European Regulators Probing Next-Gen DVD Licensing

Regulators from the European Union are examining the licensing strategies behind the two competing next-generation DVD formats in an attempt to determine whether antitrust issues need to be addressed.

The European Commission (EC) reportedly has requested information from manufacturers of players that support the new HD DVD and Blu-ray formats. The probe is said to be in the early stages but could become a formal investigation if the initial responses spark concerns.

It was not immediately clear what triggered the request for data, which took the form of letters to major producers of the new DVD players. Sony, the originator of the Blu-ray format, confirmed that it received a letter from EC staff, but said it was not aware of any specific complaints about its practices. The company also said in a statement that it would cooperate with regulators to provide the information they are seeking.

At issue, apparently, is whether any contemplated restrictions applicable to the DVD players and next-generation DVDs themselves might violate EU rules on antitrust behavior. Agreements that require extended exclusivity, for instance, may be of particular concern to the commission.

Key Timing

Getting a handle on what the EU might be seeking isn’t easy, since the DVD format creators have broadly licensed their technology. Sony, for instance, says it and the companies that worked with it to develop Blu-ray have licensed the technology to some 100 companies, from hardware makers such as Hitachi, Pioneer and Samsung, to DVD creators themselves and companies that make portable and gaming devices.

Word of the inquiries comes as the battle heats up over which new DVD format will emerge as the market leader, with several manufacturers pushing new players into the market and others jockeying for position behind the scenes.

Several studios have begun to announce availability of films in the competing high-definition formats, which offer crisper pictures meant to be viewed on compatible TVs.

Walt Disney announced earlier this month that it would launch nine Blu-ray films, joining other studios offering movies in that format in the hope of igniting interest in the next-generation devices.

The battle will be hard-fought, even though the DVD format could eventually give way to video-on-demand and direct digital downloads.

“Widely adopted video-on-demand will not arrive quickly,” said Gartner analyst Laura Behrens. “The makers of DVD players still have a significant window to sell into before direct download options start to become mainstream technology. For that reason, the format battle has very high stakes.”

Locking Up Partners

As with many technologies, the format backers have tried to line up as many supporters as possible among hardware makers in order to give consumers abundant choices and keep device costs in a reasonable range.

The DVD probe adds to the growing list of inquiries, formal investigations and actions taken by EU regulators that has given them a reputation for strict oversight. The Commission remains locked in a bitter battle with Microsoft over its behavior. It recently slapped the software giant with a second massive fine that brings to nearly US$1 billion the amount of financial penalties levied against it in the past two years.

The EU may be interested in knowing whether some of the DVD licensing agreements overreached by forcing hardware makers or others to pledge allegiance to one format over the other.

“The EU has made it clear that it takes a very hard line view of what makes a deal anticompetitive,” said Yankee Group analyst Laura DiDio. “As Microsoft has already found out, what passes as acceptable in other markets may not pass the muster of regulators in Europe.”