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DVD developers set for format war

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(CNN) -- The electronics and entertainment industries are shaping up for the biggest format battle since the "video wars" between VHS and Betamax to decide the future of DVD.

Two rival "next generation" DVD formats look set to be launched onto the marketplace next year.

Both are backed by powerful and well-known Japanese manufacturers, with each staking their claim to an industry worth billions of dollars.

And with the DVD market unlikely to support parallel formats, the loser faces the prospect of squandering millions spent on research, development and marketing costs.

Both "Blu-ray", principally backed by Sony, and "HD DVD", which has been developed by Toshiba, are based on the same basic technology.

Both replace the red lasers found in current DVD machines with blue lasers, utilizing their shorter wavelength to store data at the higher densities needed to record high-definition movies and television.

But with both parties determined to prove the superiority of their product, a protracted dispute could be damaging to the industry as a whole, increasing production costs for DVD manufacturers and making buyers nervous about investing in a format that could quickly become obsolete.

Buena Vista Home Entertainment president Bob Chaprek recently told the DVD Forum, an industry association of 220 electronics and media companies, that launching two formats simultaneously risked "potentially crippling the next generation format" and "utterly confusing or aggravating the customer."

With Blu-ray recorders already on sale in Japan, Toshiba looks set to enter the fray with HD DVD models early in 2005.

But the real battle looks set for next Christmas, when both major players plan to have DVD players in the shops.

By that point the entertainment industry, and particularly Hollywood, will likely have chosen sides; and history suggests that the format with the greater selection of movies will prevail.

Sony has been stung before by that scenario, having seen its groundbreaking Betamax format starved out of the video market by the wider selection of titles made available in VHS format.

This time, however, Sony seems to have learnt its lesson. Not only does it now have VHS pioneers Matsushita, better known for its Panasonic brand, on side but its success with the Playstation games console provides a template for a successful marketing campaign.

Despite its limited previous experience in the gaming industry, Sony was able to corner the market despite competition from Sega and Nintendo because of the depth and quality of its games range.

Sony is already maneuvering for the fight. In September it announced that it was adopting Blu-ray as the format for Playstation 3, currently scheduled for release in 2006.

And with Sony Pictures already in the Blu-ray camp, a Sony-led consortium also recently acquired MGM, along with their back catalogue.

Furthermore, Blu-ray has the backing of Hewlett Packard and Dell, which together control around 30 percent of the global PC market.

"In terms of technology, we have no weak points. Our format is superior on all counts," Sony executive officer Kiyoshi Nishitani said recently.

Toshiba however has not been cowered by Sony's efforts, retaliating to Sony's Playstation-Blu-ray collaboration by announcing that it would introduce notebook computers with HD DVD in the last quarter of 2005.

HD DVD is also backed by rival manufacturers Sanyo and NEC while last year it was also approved by the influential DVD Forum, which has said it will finally endorse just one format.

Toshiba also claims the support of Time Warner, in which it owns a small stake and with which it worked closely to establish the current DVD standard in the mid-1990s.

It has also had senior engineer Hisashi Yamada commuting between Japan and the U.S. in an effort to court the support of undecided studios such as Paramount, Disney and Universal.

"If Sony is so sure it is winning the battle, it wouldn't have felt the need to buy MGM," says Yamada.

Toshiba claims HD DVD's biggest advantage is the format's low transitional costs. Because the discs are physically the same as existing DVDs many of the existing components used by DVD manufacturers will still function.

But the monumental task faced by Toshiba and its allies was summed up by the gadgets weblog Gizmodo, which declared in a recent feature that "Blu-ray has already won."

"Blu-ray is not only technically superior to HD DVD, it has a far stronger corporate backing, and has demonstrated the ability to have more content available to push the format," said Gizmodo.

While a dual layer HD DVD can hold 30GB, a dual layer Blu-ray disc already has a 50GB capacity, and Sony claim the format could eventually hold as much as 200GB on an eight-layered disc.

Sony is also working hard to bring costs down, announcing earlier this year that it had developed paper Blu-ray discs.

"I don't think Toshiba will back down," says analyst Carlos Dimas. "Sony is unlikely to give up either. Inevitably there is going to be some confusion in the market and there's going to be another standard war.

"In the initial phase the consumer will probably lose. It is a big risk for people who actually buy products for either format without knowing who the winner is."

But, in case you've only recently made the switch from video to DVD and are already sweating over the cost of replacing all your favorite films, don't worry. Both Blu-ray and HD DVD will still play your old DVDs.

Reuters contributed to this report.

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