Quotes of the Day

With their neon glow, pneumatic whoosh and blastastic destructive force, lasers are the preferred weapons for sci-fi movie heroes when the fate of the galaxy hangs in the balance. But here on Earth, lasers—which in more humble household varieties nestle deep inside your DVD player, reading data from the discs—are at the center of an epic movie battle of another kind: an escalating showdown among Japan's giant electronics manufacturers over the next generation of DVD technology. This fight may not decide the future of humankind, but the stakes are plenty high. The winners may be able to chart the course of the video industry for years to come, dictating the type of technology that goes inside your next home entertainment system while reaping billions of dollars in licensing royalties.

You may not think there is anything wrong with current video discs. But electronics engineers are busily inventing new families of smarter, more computer-like media devices that will not just play movies but will also make it easier to record television shows and store music, digital-photo albums and home videos—and DVDs as we know them just aren't up to the task. Instead, high-volume discs that are the same size as DVDs yet can hold over five times more information are being developed.

Engineers, however, rarely agree on the best migration routes when it's time to move to a new technology. The industry has settled on this much: the hardware used in current DVD players, which emit red-laser beams to read data, should be replaced with gear that uses blue lasers. That's because a blue laser's narrower, more efficient beam enables far more information to be packed onto discs. Blue-laser DVDs promise sharper picture quality suitable for display on advanced flat-screen high-definition TVs and computer monitors. Previously, they were too expensive and unreliable to go in mass-market electronics, but a recent breakthrough in the materials that make up blue-laser diodes (the light-emitting component) has made them commercially viable.

But in a dustup that harks back to the VHS-vs.-Betamax standards showdown at the dawn of the VCR era, the industry has splintered into two warring camps over how best to implement blue-laser technology. Spearheading one group is Sony, which promotes a technology it calls Blu-ray. Sony senior vice president Kiyoshi Nishitani, a battle-tested engineer who heads up the Blu-ray initiative, says his company began work on the new technology four years ago and quickly enlisted Matsushita (best known for its Panasonic brand), Philips and Pioneer, among others, as allies in its cause. All was going well, he claims, until Toshiba decided to ruin the party. "We have had many, many meetings with Toshiba," Nishitani says. But when it came to explaining the benefits of joining the alliance to his counterparts at Toshiba, he adds with a shake of his head, "we could not get them to understand."

Toshiba's DVD executives, led by an equally legendary veteran, senior vice president Hisashi Yamada, cheerfully admit that they spurned the Blu-ray consortium's advances and decided to develop their own HD-DVD technology instead. The proud victor over Sony in setting the standards of the first generation of DVDs in the 1990s, Toshiba is unwilling to meekly follow the competition. Yamada seems to delight in playing spoiler in the face of what many at Toshiba perceive as Sony's arrogance. "The way of Sony is very simple," says Yamada. "'Our format is best,' they say. 'You should adopt it,' they say. Only that. No compromise." But, he adds with a mischievous grin, "We do not think Sony's is the right technology at the right time. We think ours is better."

Although both Blu-ray and HD-DVD machines will play current DVDs (your movie collection is safe), Sony says Blu-ray represents a quantum leap in technology appropriate to the dawning age of high-definition displays and the blurring of what used to be pronounced differences between digital computers and analog TV sets. Sony is fond of pointing out that single-sided Blu-ray discs can hold two-thirds more data than Toshiba's single-sided HD-DVDs. Yukinori Kawauchi, general manager of Sony's video-planning division, derides HD-DVD as "a half step." Blu-ray is, he says, the "final evolution of optical-disc technology."

Toshiba executives, on the other hand, criticize Sony for what they consider its disregard for the consumer, who is assumed to be forever willing to pay higher prices for snazzy technology. They point to a number of impressive Sony innovations—including Betamax, Mini Discs and Memory Sticks for PDAs—that Sony tried to force on the world but that failed to become industry standards because too few consumers and companies were impressed enough to fork out. "They have a long history of doing this," says Yamada. He insists that proven viability and low costs are the advantages that really matter. Toshiba claims that HD-DVD production lines are easier and cheaper to set up and that as a result prerecorded HD-DVDs will cost only 10% more than current DVDs, a fraction of what they say prerecorded Blu-ray discs will initially cost. Sony, at this point, won't forecast costs, except to say that prices will fall dramatically as sales increase.

Toshiba plans to sell its first HD-DVD players for about $1,000, starting next fall. And Pony Canon, Japan's largest domestic publisher of read-only DVDs, has said it will start selling HD-DVD discs next year to feed these new devices. Sanyo has pledged to get their HD-DVD players down to the $400 range by holiday season 2007. Meanwhile, a few Sony Blu-ray disc recorders are already on sale in Japan for about $3,500. According to Japanese press reports, the Blu-ray machines are not selling very well so far, and Sony does not expect movies recorded on Blu-ray discs to be available until 2006.

So who will win? Sony has already enlisted 12 heavy hitters to its cause, including Dell, Hitachi, LG, Samsung and Sharp. Toshiba, meanwhile, trumpets the fact that Microsoft has pledged its next Windows operating system will be HD-DVD compatible and that HD-DVD is the only format to win approval from the DVD Forum, a trade association of 220 entertainment, electronics and computer manufacturers (including Sony). Sony, which likes to control the development of its own technology, says that the forum's imprimatur is not essential to victory.

There is, however, one thing that everyone agrees is essential: backing from Hollywood. Movie studios are a critical part of the DVD business, because they distribute their product on discs by the millions. Today, home rentals and sales can generate as much as 50% of a film's revenue. DVD rentals surged 55% last year while sales rose 33%. With business good, major studios have been slow to join the blue-laser debate. But they won't be able to fence-sit forever. According to Kagan Research, by 2008 half of American households will own high-definition TVs, on which regular DVD resolution looks noticeably lame.

To be ready with the software and hardware, studios need to start making decisions. "The vote is in Hollywood's hands," says Warren Lieberfarb, the former head of Warner Home Video and now a consultant for Toshiba.

Realizing this, the Blu-ray and the HD-DVD teams are now making trans-Pacific road shows almost monthly, desperately trying to woo the studios with remastered snippets of their biggest blockbusters and boasts about their comparative advantages. Sony's deal to acquire MGM, announced Sept. 13, is a key component of its effort to promote the Blu-ray standard. As a working studio, MGM is a shell of its former self, with no active, lucrative franchises besides James Bond. But it does have a catalog of approximately 4,000 movies ranging from Gone with the Wind to Rocky (boosting Sony's control of all the Hollywood movies ever filmed in color to more than 40%) and 10,000 TV episodes, many of which have not been fully exploited for the home market. "We are not buying a company or a building," said Sony chairman Nobuyuki Idei of the MGM deal, "but rather we aim to make use of the software assets." Putting all that content on Blu-ray discs could swing the DVD fight in Sony's favor.

Unless a clear majority of studios emerges, the consumer's nightmare scenario of walking into the video store and finding Spider-Man (a Sony movie) available only on Blu-ray and, say, The Matrix (a Warner film) available only on HD-DVD remains a possibility. Like the characters in a sci-fi war movie headed for the climactic battle, neither Sony nor Toshiba show any sign of backing down, and as their allies prepare for the final showdown, their blue lasers are set for kill.

• Jim Frederick | Tokyo
• Sony and Toshiba have different ideas about how DVDs should evolve, and neither company is backing down. Who will win the high-stakes format wars?