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Format Wars: The Game’s Chess, Not Checkers

HD DVD vs Blu-rayDeveloping and licensing technologies is a very lucrative business.

There is a format war happening right now between HD DVD and Blu-ray. The prize for winning the war and becoming the standard technology used by everyone is the right to get a piece of every high definition video disc produced by licensing the format technology to everyone else.

Sometimes the best technology wins. A lot of times it doesn’t. To win a licensing war depends on a lot of things:

  • Who’s first into the market
  • Strategic alliances with companies who will utilize the technology
  • Usability and performance
  • Cost

HD DVD vs Blu-ray. Who’s Going To Win And Why?

Arguably, Blu-ray is a better format because the discs can hold 25GB of information per layer as opposed to 15GB per layer for HD-DVD. Blu-ray also transfers data at a faster rate than HD DVD does.

The problem with Blu-ray is that it’s more expensive to manufacture. Because the information stored on the disc is so close to the surface of the disc, scratches were a big problem with the Blu-ray technology. to combat this the disc is coated with a special scratch-resistant coating. This and other things add cost to manufacturing the discs.

The majority of consumers would not pay more for a movie or a videogame because it was on a different kind of disc. This means that the revenue potential per unit of HD DVD and Blu-ray are the same … but the Blu-ray costs more to manufacture which gives HD-DVD more profitability per unit.

More profitability means more marketing dollars to wage the format war. This is the same thing that killed Beta. Betamax was a better quality format than VHS, but it lost the war because it was more expensive than VHS.

HD DVD is backed by a consortium of companies headed by Toshiba while Blu-ray was developed by Sony. If HD-DVD wins the format war this could give Microsoft an extra edge in the gaming console wars since they are backing HD DVD with the Xbox. This, combined with the resurgence of Nintendo with the Wii could slowly grind away at Sony’s PS3 marketshare.

As you can see, it’s not just a question of which format is better. There are a lot of other strategic factors to consider when it comes to licensing technology. The game involves a lot of money. And the game’s chess, not checkers.

Denouement
 

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