A Fight To The Death.(Business)

Byline: Benjamin Sutherland

Sony has beaten Toshiba in the battle over high-definition DVD formats, but both sides lost the war.

It should be a colossal success story for television. A new generation of high-definition DVDs hold more than five times the data of conventional DVDs, offering crisper images, richer colors and room left over for features such as movie-related games. Last year sales of hi-def discs amounted to only 10 million, compared with 900 million conventional DVDs. What's been standing in the way of a potentially huge market, the conventional wisdom holds, is the format war between Blu-ray, backed by Sony and other firms, and Toshiba's HD DVD.

Now that Warner Bros., a studio that has invested in both formats, has said it will abandon HD DVD by June, will sales take off? Not necessarily. Amid the speculation on whether the death of HD DVDs will be slow or swift, a third scenario has begun to seem likely: that the entire market for high-definition discs will wither as consumers download movies instead. In the bitter five-year struggle over formats, the technology for downloading movies has accelerated, and now a number of firms are poised to make discs irrelevant. "This is something the industry should have thought about a lot before we got into this mess," says analyst Craig Mathias at Fairpoint Group, a market-research firm in Ashville, Massachusetts. "The assumption we're making," says Mathias, is that packaged media "is doomed."

Movie downloads have already begun to edge out DVDs--sales fell 4.5 percent last year in the United States and 11 percent in France, according to SEVN, an industry organization in Paris. Whereas high-definition discs generally sell for more than $20, Apple recently began selling high-definition movie rentals for less than $5; Amazon, Netflix and Movielink, a Blockbuster company, sell standard-definition download rentals for even less. (Rented movies erase themselves, usually after 30 days.) Downloads purchased at Movielink can be burned directly onto a blank DVD. Steve Swasey, VP of corporate communications at Netflix, believes downloads will overtake hardcopies "in several years." Netflix now offers more than 6,000 titles for downloading.

Hi-def DVDs may not offer a worthwhile improvement in quality. Whereas the DVD experience was a real leap up from the grainy and muted colors of VHS cassettes, the better quality of hi-def DVDs is hard to appreciate on the screens of small laptops and iPhones.

For the moment, downloading high-definition films is too slow for most consumers. But broadband development "has been going great guns," says Bruce Nazarian, VP of the ...