HD format war seen dragging on

LAS VEGAS (Reuters) - The high-definition DVD format war has not been won, at least not in the minds of the retailers. Last week, Time Warner Inc's (TWX.N) Warner Bros studio said it would exclusively release high-definition DVDs in Blu-ray format instead of Toshiba Corp's (6502.T) competing HD DVD technology.

While the announcement was seen as tipping the balance of power in favor of the Blu-ray format, retailers at the Consumer Electronics Show in Las Vegas this week did not see the announcement as a definitive sign of a clear winner.

"I don't think we're in a position to go out and declare a winner," said Steve Eastman, Target Corp's (TGT.N) vice president of consumer electronics, in an interview.

As long as there are two standards competing in public, consumers will stay away, he added.

"Until it settles completely I think we're going to continue to see consumers sitting on the sidelines," Eastman said.

That is bad news for the development of a much-needed multibillion dollar industry. U.S. sales of DVDs, which are crucial to Hollywood studio profits, fell 4.8 percent to $15.7 billion in 2007, the first significant drop since the format was introduced, according to preliminary Adams Media calculations.

"It would be our hope that by this Christmas there would be a clearer choice for the customer, instead of battling back and forth" between the formats, said Gary Severson, senior vice president in charge of electronics for Wal-Mart Stores Inc's (WMT.N) U.S. stores.

"I don't know if that's going to happen or not."

THE BATTLE CONTINUES

HD DVD was developed by Toshiba while Sony Corp (6758.T) developed the Blu-ray standard.

The new high-definition DVDs, with better picture quality and more capacity, were expected to help revive the slowing $24 billion global home DVD market.

But Hollywood studios split their alliances between the two standards. After the switch by Warner, studios behind some three-quarters of DVDs are backing Blu-ray. Some release in both formats, with a minority focused on HD DVD.

Similar to the Betamax-VHS battle in the 1980s, having two competing DVD standards has created customer confusion, dampened sales of both formats and put retailers in a conundrum of having to either choose sides or sell products that have a chance of becoming obsolete very quickly.

This holiday season, shelves at many consumer electronics retailers were stuffed with Blu-ray DVDs, HD DVDs, and players the supported one or both formats.

Amid the plethora of products, some retailers chose to make a decision and support a single format.

Target decided to sell only Blu-ray disc players in its stores, although it offered both formats on its Web site.

"We felt, initially because of the confusion, we had to pick one," Eastman said.

CLOSER TO A CONCLUSION?

Circuit City Stores Inc CC.N and Best Buy Co Inc (BBY.N) indicated no plans to change sales strategy after the Warner Bros announcement, although they said it was a signal that the industry was closer to backing one unified standard.

"We are very excited to see progress of any type, and we see this as significant progress," said Circuit City Chief Executive Officer Phil Schoonover at CES.

Best Buy CEO Brad Anderson also said at the conference that the decision makes it "a lot easier to see the likelihood that we get to one format, and it makes it easier for us as retailers to help push it to that one format."

Even if a winner emerges, Hollywood executives and retailers at CES say consumers still need to be convinced high definition is worth buying.

"If we were able to have one united message and say: 'Here's high definition TV, here's a high definition DVD, here's the medium to play on it,' it's a much cleaner story to customers that the industry can push, that every retailer can push and the customer goes, 'OK I get it,'" Wal-Mart's Severson said.

"Right now they're basically being taught to wait and see what happens," he said.

But one retailer is not concerned with whether the wars end this year or next year, or ever.

"We don't have to choose," said Paul Ryder, vice president of the electronics store for online retailer Amazon.com (AMZN.O), which tries to offer as wide a selection of electronics products as it possibly can since it has no physical stores.

"I don't have to say I don't have enough room on my shelf."

(Additional reporting by Franklin Paul in Las Vegas, editing by Richard Chang)