InfoTech & Public Policy

As we’ve discussed in class, a pair of consortia, led by Sony and Toshiba with Blu-ray and HD-DVD respectively, are competing to position their next generation technology as the market leader in portable data storage. HD-DVD is going to hit the market first, be cheaper and easier to produce, and posts entertainment heavyweights like Paramount, Warner Bros and Universal Studios on its side. Blu-ray, on the other hand, will have a greater storage capacity (50gbs compared to 30), an army of hardware manufacturers (Dell, HP, Hitachi, LG, Mitsubishi, Panasonic, Philips, Samsung, Sharp, Sony, Thomson &c.) as well as its own team of content providers (Sony Pictures, Metro-Goldyn-Mayer, Disney, EA and Vivendi Universal) and the advantage of being tied into the Playstation 3. Yet, lost in the wild speculation over which system will prove to be the alpha male and which will be the Beta, is the question: is this manner of competition good for consumers?

Competition should only be encouraged insofar as it produces positive outcomes for consumers. The Beta/VHS war illustrates that the best product may not necessarily win out and that consumers will be shortchanged throughout the fight because they may end up with obsolete equipment. But the most galling aspect of this whole competition is the content providers who are lining up on one side or the other, limiting competitors’ access to their media in order to bolster the prospects of their chosen technology.

While Sony and Toshiba should be free to compete on quality, price, time to market, customer support, backwards compatibility and any number of things related to the data storage technology, competing on the basis of content should be prevented by antitrust regulators. Lining up exclusive rights to studio content in return for a cut of the royalties prevents consumers from enjoying content they otherwise would without purchasing both devices. And the particular content that is being restricted has no inherent compatibility with Blu-ray or HD-DVD; it is as if Sony managed to line up VISA to ensure that customers hoping to buy their HD-DVDs could only pay with Mastercard.

While regulators would not typically permit a monopolist to tie his product in exclusively with another in hopes of capturing some royalties from that secondary market (hold your Microsoft jokes), studios are typically thought to operate in competitive markets without monopoly power. Regulators need to realize that media is not so perfectly substitutable and is in some ways an addictive good (which has increasing marginal returns with consumption, as opposed to diminishing ones). As such, there is an important role for them to play in making sure studios are neutral in their provision of content, a role they seem to be shirking from in the Blu-ray / HD-DVD battle.

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