Feels like old times

Some news out of China last week laid a nostalgia trip on those of us who covered the long saga of the Blu-ray vs. HD DVD format war. According to a report in the Timesof London, a recently introduced high-def DVD format developed in China, called China Blue High Definition (CBHD), is already outselling Blu-ray in the Peoples’ Republic by a margin of three-to-one.

bluray-vs-hddvdThe Times called the development a “new format war” but it’s really a continuation of the same format war that had simply gone underground after Toshiba pulled the plug on HD DVD  in the West back in February 2008.

The roots of CBHD go back to 2005, when the Chinese government set out to “break the monopoly” of Western and Japanese companies on the technology underlying the DVD format by creating new intellectual property controlled by China to be used in a next-generation format.

In 2007, the DVD Forum fomally approved specificationsfor a “China-only” version of the HD DVD standard, which was to be based on the HD DVD physical specs developed by Toshiba and Chinese-developed audio and video codecs. Instead of MPEG 2, VC-1 and H.264, for instance, the Chinese format would support only the Advanced Video System (AVS) developed in China, saving Chinese manufacturers boat-loads in royalty payments to foreign technology owners.

CBHD players go for about half of what Blu-ray players cost in China, while the discs go for a quarter of the price of Blu-ray movies.

Of course, the only Hollywood movies currently available on CBHD come from Warner Bros. (ironic, given that Warner’s switch to supporting Blu-ray exclusively in the U.S. was the coup de grace for HD DVD), although the Times reports that “at least one other major Hollywood studio is considering support from CBHD.” In fact, an effort was underway as far back as last year, bankrolled in part by Toshiba, to help the Chinese line up Hollywood support for CBHD, according to the Media Wonk’s sources (it’s unclear whether Toshiba is still involved in those efforts).

In other words, we’re right back where we were 18 months ago, only in China instead of the U.S. Is there any reason to expect a different outcome this time?

There are certainly some new forces at play this time. The Hollywood politics that ultimately determined the outcome in the U.S. may not be as decisive in China. CBHD is part of a broader government initiative to establish China as a world-class developer of new technology, not just the world’s assembly plant, and is clearly favored by officials. Support for CBHD could become important should the studios seek to expand their business in China.

Most studios, of course, have limited operations in China due to the overwhelming amount of piracy. But as DVD sales and revenue continue to fall in the U.S. and Europe, taking what you can get in China may have more appeal with time, and what you can get in China could well include CBHD.

Given the difference in the royalty stacks of the respective formats, CBHD’s cost advantage over CB013130Blu-ray is even greater than the one HD DVD held, and is likely to stay that way even as the costs of both come down. In a highly price-sensitive market, moreover, where you’re also competing against piracy, a cost advantage is an even bigger factor than it might be in markets where those conditions don’t apply.

Finally, packaged media is likely to have a longer shelf life in China than in the U.S. and Europe, where high-definition downloads are already available. While introducing a new DVD format here would be folly, in China, not so much. That could mean a more drawn-out format battle than we had here.

If CBHD were to become a real factor in China (that’s a big if ) the next big question is whether it will remain confined to that market. According to the Times report, CBHD players are available in Hong Kong, whence it could easily leak into neighboring markets if it gains more studio support. Were that to happen, the studios could find themselves in exactly the dual-format scenario they hoped to avoid, now played out on a continental scale: Blu-ray in the U.S., Europe and Japan, CBHD in China a large swaths of the rest of Asia.