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The format battle for the next generation DVD, between Sony's Blu-ray and HD DVD led by Toshiba, continues to dominate digital media discussions. With no clear leader established, the market has become divided; camps on either side are fighting to control the primary digital format of the future. Despite the uncertainty surrounding the next generation DVD format, the growing consumer demand for high density media continues to strengthen the existing DVD and DVDR market, which has become the storage medium of choice for home entertainment. Participants such as DVDR manufacturer Infosmart Group, Inc. (OTC BB: IFSG), chip makers Broadcom Corp (NASDAQ: BRCM) and NECElectronics (NASDAQ: NIPNY), as well as industry giants Sony (NYSE: SNE), Toshiba and others within the consumer electronics industry, continue to take advantage of current DVD and DVDR demand while maintaining the flexibility to evolve and benefit from future developments regarding high density technology.
As consumer demand for richer digital media continues to expand, the bar has been raised in terms of consumer electronic functionality and storage capacity. This has been the main factor behind the success of the DVD and DVDR format over its CD and CDR predecessor. Currently, most consumer needs have been amply fulfilled by the current DVD format. DVDR discs enable storage of up to 9 Gigabytes on double-layer DVDs, a nearly 13x improvement over the 700MB of storage space offered by CDs and CDRs.
As Andy Kwok, Chief Executive Officer of Infosmart Group, Inc. (OTC BB: IFSG), a global DVDR manufacturing company, describes, "Consumers are always looking for better picture quality and sound effects (for movies) and bigger capacity (for data storage). CD/CDR is no longer able to fulfill this need. As a result, DVD has become mainstream digital storage media."
While Blu-ray and HD DVD discs may have divided the market, both camps are working towards the same purpose, to provide reproduction and storage of high definition media with significantly improved visual and audio playback quality. Dual-layer HD DVDs can store up to 30 Gigabytes of data; Blu-ray discs have 50 Gigabytes of capacity. Because of this 20 Gigabytes advantage some observers are placing their bets on Sony's technology. However, HD DVD is less costly for manufacturers and consumers, a key point that has many siding with Toshiba.
As the format rivalry continues between Blu-ray and HD DVD, most agree that content availability is critical to the success of the new formats. The growing availability of high definition content has created a potentially lucrative market for next generation DVDs and market participants are all vying for a piece of the pie.
The increasing number of titles being released from various movie makers, such as Paramount Home Entertainment, Universal Pictures and Warner Home Video, is boosting the level of high definition content available to consumers. The more titles are made available in high definition, the faster the demand will rise for next generation disks, players and recorders.
The HD DVD Promotional Group recently announced that 1.5 million HD DVD discs representing 110 different movie titles have been shipped since the format's launch; 30 more titles are expected to be released by year end. Market penetration of both HD DVD and Blu-ray is also expected to be boosted through next generation gaming consoles. Microsoft has begun shipping an HD DVD external drive for the Xbox 360 and the newly introduced Sony PS3 has Blu-ray technology built in. Together, these devices are bringing additional exposure and content to the blue laser media world.
According to David Bunzel, Managing Director of SCCG, the leading provider of optical disc industry market research covering CD and DVD markets: "Currently the market seems to be preoccupied with the format battle between Blu-ray and HD DVD technologies; what is overlooked is the fact that a market is developing and the opportunity is huge. High-definition content will be a central focus for companies in the consumer electronic, gaming, entertainment, and PC industries for the next five years. Blue laser disc technology is a critical component to the development of these markets."
Impacting the decisions of manufacturers are many key factors such as cost, time and probability of market share success by each format. On the HD DVD side, cost savings is a significant benefit for manufacturers choosing this direction. Infosmart's Andy Kwok explains, "As a media manufacturer, we are more than happy to push HD DVD format rather than Blu-ray for several key reasons. There is less re-tooling and capital investment. We can upgrade our existing production lines to HD DVDR production, which means less investment capital and a minimization of the new investment risk. Production cost is also lower than with Blu-ray; these savings can then be transferred to consumers. With price being a key decision making factor among buyers, HD DVD's cheaper market price becomes important. Price combined with a growing availability of high-definition content will lead to increasing consumer adoption."
The NPD Group's, director of industry analysis for consumer technology Ross Rubin adds, "Most manufacturers have aligned themselves with one camp or another and very often they'll have some intellectual property invested in the standard as is the case with Sony and Phillips in Blu-ray. Impacting the decision as to which format to pursue, manufacturers are looking at positioning, consumer value proposition, and the availability of content. It is the chicken and egg scenario for the studios, but for the major brands that have aligned with Blu-ray it simply remains to be seen if they stick to that format exclusively or whether Toshiba and its partners can continue to drive momentum in the marketplace and encourage dual format drives."
The ongoing format battle has brought high definition media further into the spotlight, but has also become a driver to additional growth within today's DVD world. Rubin explains, "Most significantly, the format war increases the allure of the previous generation of DVD where you have a single standard and abundant content and a mature ecosystem and you don't have to worry about buying someone a gift of a movie in the wrong format." This combined with the fact that DVDR volumes have picked up in the past few years as the prices have come down and installations of DVDR drives in personal computers continues to increase, bodes well for further growth within the global DVDR market.
Infosmart's focus on the DVDR market has resulted in a manufacturing volume of 11 million discs per month from their Hong Kong facility. This number is expected to increase once the Company's new Brazilian plant comes online in early 2007, according to the Company. To take advantage of the demand for next generation DVD storage technology, Infosmart has the ability to upgrade a significant portion of their production lines in HK, enabling the Company to manufacture both DVDR and HD DVDR discs.
"At this moment, no one knows who will win this format battle, but both formats will be co-existing in the market for a few years before either one format finally takes over the other or both are unified. As a media manufacturer, we will keep our eyes closely on developments and time our entry into this next generation high definition DVD market carefully," explains Kwok.
The Road Ahead
Many industry experts foresee dual format drives as likely to emerge, supporting both Blu-ray and HD DVD formats. The market is already seeing signs of this as chip makers such as NECElectronics and Broadcom announce chip systems that will work with both standards and ultimately cut the cost of building the necessary players.
"It is going to be primarily a playback only market for the next year or two as prices come down and then if there isn't a clear winner at that point we will likely see dual format drives emerge much as we saw in the DVD recorder market and that will allay some consumer fears regarding compatibility. In addition, the two standards are very similar in many respects. They both use similar encoding mechanisms, they both use blue laser so that is why you are already starting to see companies talk about dual format drives," states Rubin.
Ultimately the decision as to the overall success of the next generation of DVDs is in the hands of the consumer representing a key driver to the growth of the home electronics industry. Today's consumer is more informed and may decide to wait before taking the plunge into the next generation of DVD technology leading to further market growth for the existing DVD/DVDR market. Some may place their bets with one format rather than the other or, in what many believe to be the logical evolution, hybrid players and recorders may unify the market giving shoppers the confidence they need to begin to make such purchases.
Despite many of the unknowns there is little denying that the future of the consumer electronics market is one that will embrace high density and rich media entertainment and this in itself will open many opportunities for companies that can adapt and evolve to provide consumers the means with which to experience movies, music, and games on a whole new level of sound and clarity. Price, quality and availability of high definition content will be key determining factors for purchasing decisions moving forward.
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About the Author: Ann-Marie Fleming completed her MBA in the United States, where she attended Webster University. She also holds an Honors B.A from the University of Toronto. She has over sixteen years of experience within the financial industry to include retail banking and brokerage, investment banking, and mortgage brokerage within the United States and Canada, with a firm background in corporate research. Labels: bluray, hddvd, news | 
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