Home movie DVD battle won, hard sell begins

SINGAPORE (Reuters) - Consumers will be the winners, through better quality home movies and lower prices, when Toshiba Corp finally calls time on its DVD technology, ending a long-running battle to set the format for next-generation discs.

Viewers seeking sharper movies on high-definition DVDs will no longer have to choose between rival incompatible formats. A single format should help accelerate the shift to the new technology in the $24 billion home DVD market.

But, while they will get better audio quality and higher resolution pictures -- and they will likely wait for DVD player prices to halve -- consumers will probably have to upgrade their television sets to make the most of them.

Sony Corp's Blu-ray technology is close to winning the format war for home movie DVDs after a source at Toshiba said it was planning to exit its HD DVD business after Hollywood studios and big retailers such as Wal-Mart Stores Inc backed Blu-ray.

"This has been a long overdue end to the format war that has frustrated and confused consumers, and will allow vendors to focus resources on the Blu-ray technology," said Claudio Checchia, an analyst with research firm IDC.

"I would expect a more aggressive push towards Blu-ray in the second half, resulting in more movie content, more stand-alone DVD players, and prices for these players falling to attractive levels by Christmas."

Checchia said the cheapest Blu-ray player on the market was Sony's PlayStation 3 video game console, costing about $400.

"Prices for players need to fall to $200 and below before they get consideration from the mass market, and I would expect companies would push prices down aggressively now that the uncertainty over the format war is over."

Apart from a mushrooming of stand-alone DVD players, analysts expect more Blu-ray players to be embedded in laptop and desktop personal computers from next year.

Companies in the Blu-ray camp, which include Apple Inc, Dell Inc, Philips and Matsushita Electric Industrial Co, could start investing more aggressively in the technology and get a head-start in terms of launching products, analysts said.

Because of Blu-ray's more advanced technology versus HD DVDs, companies needed to invest in new manufacturing technologies to produce the Blu-ray discs, but many held back as the outcome of the DVD format battle was uncertain.

SWEET VICTORY

Investors in companies involved in the Blu-ray format also welcomed the likely end of the format war.

Shares in Sony rose on Monday, while Taiwan disc makers climbed on relief the industry can finally start producing in earnest.

"Everyone had been waiting to see who will win, so if Toshiba exits, then it could really take off for Sony," said Sammy Lo, spokeswoman for CMC Magnetics, which supplies one third of the world's DVD discs and counts Sony as a major client.

Apart from being a sweet victory for Sony, which lost the 1980s Betamax-VHS format battle for video cassette technology to Matsushita, Blu-ray's win could boost PlayStation 3 sales.

"The PS3 is also a Blu-ray player, priced very affordably, and many early adopters of Blu-ray are using the PS3 precisely for this purpose," said Serene Fong, analyst with ABI Research.

"Microsoft's Xbox 360, which uses the HD DVD format, will see a very negative impact in terms of console sales."

Companies in the HD DVD camp -- Toshiba, NEC Electronics and Sanyo Electric -- will also have to write-off their investments and start from scratch, Fong added.

"Blu-ray is totally different -- there will likely be some impact on these companies' bottom lines as the initial cost of investing in this technology would be very high."

Companies that hedged their bets by launching players that could take both formats, such as Samsung Electronics Co Ltd and LG Electronics Inc, could lose out.

"Combo players cost two to three times more than a stand-alone player, and will lose out as consumers would not be willing to pay so much," said Fong.

But any financial impact from falling player sales for Samsung and LG will likely be insignificant, as they account for a small portion of overall businesses, said SR Kwon, analyst at Hana Daetoo Securities.

"The DVD player market is very low-margin, low entry-barrier, which is not a major area of concern for Samsung or LG."

China, potentially a huge market, remains on the sidelines as it has its own AVS (audio and visual) standard.

"I don't see there being too much effect in China, since Chinese companies aren't really taking part in production for either standard," said Zhang Xiaoga, analyst at Orient Securities Co Ltd. "It's hard to see what kind of developments this (Blu-ray win) will bring about."

(Additional reporting by Marie-France Han in SEOUL, Sophie Taylor in SHANGHAI and Sheena Lee in TAIPEI; Editing by Ian Geoghegan and Louise Heavens)