Toshiba didn’t waste any time responding to Warner’s move to drop HD DVD.

My summary: “Oh shit. Oh shit. Oh shit. Damn that hurts. How are we going to salvage this? Stall for time.”

It actually sounds a bit peevish in the first paragraph, almost “How dare you do this?! I thought we were friends!” kind of tone. And a hint of veiled threat with the mention of contracts between the companies for HD DVD support. And then a reference to the ’significant momentum’ HD DVD gained in 2007 – sure, which still significantly lags behind the even greater gains by BD.

I think Toshiba is really shaken by this, no matter what they end up with as their final stance. It will be hard not to gloat in person at their booth at CES. For the past several years I’ve had their booth reps pitch HD DVD to me and I kept telling them I wasn’t interested and that BD was going to win anyway.

EDIT: And now the HD DVD Promotional Group has chimed in too.

The full press release:
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Oh, that’s gotta hurt! In breaking news, EngadgetHD is reporting on a new press release from Warner Bros. Entertainment. Following their abandonment of TotalHD and rumors of a move to Blu, Warner has made it official. Warner will continue to release some titles on HD DVD until the end of May 2008, which will allow them to flush out previously announced HD DVD releases. Which is certainly a nicer way to handle it than Paramount and Dreamworks did when they just canceled forthcoming Blu-ray releases, even those already pressed. After May 2008, Warner will release high-definition content exclusively on Blu-ray Disc.

Warner is the last studio to be format neutral, after Paramount and DreamWorks Animation dropped Blu-ray for an 18-month exclusivity deal with HD DVD, for which they reportedly received $150-$180 million. But they’re small-fry compared to Warner. The two camps have been in a tug of war. Sony, Disney, Fox, and MGM, the major players in the Blu-ray camp, jointly account for roughly 50% of the home video market. Universal, Paramount, and DreamWorks Animation, the major players in the HD DVD camp, jointly account for roughly 30% of the home video market. Warner alone accounts for roughly 20%. By going Blu-ray exclusive, they shift the balance 70/30 in favor of Blu-ray, which is a substantial advantage. And, remember, the Paramount & DreamWorks exclusivity is reportedly for 18 months, which means it would expire in early 2009. With the market that skewed, and with past experience releasing Blu-ray, I’d expect them to go back to being neutral, if not switching camps entirely. And that’s if they don’t have an escape clause in the exclusivity contract – like “If Warner goes BD exclusive, the deal is off.”

In any case, this could be what it takes to tip the scales and end the format war. Even before this, Blu-ray has been outselling HD DVD 2:1 in the US – and by wider margins elsewhere. But nearly 35% of HD DVD titles are from Warner, and some of them are best sellers, such as 300 and the Harry Potter films. Losing Warner is going to hurt HD DVD disproportionately, while 35% of the titles may be Warner, I’d bet more than 35% of sales are from Warner. This alone could push the ratio in the US to 3:1, or better, for BD titles. And this is on top of far stronger industry support for BD and a growing number of players, combined with falling prices. And there is currently a rumor than Apple will be announcing Blu-ray drives as options in their systems at MacWorld.

EDIT: Both Toshiba and the HD DVD Promotional Group have issued replies.

Warner’s press release was posted by Deadline Hollywood Daily:
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Don Lindich, syndicated columnist, contacted Warner Bros. about the rumors that they will be going exclusive with Blu-ray in 2008. He received a short reply from Jim Noonan, Warner Bros. Senior Vice President and General Manager:

“Dear Mr. Lindich, We have made no decision to change our present policy which is to produce in both HD DVD and Blu-ray.”

I’ve seen enough corporate-speak to recognize a non-committal statement when I see one. It isn’t a denial or a confirmation. The wording is interesting – “no decision to change our present policy”. Parsed one way it could be that they don’t plan to change the policy at this time, but may be planning to change it in the future. Or it can be read as there being no plans to change at all. But in that case, why not come right out and say that clearly?

I would not expect Warner to confirm any plans for exclusivity. If they do plan to make an announcement at CES, they wouldn’t want to spoil it by pre-announcing. Especially with holiday shopping still underway, they don’t want to hurt their sales. If they even implied that they were dropping either format it could tank the sales of that format during the biggest shopping season of the year.

So there is still the chance that CES could hold some interesting news.

Via EngadgetHD.

Speculation is heating up that Warner Bros. will pick a side in the high-def format war in time for the 2008 Consumer Electronics Show, which kicks off January 7th in Las Vegas. (I’ll be there.) And the speculation is that they’re leaning toward Blu-ray Disc. The smoldering rumors had gasoline poured on them by this BusinessWeek article on Thursday.

“The rumor is that Warner is coming aboard soon,” says Michael Burns, vice-chairman of studio Lionsgate (LGF), which makes its movies available on the Sony-backed format. “That will make it awfully tough for HD DVD to stay in this game.”

There have been some signs. Warner, which has always been on the fence, abandoned their proposed TotalHD dual-format disc last month. Warner has also joined groups that promote Blu-ray Disc. Back in September Warner stated that they’d be watching sales in 4Q07 closely and then evaluate their dual-format position based on that information.

In October, speaking to Home Media Magazine, Warner’s Dan Silverberg indicated their dual-format strategy could be changing.

Also there was Dan Silverberg, VP of high-definition media for Warner Home Video, which since Paramount’s move to the HD DVD camp is the only studio to support both next-generation formats.

That may not be for long, Silverberg said. “One thing that may be changing is our strategy,” he said. “When both formats launched and hardware prices were high, we made a decision to support both formats and let the consumer decide. But now that hardware pricing is affordable for both Blu-ray and HD DVD, it appears consumers no longer want to decide — so the notion of staying in two formats for the duration is something we are re-evaluating now that we are in the fourth quarter.”

Silverberg noted that Warner has the top-selling Blu-ray title of all time with 300 and is consistently No. 1 or No. 2 in both Blu-ray sales market share and in number of Blu-ray titles in the market.

“We can definitely talk Blu-ray,” he said. “We are committed to the format.”

As I said at the time, if staying with both formats is something that might be changing, and they’re committed to Blu-ray, then the answer seems fairly clear – they’re considering dropping HD DVD.

Why would Warner want to do this? Because they’ve never liked supporting two formats, they really want to see a single format win the war. Why? Because two formats divides and confuses the market, and slows down adoption. If a single format ruled, it would allow for a focused marketing effort, and it would eliminate consumer confusion. And in the end all Warner wants is to sell more discs, and they take a long view. They might lose some sales in the short term, but if one format wins the war then adoption should pick up more rapidly, leading to increased disc sales sooner.

So why Blu-ray and not HD DVD? BD has outsold HD DVD roughly 2:1 in the US, 3:1 in Europe, 5:1 in Australia, and 9:1 in Japan. HD DVD hasn’t been able to beat Blu-ray in any market, except for times when it launched before BD and had the market to itself. But then BD always caught up, and outpaced, HD DVD once it launched. So the consumer momentum is already behind Blu-ray.

And you have to consider their goal – to push one side or the other into a clear lead to win the war, to unify the market. Warner is the big dog. They account for 24.54% of BD titles, second only to Sony’s 24.80%. And 34.02% of HD DVD titles, second only to Universal’s 39.30%. In the overall market, if Warner were to pull out of HD DVD and release only on Blu-ray, that would give BD over 70% of the titles in the market. Conversely, if Warner were to pull out of BD and release only on HD DVD, that would give HD DVD only roughly 50% of the titles in the market. Sony, Fox, and Disney, all Blu-ray exclusive studios, collectively release nearly half the titles on the market. Universal is the big anchor for HD DVD. While Paramount switched from dual-format to HD DVD this year, their output is fairly small. So if Warner wants to help end the war, backing Blu-ray would decisively tip the balance in the market – and it would likely push Paramount into re-joining the BD camp once their 18 months of exclusivity is up (if not sooner). That would leave Universal the sole major HD DVD backer, and they’d be unlikely to try to fight the war alone. But backing HD DVD would simply split the market almost evenly, and would likely serve to increase confusion and prolong the war.

And Warner need only look at their own sales figures. The titles they release on both formats routinely sell 2:1 or better in favor of Blu-ray. So the short term hit of dropping HD DVD is less than the hit from dropping Blu-ray. If they’re going to pick a side, going with Blu-ray is better for Warner Bros. in both the short term and the long term – less of a short term hit to sales, and a better chance at ending the war and increasing adoption.

If they were really waiting to see how sales went in 4Q07, so far BD has handily kept its lead – even the release of Transformers couldn’t give HD DVD the edge that week. If Warner was looking for some big move by HD DVD to turn the tide, it hasn’t happened yet.

Sure, Warner could shock everyone and side with HD DVD. Toshiba could shovel money at them, like they did Paramount and DreamWorks, to buy the deal. But it is likely that the Blu-ray camp would not go down without a fight, and they’d be willing to buy Warner’s allegiance as well. Toshiba has already dipped into their war chest for the Paramount/DreamWorks deal, while the BDA has more members with deep pockets.

Either way, it is certainly interesting to watch. And if they do make an announcement at CES, it will be a huge news.