Blu-Ray Finds a Key Ally in Video-Format War

The battle over the future of home movies is heating up, with Blockbuster firing the latest shot in the war over the next-generation DVD format.

Blockbuster, the nation's largest movie rental company, announced Monday that it will feature the Blu-ray format in its stores, giving HD-DVD the cold shoulder. HD-DVD is backed by Microsoft and Toshiba while Sony is behind Blu-ray. Its newest PlayStation consoles play the disks.

In an age where consumers are only slowly moving into the high-definition format, does Blockbuster's decision carry that much weight? Consumers, who will make the final decision, have mostly been on the sidelines rather than rushing out to buy an expensive video player with a format that may become extinct.

Analysts believe that either HD-DVD or Blu-ray will take the DVD throne once retail leaders like Wal-Mart and Best Buy choose which of the two formats to market. Blockbuster's announcement to add to its Blu-ray inventories puts a notch in the victory column for Blu-ray supporters.

But at this point it's just a notch. The war seems far from over, the analysts said.

A Best Buy spokesman said any decision to deal a specific format will be based on customer preference and nothing else.

Both HD-DVD and Blu-ray boast the highest resolution picture and superior sound. Blu-ray does have an edge, claiming a higher storage capacity which can be used to add extras such as online features and games. It can even receive updates to enhance sound and picture quality. But HD-DVD is cheaper to produce and those savings might be passed on to consumers.

Blockbuster's decision to expand its Blu-ray inventory indicates that the tides are turning in favor of the jointly developed media format, said Arvind Bhatia, an analyst with Sterne, Agee & Leach.

"When it comes to formats, it looks like Blu-ray is heading in the right direction," Bhatia said. "There is not enough penetration in the market by either format, but, in a few years Blu-ray might prove to be the standard."

These next generation of DVDs will cost about $25 to $29 each, a significant increase from traditional non-high definition DVDs.

Bhatia said that given the new, higher price, consumers might shift more from purchasing movies to renting them, making the Blockbuster decision key in the fight over format.

The Dallas-based rental giant made the announcement to expand Blu-ray disc inventory for rental to all of its 1,700 corporate-owned stores, but didn't formally commit to either format. "While it is still too early to say which high definition format will become the industry standard, we will continue to closely monitor customer rental patterns both at our stores and online," Blockbuster said in a statement.

Blockbuster will continue to offer both Blu-ray and HD-DVD formats through its Total Access online service. That has seen increasing popularity since a retooling last November, resulting in a 500,000 user increase in the last quarter of 2006 alone. The Total Access plan, which now has 2 million subscribers, gives users the option to exchange the mail-in DVD at any Blockbuster store for another flick, which allows for more movie turnover.

With the rise in HDTV sales, Blockbuster's decision was made in hopes to be the first to supply content, on a large scale, to the fledgling high definition DVD player market. Netflix, Blockbuster's main competitor, has seen exponential revenue gains since its inception in 1998 and is projected by analysts to pull in close to $1.2 billion this year.