Promoting HD DVD

High definition has finally broken into the consumer market with TV broadcasts, displays and packaged media. In an interview with JEAN-LUC RENAUD, Toshiba’s OLIVIER VAN WYNENDAELE, heading the HD DVD Promotion Group Europe, takes stock of the progress of the hi-def format and looks to the future.

Was is inevitable that we should end up with two incompatible high-definition disc formats?

There are two formats on the market now because both groups could not talk to each other long enough to reach unity. Technically, it was impossible to come to a unified standard because both discs have totally different structures. It would have meant that one of the groups would have had to give up its technology, and that was not possible for either format backer it seems.

As far as we are concerned, we made the decision to develop high definition discs based on the existing DVD disc structure for very obvious reasons – it’s easier to produce, it’s in continuity with DVD, and production lines for DVD already exist.

Adapting production lines to be able to produce HD DVDs is relatively simple. Moreover, they can be used to make both standard DVD and HD DVD. This is very important for replicators, especially at this early stage of the format’s life when they cannot yet assess precisely what will be the level of business in HD, whereas they know well the business in standard definition.

The other major point in favour of HD DVD is that administrative, technical, standard-making structures were already established within the industry for DVD – the DVD Forum – and we are using the same structure for HD discs. All the agreements were already in place between companies producing DVD, so it was quite easy to develop HD DVD through the DVD Forum without the need to create a totally new organisation framework.

Toshiba and NEC, co-developers of the format, proposed to the DVD Forum a high-definition format called at the time Advanced Optical Disc. The Forum approved it and renamed it HD DVD. Sony, Panasonic and their Blu-ray partners did not see the merit in proposing their format to the DVD Forum, preferring to do things on their own. That’s what started the format war.

The Blu-ray developers emphasize the larger storage capacity of their disc as a key advantage over HD DVD discs. Don’t they have a point?

Well, there are two things about capacity. First, the HD DVD discs offers 15 gigabytes on one layer, 30 on two layers. Discussing with our partners from the film studios, we estimated that in view of what they were offering, there was no need for more capacity. This is linked to the second factor: compression. If we stick to MPEG-2 one may probably need more than 30 gigabytes to fit a long movie on a disc. However compression codecs have evolved. MPEG-4 and Microsoft’sVC-1 allow to compress pictures in high-definition quality much more efficiently than MPEG-2, taking less space and even producing a better picture quality.

So, if 30 gigabytes of space are required for a movie using MPEG-2, less than 20 gigabytes will do using MPEG-4 or VC-1. In my opinion, the argument over capacity is therefore meaningless.

Apparently, to date, most HD movies fit on even one layer.

Yes that’s true. Some 70% of films available today on HD fit in on a single 15 GB layer. Then, it will depend on extras, but 30 gigabytes are more than enough for movies as we know them today, with good extra features plus new features that don’t exist today in DVD, such as HD DVD interactivity features and online features.

I understand that one of the reasons why most HD films to date fit on a single layer is that the extra features are in standard definition DVD. Will this change?

I quite agree with that. We are already trying to push producers to shoot the extras in high definition. That means certainly additional costs. But it may give an opportunity for the industry to regain some margin by increasing the price to a premium product level. However, we know very well from the DVD experience that consumers will not watch four, five, or ten hours of extras on a movie. They are watching the extras that interest them. So, why stick so many extras on a disc if only very few consumers will likely watch them all? Only essential extra features could accompany the movie on the disc, most of the others could be accessed through the internet.

Indeed, the whole area of internet connectivity is the big, exciting perspective for the industry, in my view. Together with the HDi interactive technology developed by Microsoft, the web connectivity built in our HD DVD players gives a whole range of new opportunities for the content providers.

You can put online the extras you want to offer to the end user free-of-charge or against payment. It gives content providers the opportunity to increase revenue on titles already on the market. Moreover, it can help update the extras or add new ones over time. Imagine, you play again a DVD you bought five years ago; the player can look on the web to see what are the new extras, trailers, announcements, games, or picture gallery related to this movie. ‘Blood Diamond’ from Warner will be the first HD DVD title with internet connectivity and features available for download or streaming from the net, directly from your HD DVD player.

When are we going to see the first standalone HD DVD recorder?

Not for a while. HD DVD burners will be available from this summer for computer application, but as far as standalone recorders for the home with a built-in tuner and a big hard disk drive plus the capacity to burn a new disc, just as it exists already for DVD, it will take longer. The problem is not the technology that already exists, the problem is what to record.

Most of the high definition programmes in Europe today are delivered on pay channels with their own digital rights management (DRM) system. Broadcasters are not yet willing to open access of their programmes to external recording sources. So, it’s difficult to plug HD DVD recorders into those settop, it’s not possible today, it’s not open, and we don’t have rights to record the programmes. It will require discussion with broadcasters, with content providers. It would be useful if the industry settles on a unified DRM system servicing the various TV channels across Europe, as right now, they use different systems.

With the arrival of inexpensive multi-format players, is it conceivable that both formats will survive?

This format war is often compared with that of the VHS vs. Betamax, but this is a completely different story. Both were recording formats; VHS could record two hours of TV programmes, Betamax could record one hour only. Betamax quality was probably better, but it was not as consumer-friendly as VHS.

Will one of the formats disappear? Yes, it can happen if one of the formats comes to control a very large share of the market and the other becomes marginal. But it’s not the case today. The hires format is only one year old in the US, a few months in Europe. Sales are more or less even. A slight edge for Blu-ray today thanks to the PS3, but the evolution of sales is showing that there is no clear winner.

My opinion is that both formats will coexist for a long time and will probably coexist at the end. After all, it will not be the first time in the consumer market that competing format co-exist and, indeed, strive. In the videogame market, for instance, at least three formats coexist and none of the big console manufacturers have become the de facto market leader. So, I don’t think it will happen in the case of HD DVD or Blu-ray.

The question is: Will the studios publish their titles on one format only? Obviously, at this early stage, we are still talking of small numbers of units even for successful movies. Authoring and producing two different versions makes no sense, but the economics is changing with increased penetration of next-generation players.
The case in point is Sony Pictures’ Casino Royal. In the US where it was very successful as theatrical release, the movie sold 52,000 units on Blu-ray. Less successful in the cinema, Warner’s The Departed was launched around the same time on both Blu-ray and HD DVD, and it has sold 70,000 units.

When the numbers will get bigger it is unclear why a studios will not want to embrace both formats and maximise revenue. At the end of the day, people running the studios are not driven by formats, but by balance sheets. If they forego some profit because they are servicing only half the high definition market, shareholders won’t be happy.

Why studios took side so early?

I can understand the studios’ position to be exclusive at the launch of the format. Having two formats means doubling the production costs. Although some costs can be shared for encoding, releasing a title in HD DVD and Blu-ray translate into two projects. It’s hardly a sustainable proposition in terms of revenue when the penetration of hi-def players still account for 1% of the DVD installed base, and 5% in terms of DVD software (in the US.

What is your take on the installed base of high-definition players. There is a lot of figures flying around?

We have precise figures regarding the US, not yet for Europe. In the US, since the inception of both formats, 250,000 HD DVD players have been sold as of the beginning of April, not counting PCs. At the same time, there were 1,280,000 Blu-ray players on the market – five times more. Some 1,200,000 of those are PS3 and 82,000 standalone BD players.

On the software side, 973,000 HD DVD discs were sold, which gives a ratio of 3.92 discs per player. On the Blu-ray side, 1.2 million discs were sold, translating into a ratio of 0.96 disc per player.

If we talk about business from the studios perspective, 20% more BD disc were sold compared with HD DVD discs, even though there is four to five times the installed base of BD players. It goes to prove that PS3 is mostly a games console, users don’t purchase many movies – less than one per player. So, if you look at the revenue side, you have 60% BD, 40% HD DVD today. If a studio goes for one format, it will miss 40% of the market? Would you forego 40% of revenue on HD?

Could it be that the US market might become predominantly a Blu-ray market whereas Europe will be predominantly HD DVD owing to the independents preferring that format for cost consideration?

Yes, it could be. In the US the market is driven by six or seven major studios. It’s not the case in Europe. Of course, the studios are important as well in Europe, but there are numerous local content providers which have a significant share of the market. That’s true, HD DVD replication costs are more flexible than Blu-ray. Today, the difference is 50-70%.

The other point is content production. Smaller content publishers choosing Blu-ray will have to pay for the compulsory inclusion of AACS. It means that their target sales must be higher than with HD DVD [where AACS is optional, thus, often not asked] if they want to survive and make money. The best bet today is to go HD DVD in terms of cost of production.

We are not saying they will never go Blu-ray, but they are not rushing to go Blu-ray today because they can see most of the BD players are PS3. People buying PS3 are not buying so many movies whereas people buying HD DVD players are purchasing many more movies per player.

Unlike Sony, Toshiba has neither replication facilities nor film studios, to act as a locomotive for its standard. What do you offer your content partners?

We try to make their life easier, not doing their job, but providing them support to do their job, getting them in touch with the right partners. Microsoft is instrumental in this endeavour. Toshiba and Microsoft are acting together to ensure the authoring labs, the replication companies and related facilities get the tools, software or hardware they need to produce HD DVDs to arrive at a smooth production rapidly.

Each time any of our partners from authoring studios or replication facilities makes a disc, we offer to check it and may recommend technical modifications. This is important because if there are some mistakes, if the specifications of HD DVD are violated, our players won’t play the title back. We want to be sure that the consumer experience HD DVD without any problem, it’s very important for the market adoption of the format. We have engineering support teams in Japan and in the US and now also a delegation in Europe to support the authoring companies.

What do you have in store on the audio side. Surely, the format enables you to push the envelope?

High-resolution audio like DVD Audio and SACD never became a mass market format, people did not understand it; they did not understand also why they had to purchase an additional player when they just bought a DVD player a few months before.

The HD DVD technology is at least as good for audio playback as SACD or DVD Audio was. The new generation of HD audio products like DTS HD, Dolby TrueHD or even pure PCM playback is possible through HD DVD so we can do discs which are as good as SACD and DVD Audio. The big advantage is that the installed base of HD DVD will grow to dwarf that of SACD and DVD Audio.

For music labels, this offers an opportunity to produce high quality, high definition audio discs, an opportunity they have never had as the SACD and DVD Audio market stalled.

As mentioned earlier, HD DVD’s built-in internet connectivity offers big opportunities as well for music content. People are used to going to the internet to get music, to search music through the internet. We are preparing a scenario that’s never been seen before and we will disclose in due time....

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