Video games a key battlefield in DVD war (Reuters)

LOS ANGELES (Reuters) - A major video game conference nextweek could prove pivotal for a multibillion dollar war overhigh-definition DVD standards brewing in Hollywood.

While most gamers are heading into the ElectronicEntertainment Expo (E3) hoping to view the latest and greatestin video games and consoles, a key subplot will be Sony Corp.'s(6758.T)(NYSE: - ) plan to use the PlayStation 3, the newestversion of its market-leading video game console due late thisyear, to get its Blu-ray high-definition DVD standard intohomes.

By offering DVDs with far more capacity than currentstandard DVDs, studios hope to breathe new life into the $24billion home video market. But their failure to use a unifiedformat has paved the way for a costly battle similar to theVHS/Betamax war that caused widespread customer confusion inthe late 1970s through mid-1980s.

There are two rival next-generation DVD standards,including Sony's Blu-ray and HD DVD, championed by ToshibaCorp. (6502.T).

While Blu-ray has drawn more support among Hollywood andelectronics firms, HD DVD has garnered an ally in softwaregiant Microsoft Corp. (Nasdaq: - ), which plans to offer anexternal HD DVD drive for its 360 game console that willturn it into a high-definition DVD player.

The Xbox 360 hit stores late last year, and is the first ofthe next generation of game consoles offering high-resolutiongraphics and more realistic play.

DFC Intelligence, a market research firm based in SanDiego, California, forecasts that the worldwide video gamemarket will grow to around $42 billion in 2010 from $28.5billion in 2005.

"The next move in the Blu-ray/HD DVD competition will be inthe game industry. What Sony and Microsoft decide to announcepublicly or to dealers at E3 next week will be key," saidRichard Doherty, an analyst with research firm Envisioneering.

Microsoft has not given a shipping date or pricing for itsHD DVD add-on disc drive, while Sony has not yet announcedpricing for the PS3, which is due in November.

A widely expected price of $499 for would make the PS3competitive with or cheaper than most stand-alone HD DVD orBlu-ray players. Toshiba has released an HD DVD player pricedat $499.

"If Sony says it will sell the PS3 for $499, then peoplemay wait until November to buy a PS3. If it doesn't give aprice, then it might help in the sale of HD DVD players" in themean time, said Doherty.

The high-end Xbox 360 package currently costs about $399without a next-generation DVD player.

HD DVD titles have been trickling into stores sincemid-April along with the first HD DVD players, while thearrival of the first Blu-ray format titles and hardware are nowexpected in June.

Video game analyst Michael Pachter of Wedbush MorganSecurities sees the DVD standards war determining the winner inthe current video game console battle instead of the other wayaround.

Sony's decision to allow Microsoft to grab first-moveradvantage with its Xbox 360 launch in November was "almostcertainly" the result of Sony's desire to dominate thehigh-definition DVD market, Pachter said in a recent report.

Based on his assessment that Sony will win thehigh-definition DVD war, Pachter predicted that the PS3 wouldagain be the dominant console at the end of this console cycle,although he predicted Microsoft would capture about 42 percentof U.S. and European combined next-generation hardware salesthrough 2007.

Microsoft's much-anticipated Vista operating system, to beavailable in early 2007, is also slated to support HD DVD,which will boost the installed base of HD DVD technology inPCs.

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