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DVD format matters: Xbox 360 VS. PS3

Vladimir Cole

blu-ray and hd-dvd and dvd format wars -- image from Susquehanna Financial Group research report

In report dated October 25, equity research analysts Jason Kraft and Chris Kwak of Susquehanna Financial Group look at the Blu-ray vs. HD-DVD debate in the context of the industry's major shifts to new formats. They write, "We believe DVD standards could be the defining issue for next-gen consoles."

Here's how they see it playing out:

  • First, they take the hardware-centric position that ?console transitions, in our view, embody transformations in storage media.? In other words, consoles are defined less by their software and more by their fundamental constraint: how much content developers can squeeze into a game.

  • In reflecting on the Sony PlayStation vs. the Nintendo 64, they note that the PS used a CD format with a 650 MB capacity, whereas Nintendo delivered a superior user experience (namely, no load times) via cartridge format. Unfortunately, cartridges had a maximum storage capacity of around 128 MB and were significantly more expensive to produce.

  • In the current generation, all three consoles use some form of DVD, neutralizing differentiation based on content factors and increasing the importance of other features and factors such as ?timing, platform continuity, and exclusive games.? The PS2 grabbed market share early by launching early, and spoke to the now-mature former Nintendo fanbase with Grand Theft Auto III. Microsoft?s Xbox lost out by launching last, but did well with Halo.

  • In the console war now underway, the authors believe that we?re about to see a format war that?s more in line with the battle between the PS1 and the N64. They write, ?Notwithstanding the many advantages of Blu-ray, we anticipate the Blu-ray Disc could disadvantage Sony as the price of Blu-ray Disc games and movies are expected to be higher than HD-DVD games and movies.?

  • However, if Blu-ray is launched successfully, and if games somehow start regularly clocking in at 30GB and 40GB (far beyond the capacity of a DVD drive), then developers may be forced to ?dumb down? PS3 content for the Xbox 360.

  • Furthemore, if ?consumers face the choice of an $800 Blu-ray Disc player or a $500 PS3 with Blu-ray when PS3 launches? some portion may opt for the PS3, even if they?re not gamers, and this could expand the market for games.

The report has one glaring omission: the Xbox 360 hard drive. With third party hard drives that could be measured in hundreds of gigabytes or even terabytes and with online distribution of game content to those hard drives, this whole format war might be a red herring.

[Sorry, no link to the report. It?s not public.]

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