Netflix CEO: Format War a Stalemate

July 25, 2006

Format WarsI want to thank Davis Freeburg over at ThomasHawk.com for not only making a legitimate case for boycott’s in the format war but for one hell of great take on Reed Hastings (CEO of Netflix) comments on the format war.

During yesterday’s Q2 2006 earnings conference call, Netflix CEO Reed Hastings said:

“Our view is that the current format war is unwinnable by either Sony or Microsoft in the next several years. They are both powerful enough to maintain the stalemate. Hopefully, early next year the single format studios will join Warner and Paramount in becoming format agnostic. The press will declare the format war over and the consumer adoption cycle for High Definition DVDs will begin in earnest.”

Davis went on to say:

“I think that Hastings is right about the format war being unwinnable, but I think that he’s dreaming if he really believes that the format dispute will be resolved by January. While I’m entirely in support of his approach to an agnostic content distribution platform, I also believe that the studios have no intention of blinking in this dangerous game of HDTV chicken.”

“While dual licensing of content would clearly put consumers in charge of deciding the success or failure of the next generation DVD formats, I believe that it will be a cold day in hell by the time the studios actually give that type of control to consumers.”

“While the format wars are clearly bad for consumers, I believe that the best solution to solving this crisis is for consumers to continue to boycott both formats until the studios feel the pressure to innovate or risk losing HDTV DVD renters to video on demand.”

I understand where Reed is coming from but I also think he may be underestimating the resolve of not only Sony and Toshiba but the studios themselves. Davis on the other hand seems to have a better perspective on certain points even if I’m unsold on the idea of a boycott as an effective means of ending this nonsense.

One thing we all have to keep in mind is that the studios didn’t arrive at their current allegiances overnight. Corporations rarely make or change stances in short time frames, especially ones that could have a massive impact on their bottom line.

But I will say this, Davis has prompted me to give this more consideration than I originally saw fit. But even so I’m left with many of my original stances on the subject. I do believe in the power of grass roots consumer advocacy but I also believe in 150 million dollar marketing campaigns and 80 billion yen loans.

It’s those last two figures that give me pause as to the effectiveness of a boycott. We’re not talking about something as easy to rally people behind as polluted water or the clear cutting of forests; we’re talking about consumer electronics. But yet again I’m starting to second guess myself on one front.

If we are to express a unified, dissenting voice to the manufacturers and studios time is of the essence. This will get very, very ugly come the holidays. Yet again however I’m left wondering exactly what we’re supposed to boycott?

The players are on shelves and or readying for production, the formats have been chosen. Is this all about cross format studio support? And if so lets take a look at that one with a bit more detail.

Part (and I do stress part) of the reason I’ve gone with HD DVD is the very thing that seems to anger many of those who have opted out of the entire format war. That reason being studio support, Universal is HD DVD’s only exclusive studio and by all appearances this is genuine support that was neither bargained nor paid for.

Blu-ray on the other, well that’s just another story. First off you have the Sony owned studios, no real surprise where they planted their flags but it gets even more seedy from here on out. Next up is Fox, who is by all appearances deeply entrenched in the idea of Blu-ray’s superior digital rights management. And then we have Disney, who seems quite enamored by Blu-ray’s potential 50GB disc size, however as well know those discs are still missing in action.

So on HD DVD’s side we have one exclusive and on Blu-ray’s side built-in support from Sony owned studios, Fox who seems hell bent on shoving as much DRM down our throats as possible and Disney who seems to have been wrangled in based on 50GB pre-recoded discs that have yet to see the light of day.

This is the very reason I see a boycott as pointless, combine 1k players, image quality that doesn’t match that of HD DVD and the absolute hodgepodge of reasons the other studios supported Blu-ray in the first place, I’d say we already have a built-in boycott. We just need to get the word out…

Hell I was boycotting Blu-ray already, but now (if I understand this correctly) I’m to boycott the lot of them and… and do what? Hope it all works out for the best? Davis you make great points, really you do but I feel as if this won’t amount to much and goes against my gut instincts. I don’t want Blu-ray and a boycott of both only raises the odds of killing off the momentum we already have.

Too Little Too Late?

I suppose, scratch that I’m all but sure we’re a day late and a dollar short on boycott talk, we all should have banded together back in 2005 when unification talks were still on-going. But I suppose many of us were under the impression that all of this would sort itself out.

I think we can all agree now that this is a huge cluster-expletive with no clear winner, unless you want to consider the studios that were smart enough to produce titles for both formats winners. Even then, their settling for half the market they could have had, as many of the consumers who would have otherwise bought into a unified format, are no doubt sitting the entire thing out.

I want to reiterate one last point. Let’s assume for a second that all studios (even Sony) are releasing all their titles on both formats, we win right? no we still lose. As long as hardware is released for both formats, even across the board studio support won’t rule out the potential headaches when one of those studios point to declining sales of XYZ format and ceases production of that format.

UMD is a great illustration of where assumed studio support can leave you, initially UMD movie titles sold well and it looked like the success of the format was ensured. Fast forward just a few months later after the novelty had worn off, like clockwork studio support and shelf space all but vanished.

My point is that we can’t rely on the studios to support both formats for a prolonged amount of time, once they see that one out performs the other, expect staggered release dates, minimal efforts on image quality and main features only, all the way up to the eventual shelving of the format. We need a clear winner.

Related: Thomas Hawk, HD Beat, SeekingAlpha



Posted by Bryan Greenway | | Filed Under Blu-ray, HD-DVD


Comments

  • B.Greenway

    I hate to say never, but I’m 99.9% sure this will never happen, at least not in the U.S. If an EU solicitor somehow manages to convince a court that two competing formats (one governed by the DVD forum and one not) have to cross license their titles, I’d be shocked.

    I have to believe that the gaggle of lawyers employed by both the BRDA and Toshiba considered this very scenario and since they went ahead as is, they seem reasonably secure that this is a non issue.

    This is one of the odd ‘benefits’ the BRDA gains from forgoing the DVD Forums approval, their technically not offering a successor to the DVD, where HD DVD is. So in theory at least, they could probably convince a court, they shouldn’t be bound by the same rules as the HD DVD camp.

    Or in other words I firmly believe that they could convince a court that the two products are dissimilar enough that they shouldn’t be forced to share intellectual property. (Although I won’t even begin to claim to be knowledgeable about EU law)

    But at the same time I can’t completely rule out that the EU might apply pressure for cross licensing. Given that even if the studios were forced to make concessions, it would most likely only apply to EU region releases.

    Universal made a calculated, conscious decision not to support Blu-ray, a decision that seems to stem from prior business dealings with Sony. So again (in theory) all Universal has prove is plausible evidence of this and in all likelihood a judge would relive them cross licensing and in the process set a precedent for the other studios to follow suit.

    Then again, I could be dead wrong 🙂

  • B.Greenway

    I hate to say never, but I’m 99.9% sure this will never happen, at least not in the U.S. If an EU solicitor somehow manages to convince a court that two competing formats (one governed by the DVD forum and one not) have to cross license their titles, I’d be shocked.

    I have to believe that the gaggle of lawyers employed by both the BRDA and Toshiba considered this very scenario and since they went ahead as is, they seem reasonably secure that this is a non issue.

    This is one of the odd ‘benefits’ the BRDA gains from forgoing the DVD Forums approval, their technically not offering a successor to the DVD, where HD DVD is. So in theory at least, they could probably convince a court, they shouldn’t be bound by the same rules as the HD DVD camp.

    Or in other words I firmly believe that they could convince a court that the two products are dissimilar enough that they shouldn’t be forced to share intellectual property. (Although I won’t even begin to claim to be knowledgeable about EU law)

    But at the same time I can’t completely rule out that the EU might apply pressure for cross licensing. Given that even if the studios were forced to make concessions, it would most likely only apply to EU region releases.

    Universal made a calculated, conscious decision not to support Blu-ray, a decision that seems to stem from prior business dealings with Sony. So again (in theory) all Universal has prove is plausible evidence of this and in all likelihood a judge would relive them cross licensing and in the process set a precedent for the other studios to follow suit.

    Then again, I could be dead wrong 🙂

  • cgw

    I mentioned in my earlier comment that we might be able to sue the “exclusive” studios to get movies released on both formats. Today there are news that EU’s antitrust division is looking into both formats’ licensing issues. This would be the first step toward the right direction for consumers to have the right to choose their favorite format.

  • cgw

    I mentioned in my earlier comment that we might be able to sue the “exclusive” studios to get movies released on both formats. Today there are news that EU’s antitrust division is looking into both formats’ licensing issues. This would be the first step toward the right direction for consumers to have the right to choose their favorite format.