Blockbuster favors Blu-ray DVDs to HD DVD

TOKYO/NEW YORK (Reuters) - U.S. video rental chain Blockbuster Inc. (BBI.N) has come out in favor of the Blu-ray DVD format disc, tipping the balance against the rival HD DVD in the battle over next-generation discs.

In an industry-wide standards war reminiscent of VHS and Betamax, Blockbuster's move is a blow to the HD DVD camp, backed by Toshiba Corp. (6502.T) and Microsoft Corp. (MSFT.O), and presses forward Blu-ray's advantage in the home video arena.

But it is still too early for the Blu-ray camp, backed Sony Corp. (6758.T), to celebrate, said Mizuho Securities analyst Koichi Hariya.

"Blu-ray is a step closer to becoming the de facto standard in the home video market, but HD DVD is well-positioned in PCs," he said. "It's no longer a winner-take-all fight."

Blockbuster, the largest U.S. provider of home movie entertainment, plans to line its shelves with Blu-ray DVDs for rent at 1,700 corporate-owned stores, up from 250, by mid-July.

Blu-ray rentals are "significantly outpacing HD DVD rentals", Blockbuster said in a statement on Monday. The statement comes after Toshiba slashed its 2007 North American sales target last week to 1 million from 1.8 million, on disappointing U.S. sales.

NOT ANOTHER BETA

Grabbing more titles secured VHS's victory over Beta, as content, not better technology, prodded consumers into buying VCRs, but HD DVD is not another Beta, say Toshiba officials.

HD DVD discs are sold at electronics stores and retailers such as Best Buy, Amazon and Wal-Mart Stores. Blockbuster rivals such as Movie Gallery Inc. MOVI.O and Netflix Inc. (NFLX.O) also offer both Blu-ray and HD DVD, while Blockbuster itself, which has about 8,000 stores worldwide, will also offer both Blu-ray and HD-DVD titles through its online rental service.

Blu-ray's high-definition digital technology offers crisper pictures and more room for special features than current DVDs. HD DVD has somewhat lower storage capacity but claims cheaper production of players, burners and discs.

Hollywood and electronics manufacturers hope new high-definition DVDs, with better picture quality and more capacity, will rejuvenate the slowing $24 billion home DVD market.

Still, the battle between HD DVD and Blu-ray -- also supported by companies such as Samsung (005930.KS), Philips (PHG.AS), Matsushita (6752.T), Apple (AAPL.O) and Dell (DELL.O) -- has curbed adoption of the new formats, amid fears among consumers of ending up with an obsolete player.

Toshiba is therefore focusing on the computer market. It aims to put disk drives for HD DVDs on all its laptops next year, eyeing demand for movies on the road.

Measured by the number of players, Blu-ray has received a boost from Sony's PlayStation 3 video game console, of which 3.6 million were sold in the business year ended March 31. The PS3 has a built-in Blu-ray player.

Toshiba shares closed down 0.9 percent at 976 yen and Sony shares slipped 0.2 percent to 6,700 yen, compared with the benchmark Nikkei average .N225, which rose 0.08 percent. Shares of Blockbuster rose 2 cents, or about 0.4 percent, to its latest close at $4.60 on the New York Stock Exchange.