Truce brokered in DVD war between Sony and Toshiba

The battle for supremacy among new high-definition DVD formats, between Sony's Blu-Ray and Toshiba's HD-DVD, may not be a fight to the death after all, thanks to two innovations to be announced next week.

LG Electronics plans to launch a DVD player that will run both types of discs, while Warner Brothers is expected to reveal that it is working on a single disc that can play films and television programmes in both formats.

The new products are launching just as market research groups plan to scale back their predictions for hardware and disc sales of both high-definition formats. There is growing evidence that the rivalry between Blu-Ray and HD-DVD has confused consumers, who fear buying into a "modern-day Betamax" - the video recorder that lost out to VHS in a similarly vicious technological battle 30 years ago.

Further complicating the picture for potential buyers, Hollywood studios and TV producers have lined up behind one format or the other, meaning that most films are available on only one type of disc. Sony's film studio is releasing high-definition titles only on Blu-Ray, as is 20th Century Fox and Disney, while Universal Studios is issuing titles only in HD-DVD.

LG yesterday described its new dual player as a "technological breakthrough to end the confusion and inconvenience of competing high-definition disc formats for both content producers and consumers".

It will be unveiled at the annual Consumer Electronics Show (CES) in Las Vegas next week, and put on sale in the US early this year. Warner Brothers is also expected to use the CES to confirm that it has developed a disc that can contain films in both Blu-Ray and HD-DVD formats, and would therefore play on whichever player the consumer has bought. It believes that retailers - angry at the prospect of having to stock two new versions of films on top of the existing basic DVD standard - will throw their weight behind a combined disc and demand that Hollywood agrees to make content available.

Barry Meyer, chief executive of Warner Brothers, told The New York Times that he believed neither Blu-Ray nor HD-DVD was going to go the way of Betamax quickly. "The next best thing is to recognise that there will be two formats and to make that not a negative for the consumer," he said.

Screen Digest, a market research group, had been predicting US sales of stand-alone high-definition DVD players would reach 300,000 in 2006, but said that disappointing Christmas sales might mean the final figure is well below that - perhaps barely half.

Helen Davis Jayalath, senior video analyst at Screen Digest, said that this would be doubly disappointing, since industry figures had earlier ridiculed its figure of 300,000 as too conservative.

With DVD sales forecast to plateau this year, film and television producers need the new, more expensive high-definition formats to be a success. In the US in particular, high-definition television is generating significant excitement, thanks to a big push by cable companies. Advanced flat-screen televisions had been one of the most popular Christmas presents and a bright spot in otherwise lacklustre holiday sales. The failure of high-definition DVD players to break through even to early adopters is therefore unexpected.

Ms Davis Jayalath said: "Customers are clearly concerned about buying into the new Betamax, and we have long believed that a combined approach, either a dual-software disc or dual-player hardware, will be part of the solution. The LG Electronics player means that even if one format doesn't survive, you have still bought a viable piece of kit, rather than an expensive dust-catcher."

Blu-Ray has also been set back by the delayed and limited launch of Sony's PlayStation 3, which includes a Blu-Ray disc player. The Japanese company believes this could be a "Trojan horse" for the format, getting it into more homes than would be possible with a stand-alone player, and encouraging gamers to start buying Blu-Ray discs.

It is for this reason that more Hollywood studios have pinned their colours to the Blu-Ray mast. HD-DVD, by contrast, is supported by Microsoft, which is selling an add-on HD-DVD drive for its popular Xbox 360 games console.

Screen Digest predicts that few households will opt to replace their existing DVD libraries. Instead, market value growth will come primarily from the premium prices charged for the new formats. This could mean that by 2010 total revenues from packaged media will be 15-20 per cent higher than would have been the case without hi-definition.

By 2010, it believes that just under one third of total spending on buying video discs in the three key regions of US, Japan and Europe will be generated by sales of high-definition formats - $11bn (£5.7bn) out of a total spend of $39bn.