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Power Shift

Aug 21st, 2007
Did I just feel the ground move?



HD DVD Score A Big One

In what took me by complete surprise, Paramount Pictures Home Entertainment has announced that it’s dropping support for Blu-ray Disc and, going forward, will release both its films and those by DreamWorks Pictures, DreamWorks Animation SKG, Paramount Vantage, Nickelodeon Movies, and MTV Films exclusively on HD DVD.  An interesting caveat is that Steven Spielberg’s films are excluded from this exclusivity policy.  I’ve included the official press release below.

My initial surprise is caused by what I thought was the fundamental goal of any motion picture studio: to make money.  (Sorry, making art and entertaining us are second tier priorities.)  With Blu-ray Disc outselling HD DVD by 2:1, and the demand for the newer, less expensive Blu-ray Disc players outpacing supply, it doesn’t take a rocket scientist to analyze the data and conclude that any title will probably sell more in the Blu-ray Disc format than in the HD DVD format.  Warner’s experience with 300, which I described in my last column, is an example.  So why on Earth did Paramount decide to drop BD support?

The studio was reported to have assessed the formats over the course of releasing films in both formats and decided that HD DVD offers better quality, lower disc production costs, and less expensive players for consumers.  While I can’t argue with the second two points, the first runs counter to my experience.  An eight-foot wide image projected in 1080p with a viewing angle of 42 degrees is mighty revealing, and the best BDs are clearly better looking than the best HD DVDs.  One simply can’t escape the physics: more storage space = less compression = higher quality.  To that relationship add BD’s higher bit rate, and the image quality prize must go to Blu-ray Disc.  If Paramount compared transfers compressed for the space limitations of HD DVD and then simply re-authored for BD, it was a self-deceptively false comparison.

(The audio winner isn’t as straight forward, but not for quality reasons.  Currently, BD’s PCM tracks are the fidelity kings.  But by this time next year, players equipped with HDMI 1.3a ports that can pass lossless, compressed audio bit streams will be common, as will the external decoders capable of accepting and processing those signals.  There should be no perceptible audible difference between an uncompressed bit stream and a lossless, compressed bit stream.  So excluding consideration for video compression impacts on lower capacity discs by the presence of advanced audio CODEC bit streams, the audio fight will be a draw.)

Player prices drop with the economy of scale.  If you had asked me in 1997 if progressive scan DVD players would ever be available for under $100, I’d have said no.  Lesson learned: HD disc player prices will continue to erode as demand grows.  Even disc production costs will drop as the tools and machines and materials become less expensive, again due to the economy of scale.

So if BD’s quality is higher, and costs will inevitably come down, why would Paramount sacrifice higher disc sales to back HD DVD exclusively?  Well . . . apparently to make money.

Unwelcome Interference

The answer might be found in a column published by Nikki Finke’s Deadline Hollywood Daily.  The writer cites a confidential report by managing director Richard S. Greenfield of Pali Research.  The claim is made that Paramount was paid $50 million as an incentive and DreamWorks Animation was paid $100 million.  That’s tad pricier than those end caps Sony bought at electronic retailers.   

The two entities that have made the greatest commitment to the HD DVD format are Toshiba and Microsoft.  The software giant certainly has the deep pockets to contribute substantially to those “incentives” and there lies my greatest concern.  One could argue that Microsoft is fighting for the profits associated with its XML-based HDi interactive layer on HD DVD.  One could argue that Microsoft is motivated by it’s antipathy for Sun Microsystems, from which the Java-based BD-J interactive layer on BD is derived.  But the most likely explanation is that Microsoft wants the format war to continue, to keep consumer confusion high, and provoke consequentially reduced sales of both formats.  I’ve written before and I will repeat here that I fear Microsoft is playing us all, forcing delays in establishing a clear winner until its movie download service and the infrastructure to support it becomes viable.

Microsoft is on record as saying the age of physical media is over, and it’s not unlikely that the company is involved in a Machiavellian scheme to manipulate the HD disc market to prevent the declaration of a winner.  And it would seem that Jeffery Katzenberg of DreamWorks Animation has been seduced by Microsoft’s view of the future.  He’s reported to have made a comment at a Bank of America conference that he didn’t expect either HD disc format to win the war “because they're not going to become the next platform.”  So what the hell, why not take the $100 million?  Who’s it gonna hurt?

The answer is you.  Based on the 2:1 disc sales advantage of Blu-ray Disc over HD DVD, the free market and consumer preferences slowly seem to be resolving the war.  But if deep-pocket industry giants manipulate the market, neither supply and demand, nor the market’s Darwinian pressures, nor the resolution of the format war based on merit will occur.  If this Paramount announcement is the product of a Microsoft tactic to destroy the physical media market, it’s simply egregious.

The European Union initiated an investigation of non-competitive tactics in the format war.  If the reports of the financial “incentives” turn out to be true, I wonder what the EU will think about that.

The Fox Is In The Henhouse

It’s not clear if the Paramount announcement influenced the timing of 20th Century Fox Home Entertainment’s press release, but this is very welcome news indeed.  After standing down from releasing any content on Blu-ray Disc following the encryption break by irresponsible hackers, Fox is back.  I expected the studio to assess the impact of the addition of the BD+ security layer before making a release announcement, but Fox outfoxed me.

Not only will Fox release its and MGM’s back catalog films, but current hits are also being put on the schedule, like Fantastic Four: Rise Of The Silver Surfer and Live Free Or Die Hard.  Those two titles will be released on BD day-and-date with DVD.  Fox is planning to release twenty-nine of its films and nineteen of MGM’s by the end of the year.  Some of the films have been revealed and the list has some impressive titles:

October 2
Master & Commander
The Day After Tomorrow

October 9
From Hell
The Fly (1986)
Edward Scissorhands
28 Days Later
Robocop (MGM)
Amityville Horror (1979) (MGM)

November 6
Battle Of Britain (MGM)
A Bridge Too Far (MGM)

November 13
I, Robot

November (day TBD)
Die Hard
Die Hard 2 Die Harder
Die Hard With A Vengeance
Red Dawn (MGM)

December 4
Mr. And Mrs. Smith
Independence Day
Cast Away
Ronin (MGM)

The press release is below.

Welcome back Fox.  We missed you.

Parting Thoughts

When I wrote in a previous column that the format war will continue depending on how deep Toshiba’s pockets are, I should have written “Toshiba and Microsoft’s.”  If it weren’t for the potential for a Microsoft ulterior motive, I could be quite content to sit back and watch the battling proponents duke it out in the marketplace until a winner is revealed.  Call me paranoid if you wish, but I find Microsoft’s stated position about physical media, historically aggressive tactics, and interference with the home theater market very troubling.

I, like most American consumers, like to possess the media.  I want to be able to watch what I want when I want.  I covet the highest possible quality so that I can replicate the motion picture theater experience in my home.  Downloads simply don’t deliver (pun intended).  It may be over a decade before the infrastructure can support any HD download scheme that offers the convenience and quality of HD on disc.  (How long do you think it might take for a fiber-optic network to reach 80% of all American homes?)

Fox’s return to the BD fold couldn’t have come at a better time.  You deserve to have access to the broadest range of films on HD discs so that market pressures rather than market manipulation determine the winner of the format war.



The HD DVD Press Release

PARAMOUNT AND DREAMWORKS ANIMATION EACH DECLARE EXCLUSIVE SUPPORT FOR HD DVD

Movies Distributed by Paramount Home Entertainment Including Paramount Pictures, DreamWorks Animation SKG, DreamWorks Pictures, Paramount Vantage, Nickelodeon Movies and MTV Films to be Released Exclusively in HD DVD

Exclusive Program To Begin with Release of “Blades of Glory,” Followed by “Transformers” and “Shrek the Third,” Films Representing 
More Than $1.5 Billion in Combined Worldwide Box Office

Los Angeles, CA, August 20, 2007 – Paramount Pictures, a unit of Viacom Inc. (NYSE: VIA and VIA.B) and DreamWorks Animation SKG (NYSE:DWA), each announced today that they will exclusively support the next-generation HD DVD format on a worldwide basis.  The exclusive HD DVD commitment will include all movies distributed by Paramount Pictures, DreamWorks Pictures, Paramount Vantage, Nickelodeon Movies and MTV Films, as well as movies from DreamWorks Animation, which are distributed exclusively by Paramount Home Entertainment.

The companies each said that the decision to distribute exclusively in the HD DVD format resulted from an extensive evaluation of current market offerings, which confirmed the clear benefits of HD DVD, particularly its market-ready technology and lower manufacturing costs. Paramount Home Entertainment will launch its exclusive HD DVD program with the release of the blockbuster comedy hit “Blades of Glory” on August 28th and follow with two of the biggest grossing movies of the year “Transformers” and “Shrek the Third”.  These three titles alone represent more than $1.5 billion in box office ticket sales worldwide.

“The combination of Paramount and DreamWorks Animation brings a critical mass of current box office hits to consumers with a line-up of live action and animated films that are perfect for HD DVD,” stated Brad Grey, Chairman and CEO of Paramount Pictures, which is currently the leading studio in domestic box office.  “Part of our vision is to aggressively extend our movies beyond the theater, and deliver the quality and features that appeal to our audience.  I believe HD DVD is not only the affordable high quality choice for consumers, but also the smart choice for Paramount.”

“We decided to release “Shrek the Third” and other DreamWorks Animation titles exclusively on HD DVD because we believe it is the best format to bring high quality home entertainment to a key segment of our audience – families,” stated DreamWorks Animation CEO, Jeffrey Katzenberg.  “We believe the combination of this year’s low- priced HD DVD players and the commitment to release a significant number of hit titles in the fall makes HD DVD the best way to view movies at home.”

With the rapid increase of HD TV screens in households, and audiences wanting to enjoy the total entertainment experience, HD DVD has emerged as the most affordable way for consumers to watch their movies in high definition.  In addition to pristine quality, HD DVD also offers consumers the chance to personalize the movie-watching experience, to interact with their movies and even to connect with a community of other fans.

Paramount Home Entertainment will issue new releases day and date as well as catalog titles exclusively on HD DVD.  Today’s announcement does not include films directed by Steven Spielberg as his films are not exclusive to either format.

About Paramount Pictures Corporation

Paramount Pictures Corporation (PPC), a global producer and distributor of filmed entertainment, is a unit of Viacom (NYSE: VIA, VIA.B), a leading content company with prominent and respected film, television and digital entertainment brands.  The company’s labels include Paramount Pictures, Paramount Vantage, Paramount Classics, MTV Films, Nickelodeon Movies and DreamWorks Studios.  PPC operations also include Paramount Digital Entertainment, Paramount Home Entertainment, Paramount Pictures International, Paramount Licensing Inc., Paramount Studios and Worldwide Television Distribution.

About DreamWorks Animation SKG

DreamWorks Animation is principally devoted to developing and producing computer generated, or CG, animated feature films. With world-class creative talent, a strong and experienced management team and advanced CG filmmaking technology and techniques, DreamWorks Animation makes high quality CG animated films meant for a broad movie-going audience. The Company has theatrically released a total of fourteen animated feature films, including Antz, Shrek, Shrek 2, Shark Tale, Madagascar, Wallace & Gromit: The Curse of the Were-Rabbit, Over the Hedge, Flushed Away, and Shrek the Third.  DreamWorks Animation’s newest release, Bee Movie, opens in theaters November 2, 2007.



The Blu-ray Disc Press Release

FOX AND MGM UNVEIL BLU-RAY EXCLUSIVE WORLDWIDE RELEASES FOR 2007
 
29 Titles To Debut Packed With Soon-to-Be-Announced BD Industry ‘Firsts’ - PLUS – Fox’s First TV Title ‘PRISON BREAK’
 
FANTASTIC FOUR: RISE OF THE SILVER SURFER And
LIVE FREE OR DIE HARD and Other Titles
To Debut Day-and-Date on BD/DVD
 
-- Blu-ray Out-Performing HD DVD 2-to-1 At Retail in 2007 --
 
LOS ANGELES – August 20, 2007 -- Twentieth Century Fox Home Entertainment (TCFHE) today unveiled an aggressive global Blu-ray Disc release strategy including 29 new release and “must-have” catalog titles that runs through the end of the 2007 calendar year.  Among the many highlights of the impressive worldwide slate are six day & date BD/DVD new theatrical releases from Fox including the $241 million box-office family favorite FANTASTIC FOUR: RISE OF THE SILVER SURFER and the $335 million box-office action powerhouse LIVE FREE OR DIE HARD, four day & date BD/DVD (U.S. only) new theatrical releases from MGM, 19 ‘must-have on BD’ films from the two studios’ libraries, Fox’s first-ever TV release on BD – PRISON BREAK -- and Fox’s intention to release at least one state-of-the-art title per month featuring numerous BD ‘firsts.’
 
The only high-definition packaged media universally supported by the film, music, gaming and computer industries, BD is the #1 selling high-definition packaged media.  In fact, on a worldwide basis, BD is averaging nearly 70% market-share per week of all high definition titles sold this year and, in the U.S., it is out-performing HD DVD by a margin of 115%.
 
 “Given that Blu-ray has consistently outsold HD DVD all year, and this is the case for any titles released by any studio in both formats, we believe that the time is right for us to accelerate our activities and help convert the nearly 60 million high definition households worldwide into Blu-ray households,” noted Mike Dunn, President Worldwide, Twentieth Century Fox Home Entertainment.  “By the end of this calendar year there will be expansive availability of technically vibrant releases featuring never-before-seen, advanced BD-J interactivity as well as a broad offering of playback devices at attractive prices that will prove to any doubting consumers once and for all that Blu-ray is the only way.”
 
“And as Blu-ray continues to grow stronger, it has become survival of the fittest which is most apparent in the retail landscape where our eager and growing global Blu-ray consumer base has caused a shift that is forcing the allocation of more space to the format that is selling the best.  And, in many recent instances of note, top retailers in North America are choosing to promote the Blu-ray format exclusively in their stores,” continued Dunn.
 
Among the BD industry ‘firsts’ from the Studios’ upcoming global release slate are picture in picture capability, enhanced viewing and surround sound modes with the ability to mix and match picture and sound, direct access to in-movie features through one of the four colored buttons on the BD remote and the most technically vibrant BD-Java interactive multi-player challenge and trivia games to date. The Studios’ slate also takes full advantage of BD-Live functionality this fourth quarter. Internet-connected consumers will enjoy unique, title specific “web-enabled” interactive features and games and “web-exclusive” downloadable content with the ability to connect and interact with other broadband BD users worldwide.
 
Cementing its leadership position within the industry - previous BD releases NIGHT AT THE MUSEUM and X-MEN THE LAST STAND rank in the Top 20 best-sellers - the vast majority of the Studios’ upcoming global slate will be presented on 50 GB dual-layer discs with advanced BD-J interactivity and feature numerous Blu-ray exclusive high-definition bonus materials that further realizes BD’s incredible potential. Consumers will enjoy the superior video and audio elements of AVC encoding and Lossless HD audio on many of the coming titles as well as enhanced and integrated menus, personal scene selections, search indexing, trivia and other title specific games and high-definition bonus materials.
 
Upcoming BD-J features exclusive to priority catalogue titles from Fox and MGM include an "Alien Scavenger Hunt" (INDEPENDENCE DAY) that challenges players to earn points by identifying the correct number of aliens in select scenes to unlock additional bonus features; a “Global Warming Trivia Track” (THE DAY AFTER TOMORROW) where users must correctly answer questions about global warming to keep the Earth’s temperature from rising and being destroyed; and a historical and geographical pop-up map (MASTER & COMMANDER) that tracks the location of Captain "Lucky" Jack Aubrey and his enemies.
 
Listed below are the upcoming Blu-ray Disc releases from Fox and MGM excluding new theatrical day & date BD/DVD releases.  EXACT TITLE
CONFIGURATIONS TO FOLLOW IN THE COMING WEEKS.
 
TITLE                                            N.A. RELEASE       INTERNATIONAL RELEASE
MASTER & COMMANDER                      OCT. 2                   OCT.
THE DAY AFTER TOMORROW              OCT. 2                   NOV.
FROM HELL                                      OCT. 9                   OCT.
THE FLY (1986)                                OCT. 9                   Q1 08 
EDWARD SCISSORHANDS                   OCT. 9                   NOV.
28 DAYS LATER                                 OCT. 9                   North America Only
ROBOCOP (MGM)                              OCT. 9                    DEC.
AMITYVILLE HORROR (1979) (MGM)    OCT. 9                    North America Only
BATTLE OF BRITAIN (MGM)                 NOV. 6                    Q1 08
A BRIDGE TOO FAR (MGM)                 NOV. 6                    Q1 08
I, ROBOT                                        NOV. 13                 Q1 08
DIE HARD                                           NOV                        NOV.
DIE HARD 2 DIE HARDER                    NOV                        NOV.
DIE HARD WITH A VENGEANCE            NOV                        NOV.
RED DAWN (MGM)                              NOV                       Q1 08
MR. AND MRS. SMITH                         DEC. 4                   DEC.
INDEPENDENCE DAY                             DEC. 4                   DEC.
CAST AWAY                                         DEC. 4                   North America Only
RONIN (MGM)                                      DEC. 4                   DEC                 
 
Blu-ray Disc is a next generation optical disc format developed for high-definition video and high-capacity software applications. A single-layer Blu-ray Disc holds up to 25 gigabytes of data and a dual-layer Blu-ray Disc holds up to 50 gigabytes of data. This greater storage capacity enables the Blu-ray Disc to store over six times the amount of content than is possible with current DVDs, and is particularly well-suited for high definition feature films with extended levels of additional bonus and interactive material. Blu-ray also features the most advanced copy protection, player backward compatibility with the current DVD format, connectivity and advanced interactivity.
 
Fox takes advantage of the next generation format’s high definition technology and advanced functionality to present its titles with the highest quality audiovisual elements.   Showcasing picture quality with six times the resolution of DVD and theater quality “uncompressed” audio for the purest digital sound, the cutting-edge discs also feature enhanced and integrated menus, games, high-definition bonus materials and Java-encoding for more dynamic and sophisticated interactivity.
 
The Studio’s commitment to emerging technologies is dedicated to enhancing the consumer experience of its products and providing for backward compatibility with their existing home entertainment libraries while also aggressively protecting its intellectual property from piracy.  The Blu-ray companies fully embrace the Studio’s steadfast commitment to the fight against piracy and the preservation of the integrity of its properties. Twentieth Century Fox is a member of the Board of Directors of the Blu- ray Disc Association.
 
A recognized global industry leader, Twentieth Century Fox Home Entertainment LLC (TCFHE) is the worldwide marketing, sales and distribution company for all Fox film and television programming on VHS, DVD and Blu-ray Disc (BD) as well as acquisitions and original productions.  The company also releases all products around the globe for MGM Home Entertainment.  Each year TCFHE introduces hundreds of new and newly enhanced products, which it services to retail outlets -- from mass merchants and warehouse clubs to specialty stores and e-commerce - throughout the world.  Twentieth Century Fox Home Entertainment LLC is a subsidiary of Twentieth Century Fox Film Corporation, a News Corporation company.

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