Wednesday, April 26, 2006

The Next-Gen DVD War is On!

It seems that there will be no reconciliation between the two competing next generation DVD formats. According to Yahoo! (through /.), talks to unify the HD-DVD and Blu-Ray standards have ended, without a resolution. "The market will decide the winner."

This, of course, will lead to a format war in the VHS/Betamax vein. One of these formats will lose big, and consumers will lose as some delay purchase to see which format wins, some early adopters will choose the wrong format, and even those that choose the winning format will suffer through more limited software selections as a result of the format war. Bad news all around.

The strange thing about this is that it implies an incredible lack of risk-aversion among the parties involved. Obviously, neither wants to agree to use the other side's format, but it would seem that (in expectation) everyone would be better off if they flipped a coin to pick a standard and then agreed to split all of the licensing revenue 50-50 between the two format owners. Instead, someone will get (essentially) everything of a smaller pie, and the other will get (essentially) nothing. And the parties have agreed to play this game, rather than split the big pie down the middle.


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