And the winner is Sony’s Blu-ray – the high-definition DVD

format war
Christopher Simms and Paul Trott

This case study explores the development of high-definition video and the format war between
Sony’s Blu-ray and Toshiba’s HD DVD. A format war describes competition between mutually
incompatible proprietary formats that compete for the same market, typically for data storage
devices and recording formats for electronic media. A useful historical example of one of the
first format wars was between railway width gauges in the United Kingdom during the
Industrial Revolution of the early 1800s. Isambard Kingdom Brunel developed a 2.1 m width
gauge for his Great Western Railway because it offered greater stability and capacity at high
speed. Whilst George Stephenson developed a 1.44 m width gauge for the first mainline
railway, the Liverpool to Manchester Railway; the de facto standard for the colliery railways
where Stephenson had worked. Needless to say, the narrower 1.44 m gauge won simply
because more of this track had been laid, but trains today could be travelling much faster, if the
wider gauge had been adopted.

The story of the VCR, Betamax, DVD, HD DVD and Blu-ray

Blu-ray Disc (popularly known simply as Blu-ray) is an optical disc storage medium designed
to supersede the standard DVD format. Its main uses are for storing high-definition video,
PlayStation 3 video games and other data. Blu-ray Disc was developed by the Blu-ray Disc
Association, a group representing makers of consumer electronics, computer hardware and
motion pictures. The discs have the same physical dimensions as standard DVDs and CDs. The
name Blu-ray Disc derives from the ‘blue laser’ used to read the disc. Whilst a standard DVD
uses a 650 nanometer (nm) red laser, Blu-ray Disc uses a shorter wavelength 405 nm laser, and
allows for over five times more data storage on single-layer and over 10 times on double-layer
Blu-ray Disc than a standard DVD. During the high-definition optical disc format war, Blu-ray
Disc competed with the HD DVD format. Toshiba, the main company that supported HD DVD,
conceded defeat in February 2008, and the format war came to an end. In late 2009, Toshiba
released its own Blu-ray Disc player. The two formats have been battling for the growing high-
definition share of the £12.3 billion a year global home DVD market. High-definition DVDs
offer improved visuals and sound, but also make it harder for content to be illegally copied and
pirated. It is a sweet victory for the Sony-backed Blu-ray format. Sony’s technically superior
Betamax video format lost out to JVC backed VHS when those formats went head-to-head in
the 1980s.

The story of film and broadcast recording technology for home use dates back to the
mid-twentieth century. When television first took off in the 1950s, the only means of preserving
video footage was through kinescope, a process in which a special motion picture camera
photographed a television monitor. Kinescope film took hours to develop and made for poor
quality and was useful only for the broadcasters themselves. The electronics industry saw
opportunities to develop recording technologies and a race developed to create a standard
format for doing this. This race continues today.

Overview of the development of the VCR industry

Invented in 1956, the VCR had a lifespan of around 50 years and revolutionized the film
industry, changed television-watching habits, triggered the first ‘format wars’ and raised new
copyright questions, establishing jurisprudence on fair use.
 The big electronic companies of the 1950s raced to develop a technology for home
recording and playback during the 1950s, seeing a significant opportunity and market gap, and
therefore they started working on recorders that used magnetic tape. The first player launched
was developed by the Ampex Corporation: however, the world’s first magnetic tape video
recorder, the VRX-1000 (which was launched in April 1956), had a price tag of $50,000 and
expensive rotating heads that had to be changed every few hundred hours. This, therefore,
made it an unviable consumer item, although it was popular with television networks.

Many companies abandoned their research and followed Ampex’s lead. RCA pooled
patents with Ampex and licensed in the Ampex technology. The new goal for the firms in the
industry was to develop a video machine for home use. It had to be solid, low-cost and easy to
operate. Sony released a first home model in 1964, followed by Ampex and RCA in 1965.
Whilst these machines, and those that followed over the next 10–15 years, were much less
expensive than the VRX-1000, they remained beyond the means of the average consumer, and
were bought primarily by wealthy customers, businesses and schools. But there was still strong
competition to develop a consumer format.

The competition between the companies attempting to develop a consumer format led
to the release of three different, mutually incompatible VCR formats: Sony’s Betamax in 1975,
JVC’s VHS in 1976 and the Philips V2000 in 1978. Two of these would come head-to-head in
the 1980s in what became known as the First Format War. Before the technology battle could
begin, however, the consumer electronics industry had to find an answer to a more pressing
problem: content. Where would it come from? What would people watch on their VCRs? At
this stage, the industry regarded the VCR’s television recording feature as a bonus option of
little utility to the average home user: why, they asked, would anyone want to record a TV show
and watch it later? They thought movie videos would provide an answer to the content problem,
but the movie industry itself was convinced this idea was not to its advantage.

Copyright issues for the VCR

Home video sent the movie industry into a spin. Television had already stolen a big part of its
market, and it saw the VCR as a massive new threat. Copyright, the film industry argued, was
at stake. Did not the mere recording of a television show constitute an infringement of the
copyright owner’s rights over reproduction? The studios took the issue to court. In 1976, the
year after Sony’s release of the Betamax VCR, Universal City Studios and the Walt Disney
Company sued Sony, seeking to have the VCR impounded as a tool of piracy.

New communications technology – then as now – has always challenged previous

assumptions and jurisprudence in the area of copyright. The first court decision in 1979 went
against the studios, ruling that use of the VCR for non-commercial recording was legal. The
studios appealed and the decision was overturned in 1981. Sony then took the case to the US
Supreme Court, who finally ruled that home recording of television programmes for later
viewing constituted ‘fair use’. An important factor in the Court’s reasoning was that ‘time-
shifting’ – i.e., recording a programme to watch at another time – did not represent any
substantial harm to the copyright holder, nor did it diminish the market for the product.

By then, the VCR had become a popular consumer product and, contrary to their fears,
the film studios found themselves to be major beneficiaries of the technology as the sale and
rental of film videos began generating huge new revenue streams. In 1986 alone, home video
revenues added more than $100 million of pure profit to Disney’s bottom line. The television
stations, on the other hand, having found that the ‘useless’ recording option was a big hit with
viewers, faced a different problem. They had to find new ways to keep their advertisers happy
now that viewers could fast-forward through the commercial breaks.
Setting the standard: VHS v. Betamax
Meanwhile, the format war between VHS and Betamax was under way. When Sony released
Betamax, it was confident of the superiority of its technology and assumed that the other
companies would abandon their formats and accept Betamax as the industry-wide technical
standard. It was wrong. On its home turf in Japan, JVC refused to comply and went to
market with its VHS format. In the European market, Philips did not play along either, but
technical problems were to take Philips out of the fight almost before it began.

From where Sony stood, the only clear advantage of the VHS format was its longer
recording time. So, Sony doubled the Betamax recording time and JVC followed suit. This
continued until recording times were no longer an issue for potential customers, and marketing
overtook superior technology as the key to
the battle.

Betamax was, arguably, a superior technology (although debate on this continues today,
and many argue that the difference in quality was relevant only really to those using the
machines commercially); Beta SP was still used by professional videographers until relatively
recently. But what Betamax really needed was market share. Morita (Sony’s CEO) blames
Betamax’s eventual defeat on insufficient licensing. Despite the fact that it was the better
product, Betamax never achieved a large enough presence to create consumer preference. VHS
had gravity and won the battle.

The two companies were on a par for several years, until JVC’s VHS format pulled
ahead. This was due, in part, to JVC’s broader licensing policy. Counting on increased
royalties to make money on its VHS machines, JVC licensed the technology to big consumer
electronics companies like Zenith and RCA (a company with significant presence in the United
States at the time). As a result, VHS machines became more abundant on the market and prices
fell, increasing their consumer appeal.

At about the same time, in the early 1980s, video rental shops started springing up on
every street corner. Early on, the video shop owners recognized that they would have to make
VCRs available for cheap rental to attract a larger client base. The high-quality Betamax
machines were more expensive, harder to repair, and the first models were compatible only
with certain television sets. So, VHS became the obvious choice for the rental shops. Another
factor that influenced the outcome is the adult entertainment industry (porn). The size of this
industry is enormous and the porn studios’ decision to use VHS may also have influenced the
outcome. This combined effect of greater availability of machines and increased availability
of content on VHS eventually squeezed out Betamax.

Technology development, of course, did not stand still. By 2003, DVD sales had
overtaken those of the VCR, signalling the dying days of magnetic tape. Video rental shops,
sensitive to market trends, switched to DVD, accelerating the demise of the VCR, eventually
leading to a sharp demise in sales of video recorders (VHS). The DVD had advantages in terms
of quality, although it lacked the same flexibility and ease of recording that were the case for the
VHS format. Today, few VCRs are sold (and it is very difficult to find players, with most
retailers having stopped selling such machines), and the format is close to being obsolete.

An ongoing issue that rumbles on in the background of the format wars is the issue of
copyright. It continues to be a key influence in firm’s strategic decision making towards the
new formats of streaming and downloadable media, as well as the HD disk formats.
The development of DVD
The development of the Laserdisc by Philips in 1969 yielded many of the technologies Sony
carried over and utilized when it partnered with Philips to jointly create the CD in 1979. In the
early 1990s, these two companies then worked closely together again to develop a new high-
density disc called the MultiMedia Compact Disc (MMCD was the original name), but their
format was eventually more or less abandoned in favour of Toshiba’s competing Super Density
Disc (SD), which had the vast majority of backers at the time, such as Hitachi, Matsushita
(Panasonic), Mitsubishi, Pioneer, Thomson and Time Warner. The two factions cut a deal,
brokered by IBM president Lou Gerstner, on a new format: DVD. Toshiba wound up on top
after the dust settled in 1995–6, and Sony and Philips, who were not cut in on the standard (and
royalties) nearly as much as they would have liked, immediately started work on a next
generation system. The Professional Disc for DATA (aka PDD or ProDATA), which was based
on an optical disc system Sony had already been developing alongside the existing project,
eventually would become the Blu-ray disc. Toshiba, not to be outdone by Philips and Sony, also
started work on a new generation system: the Advanced Optical Disc, which eventually evolved
into the HD DVD.

Blu-ray DVD v. HD DVD

After 35 years of optical audio/video disc development, history seems to have repeated itself
with the launch of the two competing formats of HD DVD and Blu-ray DVD, with both
factions attempting to beat one another in order to ‘reap the rewards’. The Blu-ray and HD
DVD formats were both launched in the early twentieth century, with each format having been
developed by competing electronics companies. Sony, alongside Royal Philips Electronics,
developed the Blu- ray format, whilst HD DVD was developed by Toshiba, alongside Hitachi.

In 2005, what could be described as ‘ongoing peace talks’ between the Blu-ray and HD
DVD camps, finally dissolved after many attempts to develop a compromise of the next-
generation format. This meant that the two companies would have to compete head-to-head to
become the standard for the next generation of video recording and reproduction for the living
room.

The two formats are incompatible with one another, despite using lasers of the same
type. HD DVD discs also have a different surface layer (the clear plastic layer on the surface of
the data, which is the bit you get fingerprints and scratches on) from Blu-ray discs. HD DVD
uses a 0.6 mm-thick surface layer, the same as DVD, while Blu-ray has a much smaller 0.1 mm
layer to help enable the laser to focus. Herein lie the issues associated with the higher cost of
Blu-ray discs. This thinner surface layer is what makes the discs more costly: because Blu-ray
discs do not share the same surface layer thickness of DVDs, costly production facilities must
be modified or replaced in order to produce the discs. A special hard coating must also be
applied to Blu-ray discs, so their surface is sufficiently resilient enough to protect the data a
mere 0.1 mm beneath – this also drives the cost up. Blu-ray, therefore, unlike HD DVD,
requires a hard coating on its discs because data is 0.5 mm closer to the surface. The polymer
coating it uses, called Durabis, was developed by TDK and is supposedly extremely resilient
and fingerprint resistant. The added benefit of keeping the data layer closer to the surface,
however, is more room for extra layers. This increased cost, which would more than likely lead
to increased prices to the consumer, was an issue that would threaten the potential success of
the Blu-ray, although the format does hold more data (as shown in Table 8.5).
Table 8.5 DVD performance details

Film studio support

Not only did each format have to compete to establish itself as superior in the eyes of the
consumer, there was also a separate battle to be won with the film studios in order to secure
eventual success. Table 8.6 shows the different studios and their initial support of each format.

Table 8.6 Studios supporting HD DVD and Blu-ray

It is also worth noting that, in the years prior to the launch of these formats, and
immediately afterwards, Sony acquired a number of film studios. Sony was also rumored to be
paying some studios large sums to take on and stick with its format.

A much more difficult factor to unravel is the list of networks (formal and informal)
that each group of firms developed. In some cases, it was clear, with firms listing associate
members of each board. Once again, Blu-ray had a longer list of members and interested
parties. It seemed Sony had learnt from its mistakes with VCR, and it was not going to make
the same mistake again (see Table 8.7).
Table 8.7 Interlinkages and networks between firms

Whilst the mainstream film studios play a key role in determining the relative success of
each format, perhaps as important as the big media conglomerates may be the adult
entertainment industry. Most industry analysts agree that US pornographers’ decision to adopt
the cheap convenient VHS – rather than rival Betamax – when the two systems were introduced
in the 1970s, killed off Betamax, and sales of pornographic films drove the adoption of video
recorders. It may have been Sony’s failure to license Betamax that led to its demise, but the
adult entertainment industry probably also contributed to its demise. Dario Betti, an analyst at
London-based digital media consultancy Ovum, says: ‘Like it or not, pornography drives each
new, convenient visual technology.’ Few may be willing to admit it, but sex sells, and there is
certainly a case that more convenient nudity (and the pornographers’ preferred choice between
HD DVD and Blu-ray) will play some role in determining which of the two formats is,
ultimately, successful.

The Sony PlayStation

The first Blu-ray player launched by Sony (the primary developer of the Blu-ray format) was
actually the PlayStation 3 (PS3), which featured the ability to play Blu-ray disks. This gave
Sony something of an upper hand for some time, because its PlayStation 3 games console has a
built- in Blu-ray player. Sony had, therefore, sold more than 10 million Blu-ray units, whilst
only about 1 million HD-DVD players have been sold, mostly in Japan.
 The PlayStation 3 originally was launched at a price of around £500, the first ‘pure’
Blu- ray player was launched later at a price of around £800. Obviously, in comparison to the
PlayStation, this player lacked a number of features, particularly the ability to play games.
Interestingly, one of the earliest machines to play HD DVD was also a games console, the Xbox
360, which was Microsoft’s primary competitor against the PlayStation (and priced around
£200 cheaper). Both of these consoles were notably more expensive than Nintendo’s Wii,
which was attracting much attention around this time. Despite the high technological
performance of both the PlayStation and Xbox, Nintendo was, at that time, able to gain a
majority share in the market (and this is also despite the PlayStation’s ability to play Blu-ray
disks).

Discussion: the winner and the future

Sony’s decision to incorporate Blu-ray playback into the PS3 is thought to have been a decisive
factor in the format emerging victorious. Ultimately, the Blu-ray format won the war to become
the next generation of HD player. Another factor that has been linked to this is the ‘Wal-Mart
effect’ – after an announcement from the US retailer that it would sell only Blu-ray films and
players. This retailer has massive power in the US market. With Sony’s victory, however,
comes another battle: film downloads. Music downloading destroyed the CD industry; the same
may happen in DVD. Why would people go out to the shops to buy discs when they can buy
high- definition films straight away online? What does this suggestion say for the future of Blu-
ray?

Interestingly, despite Apple giving its backing to the Blu-ray format, it has yet to
produce a single computer with a Blu-ray drive. Instead, Apple seems to be concentrating on
films delivered across the internet, through iTunes and the new Apple TV, rather than on
physical discs. So, although Blu-ray has won this battle, it may not have won the war. As
home internet speeds become faster and consumers get used to video on-demand services, the
film market could undergo a similar change to the music sector, with films downloaded rather
than physically bought. Enter a new format war of online video . . .

When Google released the high-quality WebM video format royalty-free to the world,
digital video publishers were faced with a conundrum: support the guaranteed royalty-free but
slightly lower-quality WebM standard, or the sharper but potentially more expensive H.264
industry standard? The industry divided amongst the WebM camp, the H.264 supporters and
the true neutrals of the browser world:
 WebM support only: Mozilla Firefox.
 H.264 support only: Microsoft internet Explorer and Apple Safari.
 both: Google Chrome and Opera.

In 2010, the MPEG LA technology licensing body announced that the H.264 standard
would join WebM on the royalty-free side of the fence until the end of time or until the
standard becomes obsolete, whichever comes first. This makes Google’s $133 million buyout
of On 2 Technologies seem like a waste of money – that is where the technology for WebM
came from, and now there is really no need to provide a royalty-free alternative to the
prevailing standard. But few believe that H.264 would be free today, if Google had not made
that investment.

H.264 is not entirely free, even now. Free use extends only to services that are free to
end users, such as Google’s YouTube. Apple will still have to pay license fees for the videos it
sells through iTunes. But, part of that payment goes back into Apple’s own pockets – the
company is a long-time backer of and patent contributor to the H.264 standard. Other major
beneficiaries of the H.264 license fee include Microsoft, Cisco Systems and Dolby
Laboratories.
Keeping the standard relevant and revenue-producing is important to these firms, whilst Google
is not part of the consortium and so has little incentive to support H.264.