 January 2007, a year before the Warner announcement. It was modest: about 1,000 streaming titles against 70,000 on DVD, metered by plan (the $17.99 three-disc plan included 18 hours a month), and it needed 3 Mbps for DVD-quality video. Unlimited streaming arrived for most plans in January 2008, the month Warner chose Blu-ray.

Blu-ray disc sales peaked in the United States in 2013 at about $2.37 billion, then fell to roughly $1.8 billion by 2018. Physical media as a whole went from that $16.3 billion peak in 2005 to $3.3 billion in 2019, and below $1 billion in 2024. US consumer spending on digital home entertainment passed spending on discs in 2016.

Blu-ray survives as a format for people who care about bitrates and about owning things that cannot be revoked, and 4K Ultra HD Blu-ray extended it from 2016. The households that once had to choose between VHS and Betamax did not choose between HD DVD and Blu-ray. They chose a subscription.

Dead End: The Last Format War

HD DVD lost because of a licensing decision by one studio, not because of pit spacing or laser wavelengths or player prices, where it was mostly ahead. The technical arguments were real and irrelevant, which is the usual pattern: Betamax had the better picture and VHS had the longer tape and the cheaper machines; SACD and DVD-Audio both had superb sound and no audience.

What made this war the last one is that the winner’s prize turned out to be a declining business. The studios spent two years and hundreds of millions of dollars fighting over which disc would carry high-definition film into American homes, and while they fought, the answer was becoming “no disc.” Paramount’s $150 million of loyalty lasted five months. The format it abandoned lasted six weeks after Warner’s press conference.