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In the early days of the Blu-ray vs HD DVD format war, many of us naively believed that the superior technical specifications of Blu-ray would win out. Later, in what one could call phase II of the war, many of us thought that the lower price of the stand alone HD DVD players would swing the battle their way.

Now, it's becoming clear that there appears to have been a lot more thought put into the battle plan by Sony than we had expected. Sony correctly realized that the battlefield wouldn't be in the living room theater but in the realm of the game console. Even so, they got some unintended assistance from Microsoft, in the fog of war, who volunteered to do their part to kill HD DVD.

As a result, we seem to be entering the end game.

How Microsoft Aided and Abetted

Recall that when Sony announced the PS3 and its built-in Blu-ray player, everyone was skeptical. Articles were written that compared the manufacturing cost of the PS3 and the Xbox 360 and concluded that Sony would go broke while Microsoft would sell millions more Xboxes and seize the game console market.

In Microsoft's zeal to compete against the PS3, they made a critical decision to include a merely standard DVD player in the Xbox 360. Bill Gates bragged about this in a January 21, 2007 interview with SiliconValley.com's Dean Takahashi in which he said: "We wanted to swap positions with Sony. We wanted to not be a year late, not be a big box, not be a more expensive box. How are we doing on that?"

Well, Microsoft did just fine on the less expensive part, but they achieved that by making the HD DVD player an external $200 option. After all, Microsoft doesn't have a deep vested interest in the success of HD DVD. On the other hand, Sony does have a vested interest in the Blu-ray format, and so they estimated that while their PS3 would be a little more expensive than the Xbox, far fewer Xbox customers would spring for the external HD DVD player. After all, according to Bill Gates, Microsoft would succeed by being the lower cost game console. But the net result of Mr Gates' boast has been to severly damage the sales of movie titles for HD DVD.

Recent data from Nielsen VideoScan confirms that Sony's strategy has paid off. Sony has sold enough PS3s since Christmas, despite constrained supply, that they've placed enough Blu-ray players in households to turn the tide in the purchase of Blu-ray movie titles. While HD DVD had the early lead due to the lower cost of stand alone players for home theater, Sony gambled that the surge in PS3s would overwhelm the early lead of less expensive HD DVD stand alone players and turn movie sales around. That's exactly what happened, and now Blu-ray movie titles are out selling HD DVD movie titles by 2:1.

Contrast that to Microsoft's approach described in Audio Video Revolution back in 2005. "Corporate Vice President of the Xbox Product Group at Microsoft Todd Holmdahl said in an interview with Teamxbox.com that there is the possibility that the Xbox 360 may someday support 1080p video output via HDMI. However, at this point in time, Microsoft felt that this is primarily a gaming machine and not a home theater DVD player replacement."

And with that, the real game was over.

Sony's Counter Moves

Sony's next salvo was to preemptively declare victory in January, 2007 believing that the positive press from the marketing department would overwhelm any concerns customers might have, place the seeds of a possible Sony victory in their minds, and further propel Blu-ray movie sales. It seems to have worked.

Then, in February, Sony announced a lower priced Blu-ray stand alone player, even though it won't ship until summer. Some have noted that this will absolutely kill the sales of the first generation BDP-S1 Blu-ray player. It doesn't matter. With PS3s rolling out in massive quantities and customers buying them to play games and watch movies, the net result of the less expensive BDP-S300 ($599) merely looming on the horizon is tantamount to moving a chess rook to an open file. No damage has been done, but just the threat changes the tide of the game.

Toshiba Says Thanks for Nuthin'

If Microsoft, who has expressed so much confidence in the HD DVD format, had elected to include the HD DVD player in the Xbox 360, the price would have been much more on par with the PS3. But then, Microsoft's goal wasn't to win the war for Toshiba, it was to win the war against Sony.

In the end, Microsoft's decision might mean the collapse of the HD DVD format. With four of the six major studios shipping movie titles exclusively on Blu-ray (MGM, 20th Century Fox, Disney and Sony BMG) and the other two (Paramount and Warner) hedging their bets by supporting both, the time may soon come when everyone concerned starts to ask themselves why HD DVD even matters.

The war could be over before Warner's proposed True HD even gets off the ground. That's the disc format in which Blu-ray is on one side and HD DVD is on the other. It was a concession made to retailers who really don't want to inventory two HD formats.

Lose a Battle but Win the War

Microsoft's Xbox 360, which got a nice sales head start against the PS3, has done quite well, but if Sony wins the format war with Blu-ray, the overall benefit could be of much greater importance. The sales of stand alone players, driven by movie titles and HDTV fever, will become an added factor in driving the price down of Blu-ray hardware. Sony stands to sell a lot more Blu-ray movie players, movies, licenses and drives for computers than Microsoft could ever hope to recoup with Xbox -- which has struggled to become profitable.

The lesson here, and both Apple and Sony know this very well, is that the entire box must be seen as an integrated product. Microsoft violated that industrial engineering rule when they elected to make the HD DVD player an optional extra.

Microsoft might be very pleased with its Xbox sales so far, but having killed HD DVD, it looks like Sony will win the more global war.

This is Warp Core column #88. The Warp Core archives are here:

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Year 1999

* Your humble author also writes a column for TMO.

John Martellaro is a senior scientist and author. A former U.S. Air Force officer, he has worked for NASA, White Sands Missile Range, Lockheed Martin Astronautics, the Oak Ridge National Laboratory and Apple Computer. During his five years at Apple, he worked as a Senior Marketing Manager for science and technology, Federal Account Executive, and High Performance Computing Manager. His interests include alpine skiing, SciFi, astronomy, and Perl. John lives in Colorado. He can be contacted via his Website or the Applelinks Contact link.