Markets resolve a hi definition DVD standards war

Have you been waiting to choose one of the new generation of high-definition DVDs and disc players? I have because there are two rival formats (Blu-ray and HD DVD) and because I don’t want to be left with a format that eventually is rejected by the market as was the Betamax videocassette. Consumers generally are unwilling to open their wallets while there are two incompatible formats if they assume one might dominate eventually but don't know which one.

A decade ago, I bought a laserdisc player plus a collection of $80 laserdisks only to find they were essentially made redundant by the DVD – I am not going to get burned again!

The choice of a format is referred to in economics as a ‘standard’ choice. There are ‘standards wars’ as firms compete to be the dominant technology format.

A famous example of a war was fought by Adobe Systems which invested heavily in developing a ‘page description language’ called PostScript for desktop publishing. Adobe realized that no one would invest the time necessary to learn PostScript unless it was the clear ‘standard’. So the firm deliberately allowed competitors to clone its language to create a competitive market in PostScript interpreters.

Adobe’s strategy paid off: several competitors emerged (including one that gave its product away) and PostScript became a widely-used standard for desktop publishing. Adobe kept a few things proprietary – for instance techniques for displaying fonts at low resolution – and managed to dominate the high end of the market. Ironically, Adobes’s market success was due to its ability to encourage entry by its competitors!

With respect to the high definition DVD format issue, 2 business responses to the ‘standards’ problem have been developed and were announced at the recent Las Vegas Consumer Electronics Show.

1. South Korea’s LG offered a DVD player which will, at modest additional cost, accommodates both high definition formats. It sells for about $1200US. Consumers then can buy a player and be confident that it will be useful if only one of the two formats endures. It also boosts the demand for complementor disk products.

2. Warner Bros plans to release a disk that will compete in either type of recorder with a Blu-ray movie on one side and a HD DVD format version on the other. This can be demanded by users of either type of player thus expanding its market. Moreover such disks will remain useful longer-term even if one of the formats fails to be a standard. It boosts demand for complementor DVD player products even those that deliver in only one of the two formats.

Each of these moves are interesting attempts to cash in on the standard war dilemma and each provides benefits to different complementor products. Of course the development does not ensure an unending lifespan for any of the products since it is very likely new ways of delivering high definition content are about to appear. Amir Majidimehr, corporate vice president of consumer technology at Microsoft has said that:
‘…the lifespan of both formats would also be less than the current DVD format. It has lasted 10 years with great success but …the technology would be superseded by developments in online delivery of hi-def content’.