Marketing war looms for dueling DVD formats

HD or Blu-ray? Sony, Toshiba will spend big to win in $24B market

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The next generation of DVD technology launches this spring. And while that sounds like good news for consumers-high-definition pictures and better quality sound when watching movies at home-it actually ushers in the beginning of a dizzyingly confusing marketing war.

That's because the consumer-electronic community has failed to settle on one format for digital DVDs. A battle is looming between the two next-generation DVD technologies- HD DVD and Blu-ray-and each is backed by a different group of consumer electronic companies, led by Toshiba for HD DVD and Sony for Blu-ray. The potential conquests are consumers. And the booty is the $24 billion home-video market.

With that kind of money at stake, prepare for things to get more complicated and for marketing to get more competitive before a winner is decided. The fight is already being compared to the Betamax vs. VHS row in the '80s (see sidebar), but there is much more at stake than before, when there wasn't a proven market for home video.

What's the difference between the two formats? Blu-ray has more storage capacity. HD DVD is less expensive to produce. But beyond that, they're more similar than different. Both use advanced technology-that is, blue lasers instead of red-to provide outstanding picture and sound quality along with massive storage space. Both will be backward compatible with existing DVDs.

So while price and technology will be selling points, the real determinant-and weapon of choice- will be marketing. The format that prevails will be the one that can convince consumers, retailers, movie studios and early adopter influencers that it's the better choice.

"A lot of the rhetoric around both formats right now has already been a marketing war," said NPD analyst Ross Rubin. "There's a lot of FUD in the market." ("FUD," which stands for fear, uncertainty and doubt, has become shorthand for a common marketing tactic by tech companies, a strategy of disseminating negative and vague or inaccurate information on a competitor's product.)

The Blu-ray and HD DVD camps have put out their share of FUD in the press, but the real war for consumers has yet to begin.

Toshiba America Consumer Products, whose HD-DVD player launches first later this month, is putting the final touches on an ad campaign created by Della Femina/Rothschild/Jeary Partners, New York. But it has already been marketing its wares on a 40-city introductory tour with retail partners that began in February. The tour, which concludes this week, went to higher-end electronics stores such as Tweeter, Fry's and P.C. Richard's to demonstrate the format to salespeople and consumers. The tour theme, which extends to the ad campaign breaking later this month on TV, print and the Web, is "HD DVD, a defining moment in home entertainment." The tagline for the advertising is "So real you can feel it."

Additional Toshiba advertising includes a corollary effort from Concept One, Westport, Conn., that links to parent Toshiba Corp.'s sponsorship of the movie "King Kong" that broke in print and online last week. A corporate Toshiba America commercial that features both the player and HD DVD computers is already playing on the Web.

"We're pushing hard on awareness," said Tina Tuccillo, Toshiba VP-marketing communications. "The question is how do you connect with consumers? We do need to answer their questions, but also tie in to an emotional connection."

Blu-ray manufacturers, with launches beginning this summer, are also preparing for their marketing onslaught. Samsung Electronics, expected to have the first Blu-ray player out in June, is lining up partners such as Best Buy and Circuit City for in-store displays, and preparing an ad campaign for the end of June, said Jim Sanduski, senior VP-digital video and audio products group, Samsung.

"The message is that you've made this investment in an HD display, and now here's the pre-recorded software you've been waiting for to fully realize the picture and sound quality," he said. "And if you're thinking about upgrading to an HDTV, think about adding that pre-recorded quality."

Sony, with players expected in July, is prepping a strong Blu-ray push for the launch continuing through the fall, when its Blu-ray-enabled Vaio computers and PlayStation 3 video-game console debut. Sony may have the most riding on a win; Blu-ray will not only be incorporated into next-generation disc players and Sony Picture movie discs, but also its PCs, video-game consoles and its marketing and advertising plans.

Mike Fasulo, chief marketing officer of Sony Electronics, said his division will heavily tie in this year to theatrical, DVD and Blu-Ray movie video releases. Blu-ray also figures into Sony's retail strategy, with Blu-ray players and high definition Sony TVs together creating real HD stand-alone demo areas.

Of course, every battle comes with a white flag. And while surrender usually means someone must give in, in this case there could have been a third "compromise." The two technologies could have been merged to create one "HD-Blu" or "Blu-DVD" standard.

bad blood

"There is no technical reason why they couldn't meld the two technologies," said Steve Kovsky, analyst with Current Analysis. "It's completely a business decision. There is a reluctance to work together. ... My impression from visiting with many of the companies involved is at the highest level there is a lot of animosity between executives."

The stakes go beyond simple corporate one-upmanship. While each side maintains a firm belief in its superior technology, not only will the "winner" sell lots of next-generation boxes and discs, but will also be paid royalties and fees for licensing that winning technology to other manufacturers.

The two sides did try to compromise, scheduling meetings and confabs over the past several years to discuss a single standard. But those talks broke down, mostly over royalties, more than a year ago and most agree there will be no last-ditch effort.

Still, that doesn't mean there isn't plenty of complaining already. Retailers have long despaired the dual formats and the need to create shelf space for two sets of products, and Best Buy was one of the biggest proponents of last year's one-standard attempt. Movie studios, too, have been showing ambivalence, with some choosing to release movies in Blu-ray and then promising support for HD DVD. Just a few weeks ago, Warner Home Video, which will support both formats, pushed back the release date of its HD-DVD titles to April 18.

"I wouldn't look to the movie studios to lead the format wars," Mr. Rubin said. "They'll follow what happens, look at the numbers and then decide which one to back."

Just which format will draw the biggest numbers is still a matter of debate. Blu-ray had been a clear favorite early on, but HD DVD grabbed Intel's and Microsoft's backing and surged several months ago.

"Ultimately it's a confusing proposition for consumers," said IDC analyst Josh Martin. "And what happens with things like when you want to buy a DVD for someone but you don't know what format they have? ... Consumers will just say 'we're not buying yet.' "
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