The Home Movie Industry: Format Wars and Lockin

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The Home Movie Industry Format Wars and Lock-in

• Eric Parish and James Moynihan

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VHS

• VHS Video Home System
• First released in 1976
• Developed by JVC
• Played on VCR video cassette recorder
• ½ magnetic tape
• 430 m maximum tape length
• 6 hr maximum play time
• Pulls tape from cassette wraps around player
  head
• Index marks at beginning of recording session

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Betamax

• Manufacturer Sony
• ½ magnetic tape
• Based on earlier ¾ U-matic format
• Betamax from Japanese phrase beta gaki
• Means (raw write)
• As a pun, used Greek ß in trademark
• Licensed manufacturers Sony, Sanyo, Toshiba,
  Pioneer, Aiwa, and NEC
• Introduced in 1975
• Most popular in 1983
• First Camcorders were Betamovie format

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VHS vs. Betamax

• Long and bitter format war in 1980s
• Betamax held early lead (tech advantage)
• 1980 VHS gaining due to longer record time (3hr
  max)
• Betamax (US) 60 min max (Europe similar
  lengths)
• Tape play time considered defining factor in US
• Users can record entire show unattended
• VHS victory due mainly to marketing not tech
• JVC opened up VHS technology to manufacturers
• 1984 40/12 companies produced VHS vs. Betamax

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VHS vs. Betamax - cont

• Sony conceded defeat in 1988 produced own VHS
  VCR
• Both VHS and Betamax had pro versions
• VHS MII was handily defeated
• Betacam hugely successful in professional
  environment
• Jerry Springer shows are still recorded on
  Betacam

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Financials

• Sony lost lots of money due to loss of format war
• JVC sacrificed great potential earnings to win
  format war by open sourcing VHS
• Format wars are hugely expensive and time
  consuming
• Coined phrase to Betamax
• Proprietary tech format overwhelmed in market by
  format allowing multiple competing, licensed
  manufacturers

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DVD Decline of VHS

• DVD format introduced in 1997
• Major US retailers Best Buy and Circuit City
  stopped selling VHS in 2003 and 2002 respectively
• Movies in theaters in 2004, mostly released on
  DVD only
• 2006 predicted as last year for new VHS movies
• VHS still used for home recording
• Cheap recorders and reusable media
• DVRs and TIVOs now largest competitors

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VHS vs. Betamax Lock-in

• During most of format war, player cost high
• Consumers experienced lock-in after player
  purchase (high switching cost)
• Companies locked-in to format that consumers
  choose as the winner
• Movies on one format incompatible with the other
• Once a substantial collection builds up,
  switching cost increases

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The Next War HD DVD vs Blu-ray

• New format needed for High Definition video
• Designed to work well with HDTVs
• Coming soon to a TV near you

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High Definition
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• Decided by the DVD forum to be next video format
  for High Definition in 2003
• Same size as DVD disc
• Uses a blue laser with 405nm wavelength to read
  information instead of the red 650nm on DVDs
• Holds 15 GB per layer
• Advanced copy protection
• First Players - March

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• Developed by the Blu-ray Disc Association (sony)
• Uses a blue laser with a wavelength of 405 nm
• Holds 25 GB per layer
• Uses java for interactive content
• Advanced copy protection
• Will be in the Playstation 3
• First Player May 23rd

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HD DVD or Blu-ray?

• Blu-ray can hold more
• HD DVD will be cheaper to produce
• Both offer similar video capability

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Who will win?

• HD DVD supporters
• Microsoft, Toshiba, NEC, and Intel
• Universal Studios
• Blu-ray supporters
• Apple, Panasonic, Philips, Samsung,
• Sony Pictures Entertainment
• Both
• Most movie producers

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Lock-in Strategy

• Information
• Movies are encoded in a specific format that only
  some players can play.
• Switching Costs Converting movies to new format
  and buying a new player

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Dangers of Format Wars

• Picking the format that loses
• Entire movie collection obsolete
• Forced to bear switching costs
• Confusing to consumers
• Increases cost of movie producers
• Customers reluctant to purchase

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Ways for Companies to Attract Customers

• Offer backwards-compatible drives to decrease
  switching cost
• Old movie collection will still play!
• All HD DVD drives will also play DVD
• Blu-ray Disc Association recommends that drives
  be backwards compatible
• Hybrid media that contains DVD format and
  Blu-ray or HD DVD
• Both formats are working on this
• Use open formats and standards if you want to
  avoid lock-in for customers

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Ways to Avoid Harmful Lock-in

• Wait
• Before amassing a huge movie collection, make
  sure the format will even be around in a few
  years
• Rent
• Renting all your movies instead of buying makes
  switching easier
• Watch
• Look for signs, you probably want to go with the
  winner

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Conclusion

• Format wars happen VHS vs. Beta
• The next format war Blu-ray vs. HD DVD
• Avoid lock-in during the format war
• Companies trying to sell new formats should try
  to minimize switching costs of customers using
  old formats