History of the Xbox 360 HD DVD Drive and the Blu-ray War Explained | Past Mortem [SSFF]
This video brought to you in part by Manscaped: Listen, I already told you about how Manscaped keeps you fresh when things get swampy. I go to the gym on occasion, I got real life experience with The Swamp! And that’s why I like Manscaped’s Perfect Package 2.0, now, last time we talked about the waterproof Lawn Mower 2.0 trimmer, but I’ve become a big fan of the Crop Preserver ball deodorant. It not only keeps you from smellin’ swampy, it’s also anti-chafe, which is good for keepin’ your buddies feelin’ good too! Focus on your gains, not your chafe pains, that’s what Pops always taught me! Get 20% off your order, with free shipping and free travel bag, when you use the promo code SSFF20. All Manscaped products feature a 30-day money-back guarantee, and it’s already 20% off an already-great savings with the promo code SSFF20! Thanks to Manscaped for sponsoring this part of the show! Hey! I’m Derek Alexander, this is Stop Skeletons From Fighting, and the other day, I was at a retro game shop and I found this beauty for five dollars! THIS is an Xbox 360 HD DVD Drive, and it sent me down a rabbit hole like you wouldn’t believe, first to find actual HD DVDs – remember these, everyone? They look like Blu-rays, but with a distinct crimson hue? Thanks to everyone who tweeted me back, by the way, appreciate the help. – but then also, to understand why this thing came to be! And it turns out, it was a lot! This weird, official Microsoft-released HD DVD Drive took me on a journey through not just the format war between HD DVD and Blu-ray, but to the struggle for the living room, and finally onto full-on conspiracy! [♫ X-Files theme ♫] Welcome to Past Mortem, where we break down and explore the stories of video games, and in this episode we’re gonna look at how Sony’s championing of Blu-ray on the PlayStation 3 almost cost them everything, how the future of home video was fought on video game consoles, and how Microsoft, along with HD DVD architect Toshiba, turned what should have just been a minor disagreement about HD standards into an all-out war. Before we jump in the deep end, let’s talk a little bit about the tech behind home video: DVD was the official successor to VHS, and movies are written onto DVD discs using red lasers. The next generation of home video, HD video, was made possible thanks to upgrading those red lasers to blue lasers. Similar to how a blue flame is hotter than a red flame, a blue laser is able to write 2-to-4 times more data than a red one, because it contains more energy. That’s why Blu-ray is called “Blue ray”, by the way, it’s because it’s written on the disc with blue lasers! And that’s actually how HD DVD works too, they’re both HD DVDs… that run on blue-rayed laser technology. I dunno. Anyway: Blue laser technology gave HD DVD and Blu-ray the ability to store high-resolution video on discs, and this is how the home video market moved from standard def to high-def. Many companies were behind both formats and helped develop the technology, but just for the sake of simplicity, we are going to refer to them as Sony’s Blu-ray and Toshiba’s HD DVD, since they were the primary forces behind each format. And while they were competitors, it turns out that HD DVD and Blu-ray weren’t really all that different, and in terms of image quality, were pretty comparable! But that’s not to say there weren’t still differences, though: Blu-ray could store more data than HD DVD because of its Sony-developed physical disc structure, and had tighter anti-copying measures. Toshiba’s HD DVD, on the other hand, was cheaper and had better interactivity, which, by the way, the interactivity was developed by Microsoft, just keep that in your back pocket for now. But all these technical differences between the two formats, you know what was the most important? Which companies supported them. Okay, and with all that out of the way: Sony had been helping develop Blu-ray technology since the proper launch of DVD in the late nineties. Soon Toshiba, who basically headed the DVD format, caught wind of this and started developing its own HD format. And the thing I wanna stress is that even though this format struggle between HD DVD and Blu-ray was fought on the video game console front, you’ll see that in a second, it was mostly all about the home video market, you see, the global video industry was basically controlled by six major Hollywood studios: Warner Bros., Paramount, Universal, Disney, Fox, and Sony Pictures. By the way, it’s only five studios now, and that should scare you. [CHOMP!]
By the way, it’s only five studios now, and that should scare you. By the way, it’s only five studios now, and that should scare you. [burp!] But that’s the future, back in 2005 where our story really begins, the popular thinking was that if you could sway all the major studios to your side, then your format would win. Sony had a major advantage over Toshiba because it already owned… er, Sony Pictures, obviously. And pretty quickly, Disney also threw in its lot with Blu-ray. So Sony already had two of the six major studios on their side, things were looking really good for them, but then they really drew a line in the sand by announcing in Spring 2005 that the hotly anticipated PlayStation 3 would have a Blu-ray drive. FYI, this was Sony trying to end the HD DVD battle before it even started! Remember, the PlayStation 2 was, at the time, on its way to becoming the best-selling console ever. It was not only a wild success, its ability to play DVD movies was a huge boon for the system in the early days. PlayStation had unmatched brand loyalty, and Sony was suddenly poised to do the same for Blu-ray. It also showed that Sony was 100% completely committed to Blu-ray. Synergy for the win! They were basically betting the farm on Blu-ray. And this is when Microsoft, Sony’s main competitor in the video game world, or at least the one they were most focused on, took notice. Until this point, Microsoft had largely stayed out of the HD format war, but they couldn’t let this shot from Sony go unanswered! But Sony was an entertainment/hardware manufacturer, a consumer electronics company, and Microsoft was… well, mostly a software company, and they had a different focus: Microsoft saw the future of media as online streaming, and they were busy, at the time, building the Xbox 360 to be an all-in-one living room entertainment device. It’s why they call it 360! Get it? It’s like – it’s like a circle! It’s all around you! You can’t escape it! I’m dizzy! So since Microsoft already dominated the workplace, they saw their game consoles as one of their entry points to owning the home as well. So they started publicly and privately fighting the Blu-ray format: Blu-ray’s stringent anti-piracy, which Sony implemented in order to get Fox on board, in particular became a public-facing issue for Microsoft. They wanted their users to be able to buy a movie, rip it to their computer, and then stream it to their Xbox 360, which is pretty tough to do when everything’s DRM’d to s***! This is reportedly what Bill Gates screamed at Sony CEO Howard Stringer at a closed-door meeting in mid-2005, which is kinda hilarious, considering Gates’ history with digital rights management. Even Stringer reportedly thought that there might have been more to this story. Regardless, by Fall 2005, HD DVD had a LOT of catching up to do. Toshiba had only been able to bring Universal to its side, and didn’t really have any significant industry partners. Blu-ray, on the other hand, had already exclusively signed on three of the major movie studios, with deals with Paramount and WB already in the works, and most of the consumer electronics industry on its side, Blu-ray was basically locked in, this war was over before it even started! And actually, Toshiba was ready to come to the table, but they had a secret weapon, with Microsoft backing them behind closed doors, they came to Sony with an offer: Let’s merge HD DVD and Blu-ray, with everything on the table for compromise, which Sony flat-out refused! And of course they did! But then, why did Toshiba, and by proxy Microsoft, even waste Sony’s time with attempts of compromise? Because this was a diversion, a gigantic troll, dredging up painful memories for Sony! After the decades-spanning Sony Betamax and JVC VHS war of the seventies and eighties, which you might have heard of, but maybe forgot that it involved Sony, like I did, there actually was a DVD war in the mid-nineties! Now, you might not have heard of any DVD drama because it actually never got off the ground. The players are familiar: Sony sponsored a special version of DVD, and Toshiba countered with their own. It was about to become another knock-down, drag-out war, but no-one wanted a repeat of the long, painful Betamax-VHS battle, so big industry players intervened. Eventually Sony and Toshiba agreed to combine their two formats with the new DVD disc that came out in 1996, borrowing bits of technology from each. But for Sony, there was one problem: Because of the compromises, they weren’t able to get the lion’s share of the royalties. Because essentially, that’s what physical format wars are all about: Royalties! On every player and every disc sold! It’s a really good racket! And DVD was monstrously successful, quickly replacing VHS, meaning that Sony had lost out on two good revenue opportunities so far. Fool me once, fool me twice, you know the saying. So, Sony was NOT about ready to start playing nice. Microsoft was, of course, aware of all of this. They wanted Sony to continue focusing on Blu-ray, and were betting they’d reject compromise. And I mean… Sony already had most of the tech and home video industry on their side, they really had no incentive to negotiate! So Microsoft got busy: They reportedly called around and scuttled Blu-ray’s talks with the two studios they hadn’t nailed down yet, Paramount and Warner Bros., turning them purple, meaning they’d support both formats. And then Microsoft publically came out in mid-2005 supporting HD DVD over Blu-ray. They were committed to HD DVD, making them the only major company outside of Toshiba that supported the format. The war was officially on. And that war was being fought on multiple fronts: Microsoft launched the Xbox 360 a couple months later in November 2005. Overall, it was a pretty successful launch, and you’d hope it would be, since neither Nintendo or Sony were shipping their next-gen consoles yet. But after the poor sales and profit margins of the original Xbox, Microsoft had mandated that the Xbox 360 be as cheap to make as possible. It was also rushed to the market in order to beat out the PlayStation 3, resulting in manufacturing problems, causing things like the dreaded Red Ring of Death, did not have an HDMI port, it launched with composite cables, and lacked a next-gen HD player. That’s right, baby! Xbox 360 ran on dee-vee-dees! … but not HD DVDs? Wait… I mean, just because Microsoft didn’t put HD DVD in 360… That didn’t mean they weren’t actually throwing their full weight behind it, right? Right? Right! So, in January 2006, Peter Moore announced that Xbox would be releasing an HD DVD drive later that year. Ah, you see? They just didn’t have time to put one in before launch, that’s all! It’s fine, don’t worry, it’s good, okay. Phew. Because facts were that next-generation players, and even the PS3, were dealing with horrible delays. Toshiba and Microsoft were banking on HD DVD beating Blu-ray to market, the same way Xbox 360 beat PS3. And they did! The first HD DVD player came out in April 2006 for $499, but they just didn’t have as much lead time as they wanted, because the first Blu-ray player came out only two months later, for a whopping $1,000! Whoo! I told you one of these formats was cheaper than the other! Also, because of the ramp-up to all these players, there were massive blue laser diode shortages. And a diode is… not important, okay, y’know what, There were shortages, that’s the important thing, the diode, they didn’t have a lot of ’em, so now all that mattered is that now they had to delay its planned Spring launch to November 2006, which gave enough time for Microsoft to clap back with the release of their Xbox 360 HD DVD Drive, and by the way, I think this is really relevant: A vast majority of people did not even have HDTV’s yet, and couldn’t really watch HD video. Gamers especially had this problem, as you could see from the controversy storm around Dead Rising’s choice to make the game difficult to play in standard definition. Literally! Capcom only tested the game on HDTV’s, and essential dialog was difficult or impossible to read if you played the game on a 4:3 tube TV. Just remember that context as we dive into the Xbox 360 HD DVD Drive, here it is! This beauty sold for $199 at launch – again, we got ours for $5. So! This drive hooks up to the Xbox 360 via a USB. Because 360’s did not have HDMI out at the time, people would need HDTVs with component hookups, or VGA hookups if they bought an adapter, to fully appreciate the next generation of video! Even if one managed to have this, it was really rare and expensive to have an HDTV that supported something other than HDMI, even at the time, some of the most popular HDTV’s, like the Sony A2000 series, had compatibility issues with the drive. What is your problem? Don’t give me that look! Beyond that, like we said earlier, most gamers – and I say gamers ‘cuz you need a 360 to hook this up – didn’t even have HDTV’s yet! Y’know, we’ve so far been focusing on the how and the why all this was made, without talking about the bigger issue here: The market was WAY not ready for this HD move! So basically, this HD DVD drive was for no-one. Sorry bud. That’s why you were $5. Despite this, the Xbox 360 HD DVD player was priced so that if you bought the cheapest model of Xbox 360 and the drive, it would cost the same as the cheapest PS3, so as long as you had an Xbox 360, and you were all about that dongle lifestyle, it was a decent deal! But the drive wasn’t the only thing Microsoft did to up their competitive edge on the PS3. Beyond already having a few gaming-focused features like achievements, they also revised their hardware so that each 360 was sold at a profit, and more importantly, they launched their digital video download and rental store on Xbox Live. Microsoft was makin’ some serious moves. They had not only taken one more step towards their final goal of being a one-stop entertainment shop, home video streaming had officially arrived to game consoles. The PlayStation 3’s launch, on the other hand, was pretty rough: The decision to bet the farm and include a Blu-ray player jacked up the price by an estimated $125, making the PS3 cost $499, or $599 for the more souped-up version. This price point was a disaster for Sony, and for most gamers, the much cheaper Xbox was the easy choice. How in the world could Sony justify such an incredible price?! Well, remember that this was the generation where it wasn’t just about gaming anymore, and while $499 was very expensive for a game console, it was NOT for a Blu-ray player! To understand Sony, you need to know that the PS3 was the first Blu-ray player released under $1,000 and worked better than most others on the market at the time! Though it was probably the loudest, amirite? [loud fan buzzing] ZIABAMA: “… how loud the PS3 fan is, like…”
[loud fan buzzing] “Check it out…”
[loud fan buzzing] [loud fan buzzing] DEREK: Amirite?
[loud fan buzzing] [loud fan buzzing] They were actually gouging themselves with that price, since they were losing $200-300 per console sold. To make matters worse, the PS3 as a gaming system just didn’t have the software it needed at launch, its exclusive launch game highlights being Resistance, Ridge Racer, and Genji: Days of the Blade, which… wasn’t great. Okay… they’re fine games, but remember: They had to compete with Gears of War on Xbox! So, PS3’s sat on the shelf, and Sony closed out 2006 with only 1 million units sold in North America, way under its goal of 2.4 million units. But let’s bring it back to Blu-ray versus HD DVD: It’s 2007 now, and one of the major problems with this HD war was that it was making consumers gun-shy. Most people just weren’t jumping on the HD bandwagon yet because they didn’t want to be stuck with the losing format. Microsoft, for example, understood that, in fact, Microsoft didn’t release a 360 with an HDMI port until the Elite model in April 2007, almost a year and a half after launch! Yes, they released an HD player before HDMI for the system! Even still, there wasn’t a huge incentive for most people to buy in on HD… yet. That’s why even though Sony’s one-million PS3’s was way under projections, it was still significant in the battle for the HD home video market. Sony was using the PS3 as a Blu-ray Trojan horse, sold as a new game console, but used as an HD video player too! If only they had the games to really move boxes off shelves. KAZ HIRAI: “Riiidge Racer! Remember that one?” DEREK: Still, Sony’s plan was working! Thanks to the PS3, Blu-ray was outselling HD DVD at a rate of two-to-one, and this was despite some aggressive price reduction rebates from Toshiba. Soon, two of the biggest dealers in movies, Blockbuster and Target, dropped HD DVD from their stores. By mid-2007, PlayStation was lagging behind Xbox, but Blu-ray’s lead on HD DVD was pretty much cemented. The war was considered mostly over… again. But then! In a suprise move in August 2007, Paramount and its partner Dreamworks Animation Studios made a deal for exclusivity on HD DVD in exchange for a reported $150 million and some free advertising. That’s right, they’re going red, baby! Just in time for HD DVD to cinch two of the most popular movies of the year, Shrek the Third and Transformers. But… why this sudden move?! And we’re not exactly sure, accounts differ: Paramount said they MIGHT have gotten some payment, and Microsoft said there MIGHT be payment, though they didn’t write any checks, which, like… I dunno, this whole thing’s really weird, and we don’t know what to tell ya! But perhaps, and this is a super-big “perhaps”, someone who was very interested in prolonging the HD DVD/Blu-ray war, at the cost of companies like Sony, AND was big enough that it wouldn’t miss $150 million, handed over some dosh just to keep the fight going. Personally, my money’s on Microsoft, even though they denied. I mean look at this: Sony was losing the video game war, but they were killing it in the home video war, by a huge margin! And then Paramount suddenly wants to keep this war going, even though top execs already said that this whole war doesn’t matter? Fall 2007 was a really late time to suddenly have an interest in this format war, we definitely can’t prove anything, but it just doesn’t add up! At the very least, Microsoft was involved in the HD DVD promotion group that was in charge of commercials, and signed another generous deal with Paramount’s parent company, Viacom, later that year. Whatever the case, this seemed poised to prolong the HD DVD battle for another year at least. It also made Warner Bros., who was responsible for a majority of the physical video market at the time, the only purple studio standing. As the year closed out, the PS3 had sold 3.25 million units total. Overall, though it had been shaken by the Paramount deal, Blu-ray maintained its edge over HD DVD. Sony was making strides in the home video market, though at a high cost to their former dominance in the video game market. In January 2008, right before the opening of the Consumer Electronics Show, right when it would have had the maximum impact and would have given HD DVD the least amount of wiggle room, Warner Bros. surprised announced that it was dropping HD DVD in favor of Blu-ray. To borrow the lingua franca of the time, Warner Bros. basically spawn-camped on HD DVD and then tea-bagged them while they were down! Is that too much? I was playing a lot of Halo at the time, it seemed like an appropriate way to put that… … anyway, I just can’t oversell to you what a big deal this was! And this time, this decision wasn’t the result of some calculated backdoor deal: You see, Warner Bros. had been selling Total HD discs that could work on both players, but after the Paramount deal, they decided to sell both formats side-by-side and let the market decide. One of these first movies was Harry Potter and the Order of the Phoenix, and guess what? The Blu-ray version sold better, and that was that. By choosing sides, Warner Bros. gave Blu-ray control of 75% of the home video market. Toshiba claimed HD DVD wasn’t dead, but it also cancelled its big HD DVD press conference later that day at the Consumer Electronics Show. They then, in a desperate move, slashed the prices of HD DVD players by 50%, but it wasn’t enough: Pretty soon two more big players in the home video business, Wal-Mart and Netflix, dropped HD DVD, and Toshiba finally gave in. In mid-February 2008, Toshiba announced they would no longer make HD DVD players. After that, the rest of the supporters fell like dominoes: Universal and Paramount went all-in on Blu-ray, and Microsoft begrudingly discontinued Xbox HD DVD drives a few days later. After only one year and ten months of official battle, Blu-ray ended up outselling HD DVD by a factor of four-to-one, with 81% of all Blu-ray players being PlayStation 3’s. Xbox 360 HD DVD Drive, by the way, accounted for only 30% of HD DVD players on the market. HD DVD was officially dead. Blu-ray, and by extension Sony, was the winner. Or were they? Y’know, one thing I’ve learned about Microsoft is that it’s always about the long con. And to explain what I mean, we’re gonna turn to one of the most esteemed intellectual leaders of our time… … Michael- Michael Bay? Is that right? Michael Bay. BAY: “What you don’t understand is corporate politics.” “Microsoft wants both formats to fail so they can be heroes and make the world move to digital downloads.” “That’s the dirty secret no-one’s talking about,” “that’s why Microsoft is handing out $100 million checks to studios” “just to embrace the HD DVD and not the leading and superior Blu-ray.” “They want confusion in the market until they perfect digital downloads.” “Time will tell, and you will see the truth.” “I’m Michael Bay, professional ****bag,” “signing out from the Shoot for the Edit forums after Transformers went HD DVD.” Okay, stick with me here: Just because the peeing robots guy thinks it’s all a conspiracy theory… doesn’t mean it isn’t! It’s hard for me to explain all of Microsoft’s actions otherwise, the multiple times they’ve rescued HD DVD from oblivion, without actually doing the thing that would have saved it: Putting an HD DVD drive inside the 360! Because we know the PS3 won this format war for Sony! Can you imagine how different all this would have been if 360 had HD DVD built in? So for once, I agree with the Hollywood director that just won’t let feathered hair die! BAY: “This sentence was directed by Michael Bay.” Microsoft at least partially used HD DVD to distract Sony and push everyone onto its upcoming video streaming services, of which Xbox 360 would be the center of. You see, a few months after the death of HD DVD, Microsoft unveiled its newer, more casual-friendly NXE redesign, and announced that Xbox 360 would be the first and only console system with Netflix, an exclusivity they held for about a year. And this would be in addition to its other video rental and download store, launched a year and a half earlier in 2006. Sony, on the other hand, had only just launched its video download store and trophies, and was seriously lagging behind Xbox on streaming. Since Sony’s online services were free, they weren’t able to compete with the quality of Xbox Live, which was largely funded through its $50-a-year Gold membership. Self-plug: We actually went over a lot of this in our Netflix video, if you wanna know more! Sony was so focused on cornering the physical market and its delicious royalties that they weren’t able to see that the future of entertainment was going to be online streaming, or they were so invested in finally getting a piece of that physical media market that they weren’t able to course-correct to streaming fast enough. I get it! Losing to Betamax and DVD was just too painful for them, and they couldn’t see straight! Microsoft knew this, and exploited it. It’s hard to break down exactly how much money Sony made off of Blu-ray. How the royalties for Blu-ray are split between all the founding companies has never been disclosed, but by 2014, Sony admitted that it no longer thinks it would be able to make back its investment on Blu-ray. That includes R&D, marketing, persuading industry and studio players onto their side, and hardware. The PS3 itself would go on to overtake the 360 in global sales, but it lost Sony billions! And Blu-ray still isn’t the dominant force in physical home video market, no! That crown still belongs to DVD! Right now, go to Best Buy, go to Wal-Mart, you will still see more DVD’s than Blu-rays! In 2019! Imagine ten years ago, still seeing more VHS tapes than DVD’s! When Blu-ray and HD DVD launched in 2006, YouTube was already a sensation. Remember to comment and rate five stars, y’all! And it was already apparent that the physical market was on its way out: Today the home video market is bigger than it’s ever been, and digital absolutely dominates it. The fact of the matter is that Sony was so focused on not being Betamax or the loser on DVD’s again, that they failed to see that the cheapest, most convenient solution had once again beaten them, only this time, it was all online. As for everyone else, Toshiba was actually fine after pulling out of the HD market. It turns out finished electronic goods like HD DVD players and TV’s accounted for less than 10% of their bottom line anyway. Microsoft would continue to largely dominate the PS3 for most of the generation, though by the end, cracks were beginning to show. I wonder if ports like the four-disc Wolfenstein on Xbox 360 made them regret sticking with a DVD drive. Their ultimate goal, to have the Xbox brand as the streaming entertainment center of the living room, might have worked if they hadn’t so thoroughly bungled the announcement of Xbox One, and Sony was ready to jump on that, and dominated this generation of consoles with the PlayStation 4. [chuckles] I mean, it’s kind of ironic that Microsoft probably plays Sony a royalty for every Xbox One sold, because of the Blu-ray drive! But now? We’re actually gearing up for a new entertainment war, and Sony and Microsoft have joined forces, at least for now, for the transition to streaming video games, all in the service of making sure Google and others don’t beat them at their own game. [sigh] War never changes… Big shout-out to Geoff from Mother’s Basement for being our Michael Bay in this video, links to his channel in the description below, and hey! 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