HD DVD and Blu-ray - a Format Battle with Only One Winner? - ANDREAS WISS - Master of Science Thesis Stockholm, Sweden 2006

 
HD DVD and Blu-ray - a Format Battle with Only One Winner? - ANDREAS WISS - Master of Science Thesis Stockholm, Sweden 2006
HD DVD and Blu-ray – a Format
  Battle with Only One Winner?

              ANDREAS        WISS

              Master of Science Thesis
              Stockholm, Sweden 2006
HD DVD and Blu-ray - a Format Battle with Only One Winner? - ANDREAS WISS - Master of Science Thesis Stockholm, Sweden 2006
HD DVD and Blu-ray – a Format
  Battle with Only One Winner?

                        ANDREAS                 WISS

    Master’s Thesis in Media Technology (20 credits)
                  at the School of Media Technology
             Royal Institute of Technology year 2006
             Supervisor at CSC was Arild Jägerskogh
                            Examiner was Nils Enlund

                             TRITA-CSC-E 2006:162
                       ISRN-KTH/CSC/E--06/162--SE
                                   ISSN-1653-5715

                               Royal Institute of Technology
             School of Computer Science and Communication

                                                 KTH CSC
                              SE-100 44 Stockholm, Sweden

                                       URL: www.csc.kth.se
HD DVD and Blu-ray - a Format Battle with Only One Winner? - ANDREAS WISS - Master of Science Thesis Stockholm, Sweden 2006
Abstract

HD DVD and Blu-ray - A Format Battle with Only One Winner?

Abstract

The high-density disc formats HD DVD and Blu-ray are both aiming to become the
successor to the DVD format. The two incompatible formats are both backed up by a
large number of important companies from the home electronics, computer and film
industry. The rivalry between the two formats will cause confusion among consumers,
hindering adoption considerably.
         The purpose of this project was to analyze the formats HD DVD and Blu-ray
at the time of their competitive introduction to the market. The goal was to investigate
and forecast what effect these blue-laser formats will on the market for consumer
electronics and whether how consumers will embrace these technologies or not. The
study can be used both as a technical introduction to the two formats and as a
forecast of what might be expected of the technologies from an anthropological point
of view, in terms of usability, privacy, interoperability etc. The research strategy has
mainly consisted of a thorough literature review and qualitative methods: in-depth
interviews with experts within fields like high definition technology, disc media
production and marketing.
         The outcome of the study can be summarized into the several main points.
         HD DVD and Blu-ray differs mainly in the terms of manufacturing costs (Blu-
ray being more complex and thus more expensive to produce) and theoretical
storage capacity (HD DVD being inferior). None of these differencing factors are
probable to affect either format’s potential progress on the market.
         It is currently difficult to foresee a winner in this format battle, since both
formats have massive company support and are similar in their technical capabilities.
Another aspect making the forecast more complicated is that both formats were
created before there was any consumer demand for a High Definition-capable disc
format product. The consumer reactions to these formats are thus unpredictable.
         The format war is causing confusion and uncertainty among consumers,
making them probable to postpone any purchase of either format.
         Initial high retail costs (particularly compared with DVD) and potentially
restrictive digital rights management technologies, where future generation of players
may render it possible for content holders to conduct detailed monitoring of
consumers’ viewing habits or restrict HD playback, are also feasible to hinder
adoption of either format.
         Unless a unified format or player is developed, both formats might loose to
another kind of storage media, probably not a physical one (e.g. downloads and
home media networks).
HD DVD and Blu-ray - a Format Battle with Only One Winner? - ANDREAS WISS - Master of Science Thesis Stockholm, Sweden 2006
Sammanfattning

HD DVD och Blu-ray – En formatstrid med enbart en vinnare?

Sammanfattning

Högkapacitetsformaten HD DVD och Blu-ray har båda målet att bli DVD-formatets
ersättare. De två inkompatibla formaten backas av ett stort antal viktiga globala
marknadsaktörer från branscherna hemelektronik, dator och film. Rivaliteten mellan
de två formaten kommer att orsaka förvirring bland konsumenter, vilket kommer att
leda till att utvecklingen och adoptionen förhindras.
          Syftet med detta projekt var att analysera formaten HD DVD och Blu-ray
under tidpunkten av de bådas marknadsintroduktion. Målet var att undersöka och
försöka förutse vilken effekt dessa blålaserformat kommer att ha på
hemelektronikmarknaden och hur pass väl konsumenter kommer att mottaga dessa
format eller inte. Studien kan både användas som en teknisk introduktion till båda
formaten och som en prognos för vad som kan väntas av teknikerna i framtiden ur en
användarantropologisk vinkel, om man ser till användarvänlighet, integritet och
interoperabilitet. Metodvalen har huvudsakligen bestått av litteraturstudier samt
kvalitativa metoder i form av djupintervjuer med experter inom kunskapsfält som HD-
teknik, skivproduktion och marknadsföring.
          Studiens resultat kan summeras i ett antal punkter.
          HD DVD och Blu-ray skiljer sig från varandra på huvudsakligen två punkter:
tillverkningskostnader (Blu-ray, det mer komplicerade formatet, är dyrare att
framställa) och lagringsmöjligheter (HD DVD har lägre kapacitet). Dessa faktorer
kommer dock knappast att påverka händelseutvecklingen för respektive format.
          Det är svårt att förutse en vinnare i formatstriden, då båda format har massivt
stöd från industrin och är överlag lika vad gäller tekniska egenskaper. En annan
aspekt som försvårar prognosen är det faktum att båda format skapades innan det
fanns något marknadsbehov av ett skivbaserad HD-stödjande format.
Konsumentreaktionerna är därför svåra att förutse.
          Formatkriget orsakar förvirring och osäkerhet bland konsumenter, vilket kan
leda till att de skjuter upp alla beslut om val av köp.
          Höga initiala inköpskostnader (särskilt i jämförelse med DVD) och möjligheten
till restriktiva kopieringsskydden, som innebär att framtida spelare kan göra det
möjligt för filmbolag att övervaka vad, hur och när konsumenter tittar på filmer eller
hindra uppspelning i HD-format, är också möjliga adoptionshinder.
          Om inte ett unifierat format, eller en spelare som är kapabel att spela båda
formaten, utvecklas, kan båda format förlora mot andra typer av lagringsmedia, då
troligen inte ett fysiskt sådant (till exempel lagliga nedladdningstjänster och
hemmanätverk).
Preface

Preface

This is a Master’s Thesis in Media Technology, with a major in Television and Video
Production at the Royal Institute of Technology (KTH) in Sweden. The study was
conducted in Aoki Media Lab at the Shibaura Institute of Technology (SIT) in Tokyo
during the period April-September 2006.
        First and foremost I would like to thank the Shibaura Institute of Technology
for accepting my application and welcomingly helping me to carry out my study in
Japan.
        I would like to thank my supervisors at KTH and SIT, Mr. Arild Jägerskogh
and Professor Yoshimitsu Aoki, for their guidance and creative feedback.
        I am very grateful for all the interviewees that willingly participated in my
thesis.
        I want to thank Reiko Kageyama at SIT and Roland Trumpf-Nordqvist at KTH
for guidance and support regarding exchange student matters.
        I would also like to thank the kind students of Aoki Media Lab at SIT for
welcoming me to their lab and helping me with everyday life situations in Japan.
        I want to thank the Sweden-Japan Foundation for their financial contribution
that has been very useful to my project.
        Finally, I would like to thank my friends and family for continuously loving
support.

10 October 2006

Andreas Wiss
Contents

CONTENTS
1 INTRODUCTION.......................................................................................................... 1
   1.1 Background ........................................................................................................... 1
   1.2 Purpose................................................................................................................. 1
   1.3 Research Questions .............................................................................................. 2
   1.4 Delimitations.......................................................................................................... 2
   1.5 Research Strategy................................................................................................. 2

2 METHOD ..................................................................................................................... 3
  2.1 Methodology.......................................................................................................... 3
  2.2 Research Schedule ............................................................................................... 3
  2.3 Qualitative Method ................................................................................................ 4
  2.4 Quantitative Method .............................................................................................. 4
  2.5 Literature Review .................................................................................................. 4
  2.6 Methodology/Choosing respondents ..................................................................... 5
  2.7 The Questionnaire ................................................................................................. 6
  2.8 Validity and Reliability............................................................................................ 6

3 BACKGROUND ........................................................................................................... 9
  3.1 Introduction ........................................................................................................... 9
  3.2 Introducing the two formats ................................................................................. 10
  3.3 HD DVD .............................................................................................................. 10
    3.3.1 HD DVD – Technology ................................................................................. 11
    3.3.2 HD DVD – Company Support ....................................................................... 16
  3.4 Blu-ray................................................................................................................. 16
    3.4.1 Blu-ray – Technology.................................................................................... 17
    3.4.2 Blu-ray – Company Support.......................................................................... 20
  3.5 Comparing the formats ........................................................................................ 21
  3.6 NTSC and PAL conversions ................................................................................ 21

4 SUCCESS FACTORS ................................................................................................ 23
  4.1 Production costs.................................................................................................. 23
  4.2 Distribution and success factors of DVD.............................................................. 23
  4.3 The Playstation 3 – Bringing Blu-ray into the homes?.......................................... 25
  4.4 The Need for HD ................................................................................................. 26
  4.5 Adoption pattern models...................................................................................... 27
  4.7 Adoption Hindrance ............................................................................................. 31
  4.8 Piracy .................................................................................................................. 31
  4.9 Other disc format contenders .............................................................................. 32
    4.9.1 FVD – Forward Versatile Disc....................................................................... 32
    4.9.2 EVD – Enhanced Versatile Disc.................................................................... 32
    4.9.3 VMD – Versatile Multilayer Disc.................................................................... 32
    4.9.4 HVD - Holographic Versatile Disc ................................................................. 33
  4.10 Comparison to a Previous Format Battle; VHS and Betamax ............................ 33

5 RESULTS .................................................................................................................. 35
  5.1 Introduction ......................................................................................................... 35
  5.2 Consumer adoption and alternatives to HD DVD and Blu-ray .............................. 35
  5.3 Potential Success Factors ................................................................................... 41
  5.4 The impact of the Playstation 3 ........................................................................... 44
  5.5 Production costs / Economy ................................................................................ 46
  5.6 Digital Rights Management / Copy Protection...................................................... 50
  5.7 Differences in technical features - Pros and cons ................................................ 55
  5.8 Future scenarios for HD DVD and Blu-ray - Which format will prevail? ................ 59
Contents

6 ANALYSIS ................................................................................................................. 65
  6.1 Summary – Consumer Adoption and alternatives to HD DVD and Blu-ray .......... 65
  Illustration 6: “When will HD DVD and/or Blu-ray technology reach majority
  consumer groups, if ever?” ........................................................................................ 66
  6.2 Summary – Potential Success Factors ................................................................ 66
  6.3. Summary – The impact of the Playstation 3........................................................ 67
  6.4 Summary – Production costs / Economy ............................................................. 68
  6.5 Summary – Digital Rights Management / Piracy.................................................. 69
  6.6 Summary – Differences in technical features - Pros and cons ............................. 71
  6.7 Summary – Future Scenarios of HD DVD and Blu-ray - Which format will
  prevail? ..................................................................................................................... 72
  6.8 Conclusions......................................................................................................... 73

7 SUGGESTIONS FOR FUTURE RESEARCH............................................................. 75

REFERENCES.............................................................................................................. 77
Chapter 1 - Introduction

1 INTRODUCTION
This chapter is intended to explain the purpose of the project and what problems it
aims to give answers to. It is also meant to provide the reader with background
information concerning the project’s field of study.

1.1 Background

HD, short for High Definition, has been somewhat of a buzz word within the video
and television business since the start of the new millennium. Though HD technology
has been around for more than two decades, it looks like it finally will have its
breakthrough (Ive, 2004). This is a lot because of the LCD (Liquid Crystal Display)
and Plasma Display Panel (PDP) flat screens that have gradually become more
popular with the consumers, and are well on their way replacing analogue CRT
(Cathode Ray Tube) sets (Salmon, 2004). The flat screens’ often large sizes and use
of digital technology make them particularly attractive for HD technology (Wood,
2006). A significant part of the flat screens sold today are marked with a “HD ready”-
label, meaning they are capable of displaying high definition video. Studies have
shown that viewers notice a large difference in quality when comparing HD video and
standard definition video on larger size flat screens (Haglund, 2002). Add to this that
HDTV (High Definition Television) transmissions have become somewhat
standardized in countries like USA, Japan and Australia (where some channels have
HD quotas to fill). HDTV-transmissions have also started to hit Europe.
         The next big step in HD technology is purchasable or rentable prerecorded
video and movies. Video-on-demand and similar online options are believed to
become a future preference for many movie viewers (Honick, 2005), but there is also
an opportunity window for a HD-supported physical format.
         From its introduction in 1997, the video and data storage disc DVD (Digital
Versatile Disc) has become the most successful and rapidly adopted home
electronics consumer product ever (Bell; Cookson, 2004). Since regular DVD players
are not capable of transmitting or recording HD video (although this is possible, using
new codecs), it will need a successor with such a kind of capability. Enter the blue
laser discs. Because of their use of a narrower blue laser light cone, compared to the
DVDs red laser, they have many times the information storage capacity compared to
DVD (see chapter 3.3.1 and 3.4.1).

This year, two competing blue laser disc formats, both with massive company
support, hit the market. The first one is called HD DVD (High Definition/Density
Digital Versatile Disc) and is mainly supported by Toshiba. The second one is named
Blu-ray Disc (BD) and is mainly supported by Sony. The formats are not compatible,
although their characteristics and capabilities are similar (see chapter 3.3.1 and
3.4.1). Also, the company support is almost equally divided for each format (see
chapter 3.3.2 and 3.4.2). A format war is inevitable.

1.2 Purpose

The purpose of this project was to analyze the two formats HD DVD and Blu-ray
during the crucial time of their introductions to the market during the period of mid-
2006. One aim has been to conduct a technical comparison of both formats; another
has been to analyze their marketing strategies and also to investigate how the format
war affects

                                            1
Chapter 1 - Introduction

consumers. The main goal of the project was to predict a winner of the two formats, if
there is one.

The results and conclusions of this report are not only meant to be used as a market
economical prognosis, but mainly as a broad comparison between and as an
introduction to the two formats and investigate potential future scenarios of movie
consumption and data storage.

1.3 Research Questions

The two main questions this project aimed to give answers to are:

   •   Which format, if any, of HD DVD and Blu-ray will prevail in the battle for the
       blue laser-market?
   •   Is there room for two disc-based high density/high definition-video formats on
       the market?

Since a format war is a broad and complex field of study, this project also has
focused on secondary questions like:

   •   What are the main differences between the formats?
   •   Which are the pros and cons for each format?
   •   Which company supports which format and why?
   •   Are consumers ready to adapt to HD technology?
   •   What is the ultimate HD-resolution?
   •   How has movie consumption changed since the introduction of DVD?
   •   Does the disc-based format have a future as storage-media? When will it
       become obsolete?
   •   What lies in the future of movie consumption?

1.4 Delimitations

This thesis will not thoroughly investigate HDTV, focusing on prerecorded high
definition media instead of HD transmission technology.

1.5 Research Strategy

The project’s purpose was mainly to study the two blue-laser formats HD DVD and
Blu-ray as mediums for films - since it is by far the largest market for disc-based
storage media (Interview with K. Oestreicher, 2006) - but also as data-storage
formats. The study aimed to focus on comparing the differences; the strengths and
weaknesses for each of the two formats. The research has mainly been based on a
literature review and qualitative methods, which consisted of interviews. These
methods aimed to give answers from a technical, economical, anthropological and
forecasting analytical points of view. Quantitative methods conducted by other
researchers have also been referred to.

                                          2
Chapter 2 - Method

2 METHOD
This chapter explains and motivates the research strategy and the chosen methods
used for gathering data. Also, the validity and reliability of the methods are discussed.

2.1 Methodology
When conducting this kind of scientific research, it is important to specify whether the
method for data gathering should be quantitative and/or qualitative. Qualitative
methods aim to study relations between facts and, after processing the data, to form
generalizing conclusions. A quantitative method is more based on gathering
information or data that is measurable, for instance via forms or questionnaires (Bell,
2000). Qualitative research methods are usually more focused on individual’s
opinions and views on subjects that are relevant for the project. According to
Johansson (1999), the qualitative method aims to classify the observed phenomenon
regarding its meanings and significance. The method is generally carried out through
interviews. After the interview data has been collected, the results of the interviews
are formed into hypothesis or theories, if possible (Stensmo, 2002).

This project has mainly used qualitative (and to some extent also quantitative)
methods, only referring to quantitative methods that have been performed in previous
research. The qualitative methods have consisted of interviews with company
representatives, academics, journalists and other HD and/or marketing experts. After
the interviewing the data was summarized, verified and hypothesizes or theories
formed.

Also, a thorough literature review was conducted at the start of the project, in
purpose of gathering vital background data and forming a foundation for the rest of
the research.

2.2 Research Schedule
The research was divided into different phases. The first phase was to set up goals
and delimitations and to formulate the purposes for the project. Next, the literature
review was conducted and so on. The phases are summarized below, in table 2.1.

Phase                                          Phase outcome
1. Project planning – 2 weeks                  Purpose of the study, method choice,
                                               project schedule, basis for chapter(s):
                                               Introduction and Method
2. Literature review – 6 weeks                 Background information, ideas for
                                               interviews, company contact information,
                                               statistics and facts, basis for chapter(s):
                                               Background
3. Company/media/other contact – 2             Networking; providing vital contact
weeks                                          information for the interview phase
4. Initial interviewing – 2 weeks              Main questions, basis for chapter(s):
                                               Results
5. Follow-up interviews – 2 weeks              Follow-up questions to initial answers
6. Interview summary – 4 weeks                 Summary of the interviews, basis for
                                               chapter(s): Results and Analysis
7. Analysis – 4 weeks                          Analysis of the interview evaluation,
                                               basis for chapter(s): Analysis
Table 2.1 – Project phase summary

                                           3
Chapter 2 - Method

2.3 Qualitative Method

Since the project’s wide definition of subject, mainly qualitative methods were used,
in the form of in-depth interviews. The purpose of the interviews was to both conduct
informant based and respondent based interviews. The interviews should be
informant based to get updated with new (for instance technical and marketing)
information that was not available via the literature review and respondent based to
get individual views for each format (also not available via the literature review) and
important insights and motivations, for instance regarding company support.

The interviews have been structured (with questions that are to supply with
knowledge required) and mostly standardized open-ended (the wording and
sequence of questions are determined in advance, all interviewees are asked the
same basic questions in the same order) (Cohen, 2000), although some of the
questions have been asked to certain interviewees depending on the respondent’s
knowledge/occupation/specialty etc. These kind of interviews were chosen to
increase validity, thus to increase the equality regarding each format. Concerning
interviews with partial subjects, as many impartial interviewees as possible were
selected (individuals with no commercial interest in or responsibility for any of the
formats).

The interviews were planned and carried out through the model in Cohen’s chapter
‘Planning interview-based research procedures’, with the following stages:

   -   Thematizing (formulate the purpose of the investigation, clarifying the why
       and what of the investigation)
   -   Designing (planning the design of the study, for instance forming questions)
   -   Interviewing (carried out in person, via telephone or via e-mail, based on an
       interview guide and with a reflective approach to the knowledge sought)
   -   Transcribing (if the interview was conducted in person or via telephone, the
       text was transformed from oral speech to written text)
   -   Analyzing (deciding the nature of the interview material and which methods of
       analysis are appropriate for the interviews)
   -   Verifying (ascertain the generalizability, reliability and validity of the interview
       findings)
   -   Reporting (communicate the findings of the study and the methods applied in
       a form that lives up to scientific criteria, that results in a readable product, i.e.
       the Results chapter)

2.4 Quantitative Method

Because of the project’s limited time span, there has not been enough time to
conduct both qualitative and quantitative methods. However, a couple of quantitative
methods conducted within other projects within the same field of research have been
referred to. For instance, Lars Haglund of SVT (Swedish Television) has done tests
on image quality perception on larger flat screens with HD and SD (Standard
Definition) image sources. The BBC (British Broadcasting Corporation) has also
conducted similar tests on average viewing distances. I have referred to both.

2.5 Literature Review

The literature review was conducted as one of the early phases of the project. Initially
a search for blue-laser disc/HD DVD/Blu-ray literature was carried out. Since the
blue-laser videodisc technology is new, academic pieces, technical papers and news

                                             4
Chapter 2 - Method

articles were used to a greater extent as sources of information than books. The
literature was mainly gathered from databases available via The Royal Institute of
Technology’s and Shibaura Institute of Technology’s online library services. Internet
sources have been referred to according to the Harvard System in the References
section.

After the search for and gathering of literature, a reading phase was carried out,
where the most relevant information was highlighted. Subsequently, a second read-
through was conducted, this time mainly focusing the highlighted information. During
and after these phases, the main parts of the Theory chapter were written.

The literature review has been the base of the technical comparison between the
formats. It has also provided with data concerning previous carried-out quantitative
research within this field of research; for instance, the BBC’s study on viewing
distances’ inflict on image quality perception, called ‘Tests of visual acuity to
determine the resolution required of a television transmission system’. The literature
review has also resulted in relevant statistics and facts. It has also given some
information concerning previous format battles, like the one between the video
systems Betamax and VHS (Video Home System).

2.6 Methodology/Choosing respondents

Initially, the intention with this phase was to mainly focus on interviewing company
and organization representatives in order to receive motivational answers on
company support. However, this proved to be difficult during the
Company/media/other contact phase (see chapter 2.2). During this phase, more than
30 different companies and organizations were contacted (including Toshiba, IBM,
Intel, NEC, Sanyo, Sharp, Sony, Apple, Hewlett Packard, LG Electronics, Hitachi,
Panasonic, Pioneer, Samsung, TDK, Thomson/Technicolor, Universal, Paramount
Home Entertainment, Warner Home Entertainment, Buena Vista, Sony Pictures
Home Entertainment/MGM, Walt Disney Pictures and Movies, HD DVD Program,
The DVD Forum, The Blu-ray Disc Association and several others) somehow
involved with HD DVD and/or Blu-ray, and several different representatives at each
of these companies. Many of these companies did not reply at all. Others informed of
a non-interview policy with people outside the media industry, and referred to white
papers or other already authored sources (The DVD Forum, IBM and Apple were
among these companies). Two companies, HP and NEC, replied that they had no
spokesman for Blu-ray/HD DVD at the moment of contact (June 2006).

Four companies accepted the interview requests: Dell, Microsoft, Niveus Media Inc.
and Thomson/Technicolor. Only Microsoft (with representative Xavier Pouyat) and
Niveus Media Inc. (with representative Tim Cutting) fully completed the
questionnaires. Dell (with representative Robert Williams) and Thomson/Technicolor
(with representative Season Skuro) backed out of the interviewing once they
received the questionnaire. Robert Williams at Dell referred instead to Dell’s white
papers and public analysis on Blu-ray and HD DVD. Season Skuro at
Thomson/Technicolor chose not to answer the questions with the motivation:

“Unfortunately, the questions that you have posed below are not questions the
company is in a position to answer due to the sensitive nature of this topic.” (e-mail
from Season Skuro received on June 13)

The results of the company interviewing phase made it clear that the format war was
a bigger taboo among company representatives than perviously planned. It was
grasped that, even if some companies were to participate in the study, the kind of

                                           5
Chapter 2 - Method

wanted feedback was not probable to be received from these respondents, as this
kind of information most usually is not available to the public. Also, it became clear
that the information gathered would be biasad and thus not benefitial for the study’s
purpose. Pondering these factors, it was decided to change the selecting range of
respondents.
        After the fruitless outcome of the company networking phase, the feedback
from what would become twenty-three technical journalists, economists, analysts and
others with similar areas of expertise was far more satisfying. Also, these sources
were regarded to have higher validity, since their in general neutral, unbiased
standpoint. It was then decided to focus on these interviews instead. The selections
of these respondents were mainly decided during the literature review phase, after
reading articles, papers, columns etc. by the respondents that provided useful and
relevant information. The authors were then contacted with an interview request,
which some accepted and some declined. A detailed list of all the interviews
conducted can be found in the Reference section.

2.7 The Questionnaire

The questions used, to all interviewees, were mainly of a discussion and open-end
basis. The subjects of the questions were formed during the literature review. The
often general character of the questions was chosen due to the intention of gathering
unbiased opinions and point of views. Examples of questions asked include:

   •   Do you think customers are ready and willing to invest in high definition disc
       formats? If not, when do you believe they will be ready (if ever)?
   •   What are your thoughts on HD DVD's software use of iHD contra Blu-ray's
       use of Java?
   •   Do you believe the technically advanced DRM systems of HD DVD and Blu-
       ray might affect the consumers' privacy and possibilities of interoperability?
   •   Which format, if any, do you believe will win the format war? Why? Do you
       think it is possible for both formats to coexist on the same market?

Some of the interviews had questions that were individually suited for the interviewee,
if the interviewee had certain knowledge of a particular subject. In some cases,
follow-up questions were added after gathering the initial answers, if clarification felt
necessary or if other questions came up.
         Some interviewees felt they did not want to or had the proper knowledge in
certain areas regarding HD DVD and Blu-ray and chose not to answer certain
questions. These non-answers have not been presented in the analysis phase.

The questions mainly focused on areas as consumer adoption, alternatives to HD
DVD and Blu-ray, potential success factors, storage, video codecs, software,
production costs, DRM (Digital Rights Management), alternatives to HD DVD and
Blu-ray, the future of movie consumption and future scenarios for HD DVD and Blu-
ray.

The following chapter summarizes and analyzes the interviews. The respondents’
answers are being presented in the same order the interviews were carried out (as
listed in the Reference section).

2.8 Validity and Reliability

Reliability and validity are two important terms when it comes to conducting scientific
research.

                                           6
Chapter 2 - Method

Reliability is a measurement of to what extent an instrument or methodology is
getting unvarying outcomes during repeated experiments, conducted under constant
circumstances. High reliability means getting same or very similar results during
repeated attempts of an experiment with the same circumstances (Bell, 2000). For
instance, if a question receives one type of answer under a particular circumstance
and a completely different reply during the same circumstance, the question is not
reliable (Bell, 2000). However, this project’s interviewing has not had the main
purpose of gathering empirical facts. The aim has been to investigate the opinions
and thoughts of the interviewees, due to the new and interchangeable nature of the
technologies. Therefore, a majority of the interviews have been of a respondent
character, i.e. they have had the purpose of investigating the opinions of the
interviewed person (or, in a few cases, the company or organization he or she is
representing). However, some of the interviews have been of a more facts gathering
nature, in other words of an informant character. These facts have mainly consisted
of statistics and technical facts, not available through the literature review. After all
the interviews were conducted, their outcomes were recapped, compared and
summarized. The results were then analyzed, discussed and finally a conclusion was
formed.

Validity is a measurement if a certain method measures or describes what it is
intended to measure (Bell, 2000). Given this, it means that if a question is not reliable,
it also lacks validity, but in case the reliability is high it does not necessarily mean
that the validity also is high. Since the main part of the interviews have been of a
respondent character, the validity has mostly been about making sure that the
questions are relevant for the project’s purpose. This matter has also been of
importance to avoid bias, due to potential partiality.

The literature review has been of high relevance concerning both the research’s
validity and reliability. This is because some of the interviewees’ answers may have
been or have been biased, due to professionally based partiality. Of course, some of
the literature also may have been under the subject of bias (for instance both of the
respective format introductions written by the Blu-ray Disc Association and the DVD
Forum).

                                            7
8
Chapter 3 - Background

3 BACKGROUND
This chapter summarizes the most relevant technical information on HD DVD and
Blu-ray gathered from the literature review. Its purpose is to provide crucial
background information concerning the two formats. The sources of information have
mainly been technical articles and papers.

3.1 Introduction

The video and data storage disc DVD is the most successful consumer electronic
product ever, considering its growth rate, high sales and rapid spreading; replacing
the VHS system in barely five years after its introduction (Bell; Cookson, 2004).
Millions of consumers that previously never bought home videos, found the DVD
concept so appealing that they have purchased their own private libraries with
movies and Television series on DVD.
        In three and half years DVD players achieved the mark on the U.S. market
that VCRs took eight years to reach, and CD players also took eight years to match.
From its introduction in early 1997 until October 2000 more than ten million DVD
players were sold in the USA (Taylor, 2002) and until now more than 106 million DVD
players (excluding DVD-ROM drives and DVD-capable PlayStation 2 systems) have
been sold in the U.S. alone (thedigitalbits.com, July 2006).
        The success factors of the DVD include enhanced picture quality (compared
to the previous analogue video system VHS), digital multi-channel surround sound
capability, convenient access to the program material using on-screen menu-based
navigation and the packaging of added bonus material and interactive content along
with the primary title. Its possibilities as a source for data storage have also been one
of the most important success factors (Bell; Cookson, 2004).

With less than ten years on the market, the contending successor for DVD might
already be here: the blue-laser storage disc. Because of its use of blue laser the
storage capacity greatly exceed the old red-laser DVDs. Since the blue laser’s light
cone is narrower than the red one’s, the information pits can be placed closer to each
other on the disc, thus increasing the storage capacity (see chapter 3.3.1 and 3.4.1).
        The growing need for increased storage capacity for disc based media,
particularly caused by the larger bit streams of HDTV and advanced multimedia
applications like computer games, will make the DVD insufficient within a couple of
years (DVD Forum, 2003). The need for purchasable and rentable video and movie
in HD will also increase when television viewers get accustomed to HDTV
transmissions, since the 480-line screen resolution for DVD is already considered too
low and results in almost unacceptable low image quality on larger screen sizes.
Various perception-based tests have shown that many find the picture quality of
SDTV (standard definition digital television) and DVD on plasma or LCD flat screen
televisions (with a larger screen size) to be unsatisfactory or of poor quality (Haglund,
2002). Consumer research show that perceived quality assessment tends towards
“poor” for screens beyond 36 inches, while HDTV images are still considered “good”
at 60 inches and beyond. (Auger, 2005) Since digital flat screen television sets sales
are continuing to rise, the need for high definition transmission sources enhances.
This year the sales for digital flat screen televisions are expected to exceed the ones
of analogue CRT televisions for the first time; HD televisions will outsell analog sets
by 89 percent in the U.S. according to the Consumer Electronics Association
(Fernandes, 2006). The high definition TVs sales are believed to accelerate at an
even higher rate when HD movies become widely available (VSDA, 2006). Research
shows that once consumers get introduced to high definition moving images, they will
have a difficult time adjusting back to lower resolutions. At a certain level, DVD must

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Chapter 3 - Background

remain competitive with HDTV. If someone can watch a movie in high-definition on
broadcast HDTV, this option will likely seem more attractive than renting the DVD if it
only plays in 480-line, interlaced standard definition (Taylor, 2002).

As for the next generation of disc storage, there are two blue-laser based disc
formats that are competing for the same market, which has multibillion dollar
potential (VSDA, 2005). The two formats are called Blu-ray disc and HD DVD. The
technologies of the two discs are similar, but they are not compatible. Blu-ray is
technically more advanced, because of its use of thinner layers, and has a larger
storage capacity while HD DVD is more similar to the DVD format and is both easier
and cost less to produce than Blu-ray (Maquardt, 2005). Both formats have massive
company support. The HD DVD format is mainly supported by Toshiba but, at the
time of writing (September 2006), also by companies like Microsoft, IBM and
Universal Studios. The Blu-ray format is mainly supported by Sony but, at the time of
writing (September 2006), also by companies like Apple, Philips and Disney (see
chapter 3.3.2 and 3.4.2).

Thoughts about a format battle were formed early. Executives of Toshiba and Sony
have met on several occasions, together with representatives of other supporting
companies, with the intention to try in some way to unify the formats and its
supporters, in an attempt to avoid competing for the same market. These meetings
were inconclusive and without any success. Finally, in April 2006 the Panasonic
executive officer Kazuhiro Tsuga commented the termination of the meetings in an
interview with the news agency Reuters: “We are not talking and we will not talk. […]
The market will decide the winner“(DVD Intelligence, 2006a). The feared but awaited
format war then became official.

3.2 Introducing the two formats

The format battle is of great concern, particularly for the home electronics industry,
computer industry and movie industry. A large number of movie studios, home
electronics companies and computer companies have decided to support one of
either format exclusively. Analysts at Sanford Bernstein estimated that media
companies could collectively lose as much as US$16 billion worldwide over seven
years if HD DVD and Blu-ray were launched without a clear favorite, since without a
clear winner, consumers would be leery of buying one of either format (Cnet, 2005).
For many companies, the support has switched since the formats were introduced.
Some companies, like Paramount, started supporting one format, but later turned to
also support the other. Other companies have from the start decided to support both
companies and many have stated that they will change to the other format if it is
revealed to be the stronger one.

Worth noting is that HD DVD executives have stated that because more high-
definition movies will be distributed over the Internet in coming years, they have
essentially upgraded existing DVD technology to get the product available fast and to
keep prices down. Blu-ray discs, however, include architecture that Sony’s chairman
Sir Howard Stringer calls “revolutionary, not evolutionary” (Belson, 2006). In other
words, Toshiba promotes economy and a swift entry into the market before
developing advanced and revolutionary technology with its HD DVD, while Sony
seem to have the opposite intentions with Blu-ray.

3.3 HD DVD

HD DVD was developed by the DVD Forum and is based on a proposal from NEC
and Toshiba. The DVD Forum develops and defines DVD standards. It is a member

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Chapter 3 - Background

organization consisting of over 230 companies from businesses like movies,
entertainment, computing, consumer electronics and software. In November 2003,
the DVD Forum selected HD DVD to represent the next-generation, post-DVD
standard for high capacity, high definition optical discs. Therefore, HD DVD may
include the DVD-logo in its trademark; it is considered an official DVD format. The
DVD Forum does not consider Blu-ray to be a DVD format (www.dvdforum.org).

3.3.1 HD DVD – Technology

The HD DVD disc is in many ways similar to the DVD disc. Both discs have a 12 cm
diameter and a substrate thickness of 0.6 mm (each disc consists of two substrates
bonded together). However, HD DVD discs are read with a laser with a wavelength of
405 nanometers (which represents the color of violet), compared to the DVD laser’s
wavelength of 650 nanometers (which represents the color of red). In other words,
the HD DVD laser is located at one end of the visible light spectrum (the visible light
spectrum lays approximately between 400 nanometers and 700 nanometers,
although wavelength perception may vary for different individuals). The shorter
wavelength reduces phenomena like diffraction, and increases disc density.

Illustration 1: Wavelength color representation. Used with permission of the DVD
Forum. Copyright © 2005 DVD Forum1

HD DVD systems use a blue-violet laser with a numerical aperture (NA; tells of the
lens’ light focusing characteristics) of 0.65 for the lens, which, in combination with the
lower wavelength, results in a smaller and more focused spot diameter of the laser
compared to the one in used red laser DVDs (which use a numerical aperture of 0.6).

Illustration 2: HD DVD Disc structure compared to DVD-9 structure. Used with
permission of the DVD Forum. Copyright © 2005 DVD Forum2

HD DVD discs may be single or double-sided, giving a theoretical storage potential of
60 GB on one disc. All HD DVD systems are designed to be backward compatible

1
    Source: http://www.dvdforum.org/images/Forum_HD_DVD_Universal_24.pdf
2
    Source: http://www.dvdforum.org/images/Forum_HD_DVD_Universal_24.pdf

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Chapter 3 - Background

with DVD, meaning they can also play DVD discs. This is arranged by incorporating
an optical pick-up head, integrating both a red laser diode for standard DVD discs
and a blue laser diode for HD DVD, along with a single objective lens that works with
both.

The HD DVD ROM (Read Only Memory) disc contains pre-recorded media or
software. Also, an 8 cm mini HD DVD-disc has been developed for applications like
home video cameras. For data storage, HD DVD-R (recordable) and HD DVD-RW
(re-recordable) have been developed. For storage capacity for respective format see
table 3.1.

Video

A codec (the word is a portmanteau of any of the following: ‘Compressor-
Decompressor’, ‘Coder-Decoder’ or ‘Compression/Decompression algorithm’) is a
program capable of performing encoding and decoding on a digital data stream or
signal. It is often used in audio and video applications.

DVD uses the audio and video codec MPEG-2 (Moving Pictures Expert Group).
When DVD was introduced in Japan in 1996, MPEG-2 video compression at around
eight Megabits per second was used. To transmit HD video with MPEG-2 codec at
least 19.3 Mbps is needed (Auger, 2005). However, new, codecs with more efficient
data rates have been developed since then. The maximum data transfer for HD
DVD-video is 36.55 Mbps, compared to DVD-video’s maximum data transfer rate
11.08 Mbps (Auger, 2005), thus making HD DVD capable of transmitting HD video
signals using MPEG-2.

At the DVD Forum’s Steering Committee meeting held in Tokyo during February
2004, a motion was carried approving all three MPEG2, H.264 (also known as
MPEG-4 and AVC) and VC-1 (Video Codec 1 - previously known as Windows Media
9) as mandatory codecs in HD DVD players, with the intention of future proofing the
format (Bell; Cookson, 2004). The content owner will have the option to compress the
motion picture in any one of these codecs, since all HD DVD players will be capable
of decoding.

Video quality is measured in pixels and lines. HD DVD supports video modes up to
1920x1080 (which means 1920 pixels x 1080 lines). Video images may be displayed
using either progressive scanning technique or interlacing. Progressive scan (p)
displays full frame pictures, while the interlace (i) scanning means that each frame is
divided in two parts; one containing the even lines and another containing the odd
lines. HD DVD supports both 1920x1080i and 1920x1080p, although all players may
not have this capability (for instance, Hitachi’s first players HD-A1 and HD-XA1 did
only support video modes up to a maximum of 1080i). The maximum resolution
output DVD is 720x480 60i for NTSC and 720x575 50i for PAL (see chapter 3.6).

Audio

HD DVD supports audio codecs LPCM (Linear Pulse Code Modulation), Dolby
TrueHD (Previously known as MLP or Meridian Lossless Packing), Dolby Digital,
Dolby Digital Plus, DTS (formerly known as Digital Theaters System) and DTS HD.
HD DVD will be able to deliver a maximum of eight (7.1) audio channels of 24-bit/96
kHz.

Software

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Chapter 3 - Background

HD DVD ROMs use the open standard iHD Interactive Format to allow interactive
content to be authored for discs. In contrast, Blu-ray makes use of Java technology
for its interactive content. iHD is exclusively developed for HD DVD by Microsoft, with
input from movie studios like Disney, and Toshiba and is based on the XML program
language and uses ECMA-script (standardized JavaScript). Since iHD is based on
XML, it is not limited to offline content used on optical media, but also media
delivered or streamed over the Internet (or any other network). This will be usable in
Internet connection capable versions of HD DVD players. iHD enables features like
animated graphical menus or video signals that can be superimposed over a movie
while it’s still running, compared to the static menus and single video feed of DVD.
According to BetaNews-reporter Nathan Mook, iHD is both "fast and very easy to
learn” (interview with N. Mook, 2006). Mook further believes that interactivity is going
to change the way people watch movies in the future.

Storage Capacity

A single-layered single-sided HD DVD ROM disc has the storage capacity of 15
gigabytes (GB) while a dual-layered single-sided disc can store up to 30 GB. At the
time of writing (May 2006), Toshiba has announced the development of a triple-
layered single-sided HD DVD ROM disc with a storage capacity of 45 GB. Table 3.1
shows different HD DVD storage capabilities.

Physical Size         Single Layer           Dual Layer            Triple Layer
HD DVD-ROM,           15 GB                  30 GB                 45 GB (under
single sided                                                       development at
                                                                   time of writing)
HD DVD-ROM,           30 GB                  60 GB (not
double sided                                 developed
HD DVD-R, single      15 GB                  30 GB
sided
HD DVD-R, double      30 GB                  60 GB
sided
HD DVD-RW,          15 GB (under         30 GB (under
single sided        development at       development at
                    time of writing)     time of writing)
HD DVD-RW,          30 GB (under         60 GB (under
double sided        development at       development at
                    time of writing)     time of writing)
Table 1: HD DVD storage capacities developed or under development

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Chapter 3 - Background

Content Distribution / Digital Rights Management

Illustration 3: The structure of AACS. Used with permission of the DVD Forum.
Copyright © 2005 DVD Forum3

AACS – Advanced Access Content System

In order to prevent piracy concerning prerecorded digital media, a venture founded
by companies Toshiba, Sony, Microsoft, IBM, Intel, Panasonic, The Walt Disney
Company and Warner Bros. Studios, has implemented both HD DVD and Blu-ray
with the cryptography system AACS (Advanced Access Content System). AACS is
similar to the CSS (Content Scrambling System) used for DVD ROMs, but the main
difference lies in how the various decryption keys are distributed. AACS is based on
broadcast encryption, i.e. the cryptographic tools used to encrypt broadcast content,
disallowing non-subscribers to watch protected data streams (AACS LA, 2006b).
AACS allows the content provider to eliminate any subset of users from being able to
use the service. Each individual HD DVD (and Blu-ray) player is provided with a
unique set of decryption keys, which are used in a broadcast encryption scheme. If a
player’s keys are compromised by an attacker (e.g. keys posted publicly after being
hacked), the AACS LA (Licensing Authority) can revoke those keys in future content,
making the keys and player useless for decrypting new titles. This could lead all the
keys of particular players to be revoked, i.e. loosing the function to play back new
discs. In comparison, with CSS, all players of a given model are provided with the
same, shared decryption key. AACS encrypts content under one or more title keys
using the Advanced Encryption Standard (AES). The keys are derived from a
combination of a media key and several elements, including the physical serial
number embedded on a DVD (volume ID), and a cryptographic hash of the title
usage rules (AACS LA, 2006b).

Future versions of HD DVD and Blu-ray hardware players might be able to authorize
content online, via an Internet connection (Fang, 2006). Though, it is hard to imagine
Internet connections being required by default, as this could diminish or delete
segments of the consumer base. This is more likely for software players, e.g. used in
computers. Though an Internet connection could update hardware players that have
been depleted of decryption keys, it also opens up for issues like online security

3
    Source: http://www.dvdforum.org/images/Forum_HD_DVD_Universal_24.pdf

                                           14
Chapter 3 - Background

Fang, 2006).

A digital watermark copy protection system has been developed for AACS, but not
yet implemented (August 2006) for HD DVD. If implemented, all HD DVD players will
be equipped with a sensor that listens for inaudible watermarks in the soundtrack of
theatrical motion pictures, added by the movie studios. If the sensor should detect
the marks, the player will refuse to play the disc, since it means the disc is playing
back a copy made from a theatrical print.

ICT – Image Constraint Token

AASC guidelines (which must be followed by HD DVD and Blu-ray player
manufacturers) allow movie studios the option of converting down the analog
component outputs on HD DVD (and BD players). This is done using the High-
Bandwidth Digital Content Protection (HDCP) technology. HDCP was invented by
Intel and has the purpose to control video and audio as it flows out of a player and
onto a display. A digital flag, called Image Constraint Token (ICT), can be embedded
in the metadata of a disc (AACS LA, 2006b). If the content provider implements the
flag, the resolution will be converted down from 1920x1080 to 960x540, if the video
signal is not connected via a fully digital and protected pathway, called HDMI (High
Definition Multimedia Interface) or DVI (Digital Visual Interface) output. The resolution
would be only a quarter, since both the horizontal and vertical resolution is halved. If
ICT is implemented, non-HDCP-screens (a majority of older flat screen versions) will
not be able to display high definition images. E.g. customers that purchased legal
copies of HD DVD or Blu-ray movies can be penalized with a picture downgrade,
only for not using a HDMI connection. According to BusinessWeek, only one in 20
HD television sets sold over the past few years and only 15% of new sets sold in
2006 have the right version of digital connector that would pass as ICT approved
(Edwards, 2006).
         The purpose of ICT is to prevent piracy. According to Holtzman (2006), the
only way a Digital Rights Management (DRM) can really work is to control all of the
hardware the video data flow through, including the monitor. Without ICT it is
possible to copy full-resolution copies of HD DVD and Blu-ray movies via an analog
video connection or videotaped and subsequently distribute them via peer-to-peer
networks (Bangeman, 2006). The decision to whether set the ICT flag to restrict
output is left to the content provider. AACS guidelines require that any title that
implements ICT must clearly state so on the packaging of the video. At the time of
writing (July 2006), only one movie studio (Warner Brothers) has announced any
near future use of ICT according to BusinessWeek (Edwards, 2006), and there is an
unofficial agreement between other movie studios and some consumer electronics
manufacturers not to use ICT until 2010 or 2012 (Fisher, 2006).
         However, there is an official deadline for when all HD DVD players and ROMs
will make use of ICT. During the ‘2006 DVD Forum Seminar’ (see chapter 3.3) in
Tokyo it was announced that after 2010 all HD signals from HD DVD players will be
HDMI/DVI only and in 2013, all HD DVD signal transmission will require an HDCP
enabled digital display for all playback (Watch Impress, 2006), i.e. it will not be
possible to use HD DVD players’ component outputs and displays lacking an ICT-
compatible digital input.

Mandatory Managed Copy

Managed Copy is a feature that guarantees consumers the possibility to make at
least one copy of their ROMs (e.g. to a hard drive, a backup disc also or a portable
device) as well as allowing the content to be played back remotely (e.g. over a home
network). Managed copy is mandatory (Mandatory Managed Copy – MMC) for HD

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