Format war brings production challenges

High-def revenue up, but for how long at 1K Studios

By Susanne Ault -- Video Business, 8/31/2007

AUG. 31 | High-definition disc sales are gaining traction slowly, but HD DVD and Blu-ray Disc production has transformed 1K Studios in just a couple of years.

As suppliers race to release increasingly advanced product, angling to skew the format war toward either side, studio execs are relying more on digital specialists such as 1K for programming help. In 2005, high-definition revenue totaled 3% of 1K’s business. That shot to 18.6% in 2006. Year-to-date in 2007, high-def totals 40.7% of 1K revenue.

Anticipating the growth, in April 2005, 1K expanded from a 16,000-square-foot facility to a 25,000-square-foot building. Since the move, staff count has lifted 50% to 90 full-time employees.

Also, 1K has had to rethink its production processes in order to manage the development of multiple formats for one title. Warner Home Video, which is favoring releasing theatrical titles on standard-definition, HD DVD and Blu-ray simultaneously, is one 1K client. Other frequent clients include HD DVD-exclusive studios Paramount Home Entertainment and Universal Studios Home Entertainment.

“There are budgeting constraints on three formats when you are not yet selling a ton of high-def discs, so we had to figure out value,” said Steve Klinenberg, chief operating officer at 1K. “We are now designing for high-def first and using those assets for standard-definition versions.”

It’s easier to scale down than up, so 1K has focused on the creation of HD DVD and/or Blu-ray features first, then seeing how they can be leveraged for the standard-def disc content.

For example, “You’ll now notice certain standard-definition disc menus mimic high-def design, where standard-def buttons are being placed in the same way as high-def versions,” said Klinenberg.

One next high-def challenge is crafting advanced Blu-ray bonus features, namely picture-in-picture and BD-Live. No currently available Blu-ray set-top players support BD-Live or picture-in-picture functionality, but there is industry hope that PlayStation 3 may soon offer a firmware upgrade to support these features. 1K has already created similar picture-in-picture, where two video streams run concurrently, and Web-access interactivity for HD DVD titles.

“Until we can test these titles, we don’t really know how they’ll perform,” said Klinenberg. “But we are either in the process of talking about or working on a number of Blu-ray features that are analogous to the advanced HD DVD features.”

The relatively high number of Blu-ray player models suggests greater variance in playback abilities, adding new wrinkles in testing interactivity.

“DVD people went through all of these same things [as hardware ramped up], but now we are going through a much higher profile product launch,” said Klinenberg. “There are a lot more expectations.”

Matt Kennedy, CEO and co-founder of 1K, sees the under-a-microscope nature of the rollout as endangering interactivity creation. Instead of wholly focusing on content, many studios are placing their biggest priority on beating the other guy to the shelf with product.

“Interactive features shouldn’t be pawns in the format war,” said Kennedy. “They are being used as points of distinction. But is doing what’s buzz worthy outweighing the importance of the user experience in high-def?”

Although 1K is benefiting from high-def now, the company worries the gold rush will be ultimately cut short by the format war. Producing in multiple formats, splitting the consumer market between HD DVD and Blu-ray, limits overall impact to studios’ bottom lines.

“The money that we get paid is a strategic investment by the studios, where [the discs produced] are not yet part of the studio revenue stream,” said Kennedy. “The sooner that consumers are paying for the work through disc sales, the sooner that studios don’t have to put in their own money. That will make us more confident about high-definition.”

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