MADISON, Wis. After months of intense wrangling between the competing Blu-ray and HD-DVD groups, the battle lines in the war over a next-generation high-definition DVD format have moved to the doorstep of Microsoft Corp.
Several industry sources last week told EE Times that Microsoft is muscling into the optical-disk fray by leveraging its operating-system clout to bundle HD-DVD within Vista, the company's next-generation OS. There is also talk that the software giant may be planning to offer cash incentives in the form "coupons" to system vendors or retailers if they agree to support HD-DVD. Such coupons would provide "credits" or "memos" for each PC that is sold with HD-DVD inside.
Many consumer electronics companies in the Blu-ray camp are scrambling to figure out, respond to and possibly preempt the next move by the world's largest and richest computer software maker.
Microsoft would neither confirm nor deny such reports. Asked about financial incentives the company might be dangling in front of PC OEMs to lure them into the HD-DVD camp, a spokesman said, "Microsoft doesn't comment on the details of meetings we've had with our partners."
One fact, however, is hard to miss: In the short span of two months, Microsoft has gotten through to Hewlett-Packard Co. HP, which still sits on the board of the Blu-ray Disc Association and previously supported the Blu-ray format exclusively, joined the HD-DVD Forum earlier this month. This semi-reversal came in the wake of a series of meetings with Microsoft, said Maureen Weber, general manager of HP's Personal Storage Business.
In October, when Microsoft and Intel Corp. announced their support for HD-DVD, Weber warned of "legal implications, if Microsoft is using its dominance in the operating system market virtually a monopoly to play favorites and hurt the competition" (see www.eet.com/news/latest/showArticle.jhtml?articleID=171202192).
Asked whether Microsoft is now doing just that, Weber said that in the end, "It's about money and the cost to the PC industry." Whereas the overall Blu-ray royalty structure adds up to $30 per PC drive, she said, everything a PC vendor needs to support HD-DVD "comes free, shipped and integrated with Vista Microsoft Corp.'s next-generation operating system."
Most PC companies have no choice but to support Vista in the Microsoft-dominant OS market.
Still, many consumer electronics executives involved in negotiations with PC OEMs believe there is more to the story of HP's flip. Some sources expect clarifications and new developments to emerge within the next several weeks, shedding light on the decision.
Dell Inc., for its part, has no intention of switching its support from Blu-ray, Brian Zucker, a Dell technology strategist who sits on the Blu-Ray DVD committee, told EE Times. "The only reasons we would make a change would be if we saw significant customer demand not to back the format we have been working on," he added.
Dell, which was not involved in defining the original CD or DVD specifications, decided a couple of years ago that it was important to get involved in the current format discussions. "This time we wanted to work upstream a little bit more, particularly as we are getting more interested in the digital home," Zucker said.
Dell chose Blu-ray for two reasons: its higher capacity (25 Gbytes for an entry-level disk, compared with about 15 Gbytes for a basic HD-DVD) and its longer list of industry backers. Two years later, Dell now feels it has a vested interest in Blu-ray because it helped make sure the spec represented its customers' interests, Zucker said.
Zucker added that he has no idea why Dell's major partners Intel and Microsoft are opposing Blu-ray and backing HD-DVD. In his opinion, slight differences in the copy protection scheme for Blu-ray will not prevent users from making so-called "managed copies" of content on the disks, a feature that he said was a priority for both camps.
Intel provides no optical-disk technology, so a difference of opinion between Dell and Intel on the subject has little impact on the PC maker. Likewise, Microsoft, which does not make optical drives, has a history of letting third-party software companies supply key optical-disk support rather than write its own optical-disk code into Windows.
Given that history, the overarching question for many industry watchers is: Why is Microsoft now siding with HD-DVD, a format that has generated relatively little enthusiasm among Hollywood studios and hardware vendors?
While Dell may have no idea about Microsoft's motives, those in the consumer electronics industry have several theories.
Many, who spoke on condition of anonymity, believe Microsoft is committed to prolonging the format war, not necessarily winning the battle for HD-DVD. Rather, they say, HD-DVD is a Trojan horse, rolled into the format war to create advantages in battles yet to be fought especially against Sony Corp.
Xbox vs. Playstation
Consider, for example, Microsoft's Xbox 360. The new game console is already on the market despite the absence of a high-definition strategy, said one source. The Xbox 360 is based on a current-generation DVD drive. The longer the next-generation high-definition DVD format battle persists, the better the opportunity for Microsoft to downplay the HD capability scheduled for integration in Sony's upcoming Blu-ray-based Playstation 3 game machine.