OPINION: The race for fourth

In the high-def DVD sweepstakes, Paramount and Universal have lost the race to be third.

According to the peculiar folkways and business climate of Hollywood, no studio decision-maker wants to be the first to take his or her company into any new technology or strategy. The risk is simply too great.

True, you look smart if you’re right, but if it turns out you’re wrong, it can mean your job. But while you don’t want to run at the front of the pack, you don’t want to be an also-ran either. The last guy in gets the worst deal, because whoever is behind the new technology doesn’t need the sixth out of six to assure the venture’s success.

The best place to finish in Hollywood—the safest spot—is always third. The third studio in still gets a good deal because it can put the new venture over the tipping point to success, and because by then, you’ve had time to learn what the first two really got. Best of all, nobody ever remembers the order of finish in the middle of the pack, so if it turns out you’re wrong, you’ll have plenty of company.

In the case of Blu-ray Disc, Warner Bros. has now claimed the coveted spot as the third studio to go exclusive in the format, and by most reports, it appears to have gotten the best deal. (True, there are technically four major studios in the format, but Sony Pictures doesn’t count because it wasn’t free to make its own choice.)

Where does that leave Paramount and Universal?

There’s a chance the decision about which format to go with will be taken out of their hands. Should Toshiba fold, they’ll have no choice but to follow the rest of the industry into Blu-ray.

Should Toshiba not fold but HD DVD hardware sales flat-line, the studios will also have no choice. Given what’s going on in the standard-def DVD business, they’ll need to be in the format that’s showing growth.

With all the publicity generated by Warner’s switch, senior management at Viacom and General Electric are now likely to be asked by analysts and investors why their respective studios are still in the “losing” format.

That means studio management will be fielding a lot of calls from New York to explain once again “why we’re in the ‘losing’ format.”

Pressure from retail is also likely to grow on Toshiba and the remaining HD DVD studios to put an end to the format war once and for all so the industry can finally get on with selling something—anything.

Yet a switch to Blu-ray would not be painless for Universal and Paramount.

Universal has been the most outspoken of the majors over the past year in its belief that HD DVD is the superior format and would have to eat a good amount of crow. Paramount (and presumably DreamWorks) apparently inserted an “out” clause in their exclusivity deal with Toshiba in the event that Warner did what it has now done and changed sides. But if the earlier reports were true that the two studios took a combined $150 million from Toshiba for their exclusive support, that money would probably have to be returned if they were to exercise their out clause.

I look for them to try to tough it out, at least for awhile, until they see what happens on the hardware side.


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