DVD sales slip drove Warner to Blu-ray

By Kenneth Li

LAS VEGAS (Reuters) - Fears of a deteriorating U.S. economy and falling DVD industry sales helped drive Warner Bros's decision to back Sony's Blu-ray next generation DVD format exclusively, a top executive told Reuters on Monday.

Hollywood's biggest seller of home movies tipped the balance of power on Friday in favor of Sony in a fight for the next generation of DVDs between the electronics giant and Toshiba Corp., developers of the HD DVD format.

"We've typically been recession proof," Warner Bros Entertainment Group President Kevin Tsujihara said in an interview at the annual Consumer Electronics Show in Las Vegas.

"But the thing that we saw in the fourth quarter...was gas prices beginning to affect sales. And since we're considered an impulse purchase, it's beginning to impact us," he said.

Tsujihara said the company needed to quickly erase consumer and retailer confusion over dueling DVD formats before economic conditions deteriorated.

Toshiba vowed the format war was not over, but Warner's move was seen as a major setback, at least, in the race to develop a potentially multibillion-dollar market for high-definition discs.

Warner executives said the consortium of companies backing Blu-ray, including five of the seven big Hollywood Studios, could spend more than $50 million in 2008 to convince consumers to upgrade, or more than the amount spent by the backers of both HD DVD and Blu-ray in the 2007 holiday season. Budgets have not been finalized, Warner Bros said.

The movie division of media conglomerate Time Warner Inc, out of respect for Toshiba, has kept a low profile at the annual Consumer Electronics Show in Las Vegas, the neon-lit gambling oasis in the Nevada desert not known for its subtly.