[Sean Bryan]

I posted this in the software forum, but I had meant to post it here, in hardware, initially.

An interesting article from the NY Times:

Quote:

European Panel Investigates DVD-Standards Rivalry

By JAMES KANTER and KEN BELSON
Published: August 9, 2006

PARIS, Aug. 8 — European investigators are in Hollywood with questions about whether studios have been pressured by rival manufacturers of next-generation DVD’s to favor one standard over another.

Katsumi Kasahara/Associated Press

A Toshiba display promotes HD DVD technology in Tokyo. Toshiba and others are being pressured to make compatible DVD formats.
Several companies, including Sony and Toshiba, are engaged in a battle that could shape the future of home cinema and determine which movie companies make the biggest profits. Sony, along with Panasonic, Samsung, Dell and seven major studios, are backing a technology called Blu-ray; Toshiba, Microsoft, Intel and others support a rival standard called HD DVD.

Some studios like Disney and Universal are making DVD’s in only one format.

But since each format, which promises sharper pictures and enhanced audio, is incompatible with the other, consumers who buy one technology might not be able to play DVD’s made for rival equipment.

The European Commission is investigating whether the technology giants are stifling competition through exclusive contracts with studios and computer makers. The Hollywood studios have been asked to reveal any dealings about high-definition DVD’s with technology companies contained in e-mail messages, faxes, PowerPoint presentations, meeting notes, internal reports and even conversations.

Some analysts said that the inquiry could end up focusing more on Sony because it potentially has more leverage to persuade studios and manufacturers to back Blu-ray. Sony runs a movie studio, makes PlayStation video game hardware, and sells and makes DVD’s.

“The Sony PlayStation guys are highly secretive about what will and what won’t be in the box, while the movie company guys are highly secretive and somewhat justifiably paranoid about piracy,” said Paul Jackson, a principal analyst with Forrester Research in Amsterdam.

As a result, “Sony will probably be looked at most closely,” said Mr. Jackson, adding that Europe would “want to make sure Sony is not justifying an exclusionist policy” intended to tip the market in its favor, or lock customers and consumers into a single technology.

Sony, in an e-mailed statement, said that it was cooperating with the commission and that “there are no indications of any complaint, nor of any antitrust concerns on the part of the commission or anyone else.”

Keisuke Ohmori, a spokesman for Toshiba, said it was also cooperating but highlighted that its format was a “really open standard defined democratically.”

Mark Gray, a spokesman for Europe’s competition commissioner, Neelie Kroes, declined to comment.

But Sony deserves particular scrutiny, said Guy Marriott, the chairman of the International Optical Disc Replicators Association, which represents units of European media companies like Bertelsmann and EMI that pay companies like Sony and Toshiba to use DVD technology to produce discs.

Mr. Marriott complained to European regulators last year, accusing the technology companies of abusing their ownership of patents for manufacturing and formatting DVD’s by refusing to lower their fees enough to match the drop in prices of DVD’s on world markets. Many of those technology companies are also creating the next generation of discs.

He said he believed that Toshiba was more prepared than Sony to negotiate with his group.

“With Sony, we can’t get anyone to talk with us,” Mr. Marriott said.

The exhaustive inquiry seems to be an indication that regulators in Brussels, fresh from their battle to force Microsoft to open up the computer software market, are set to remain more aggressive than their American counterparts in seeking to prevent technology companies from locking up standards markets.

In the last three years, Europe has stung Microsoft with fines totaling hundreds of million of euros. The regulators have also imposed conditions on Microsoft that went beyond those of American regulators.

Europe can fine companies caught violating antitrust laws up to 10 percent of their global annual sales. But fines in any case involving DVD formats seem less likely than a settlement, under which companies like Sony agree to lower their prices as the revenues earned by other DVD manufacturers tumble in the future.

There is also the possibility that studios now working in one format may decide to make DVD’s in both standards to avoid further scrutiny from regulators. Warner Brothers and Paramount, for instance, make DVD’s in both high-definition formats.

So far, neither the Department of Justice nor the Federal Trade Commission has asked questions about the next-generation DVD formats, and antitrust specialists cautioned against leaping to the conclusion that Europe would take action against Sony, the studios, or other companies, just because an investigation was under way.

Stephen Kinsella, a Brussels-based antitrust partner with the law firm of Sidley Austin, suggested that European investigators had learned important lessons during a bruising, seven-year struggle to impose changes on the way Microsoft does business. Mr. Kinsella said investigators were more wary than in the past about intervening in the fast-changing technology industry.

Mr. Kinsella said he “didn’t get the impression that the regulators have formed a view yet” on whether Sony or Toshiba were acting anti-competitively.

He said that regulators might be aiming their questions at the Hollywood studios to try to nip any anti-competitive behavior in the bud, rather than punish them later.

“The E.U. seems to be saying, ‘You’re all on notice that we’re looking at this,’ and that could bring out of the closet any other potential complainants,” Mr. Kinsella said.

Mr. Kinsella also cautioned that regulators might take several months, perhaps longer, to wade through the data they requested from the studios, making any imminent crackdown highly unlikely.

In the questionnaire, which was sent to the studios and technology companies in July, investigators are mainly concerned that the technology companies are using unfair means to force the studios to favor one format.

European investigators ask for specific evidence that may show technology companies are extending to Hollywood studios offers they cannot refuse by using direct payments or valuable incentives like the free use of patented technologies, promotional funding, and offers to manufacture the next-generation discs at below-cost prices.

The investigators ask the movie studios to reveal “whether you made any promise or entered into any agreement” to release movies exclusively in one of the two competing formats. The investigators also turn the heat directly on the studios, by asking if they have been working in concert to help one of the two formats to succeed.

Several other questions concern the potentially crucial neighboring markets for devices to play video games.

Mr. Marriott, the chairman of the European disc replicators’ group who brought the original complaint, said he was disappointed that the questionnaire concentrated exclusively on next-generation DVD formats rather than on current formats of most concern to his members.

James Kanter reported from Paris for this article and Ken Belson from New York.

Interesting. I wonder what effect, if any, this will have on the developments in the format war?

[Tim Glover]

Interesting article Sean. I would think Sony would want to enlist as many as possible...

[Cees Alons]

If anything comes out of this investigation at all, the European Committee may (first) warn and (then) fine studios who refuse to release films on both formats.
Interesting.

If the same happens with hardware manufacturers, a general player (BD & HD DVD) might be closer than we expected.


Cees