In Hi-Def DVD Wars, Warners’ Choice May Tip It in Blu-Ray’s Favor, Once And For All

After two years of relative stalemate in the battle between Sony (NYSE: SNE) Electronic’s Blu-ray and Toshiba’s HD DVD to claim the title of dominant hi-def DVD format, it has lately come down to Warner Bros. to be the one to settle it. And WB, which currently markets its home video via both formats, could be leaning towards Blu-ray, a BusinessWeek piece says. If that happens, the Sony Blu-ray system would go from its current 49 percent share to roughly 70 percent.

Will WB choose?: Warner has signaled that its choice will be determined by which marketer can sell more DVDs this holiday season. So far, Toshiba is in the lead in terms of players, as Adams Media Research projects that it will sell roughly 578,000 machines to U.S. households by the end of 2007. In contrast, Adams Media expects Blu-ray to sell only 370,000. However, while Toshiba’s relationship with Microsoft (NSDQ: MSFT) also gives it access to 300,000 users as an add-on to XBox consoles, Sony Playstation 3 gives Blu-ray access to 2.3 million consumers. But the most important factor in WB’s decision will be which format will offer the greatest number of potential buyers of its home video library? The answer there could be Blu-ray, by dint of its backing by Disney, (NYSE: DIS) which targets families – who are most likely to purchase older titles. And if WB does follow Disney’s lead, Dreamworks’ and Paramount’s deals with Toshiba last only 18 months, suggesting that they’re almost as much on the fence as WB.

Shifting dynamics: The dynamics in this rivalry have shifted a bit since the summer, when HD DVD seemed poised to break the impasse after Toshiba signed exclusive deals with Paramount and Dreamworks Animation. And now, hoping to prevent WB going with Sony, Toshiba plans to cut the retail price for its HD DVD titles at $31.74 – about $2 less than Blu-ray’s suggested price. Toshiba also has been lowering the price of its players, offering a basic player for $299. Not to be outdone, Sony is planning a similarly-priced player too. But Toshiba’s main attraction to Paramount and Dreamworks was its offer of $150 million in incentives.