Interview: Universal EVP Ken Graffeo says HD DVD is here to stay

Nate Mook: Apple CEO Steve Jobs recently said that "clearly, Blu-ray won the format war," but noted that all next-generation physical media won't serve a purpose, because consumers will receive content digitally. What are your thoughts on this? NBC Universal is investing in online delivery of content and Hulu.com.

Ken Graffeo: First off all, the technology today is not ready to provide that full experience of getting the high-quality video instantaneously to the home. You've got broadband issues and things like that. Will that technology be there? Yes. Can I tell you when? It's not next year. I think you're beginning to see a lot more open systems and more collaboration, because right now you have so many unique systems and nothing is compatible. That's been the biggest problem, but you're beginning to see the walls break down.

I always look at VOD (video on demand) that goes right to the house, and DVD buy rates never change. I think what you have to do is look at the consumer today -- the younger consumer -- and say "where are they going," because that's going to be the future. Today when you look at who is purchasing movies, it's those 35 and older -- and they're not as savvy with technology as the younger audience is. The younger audience is the one that would be more comfortable with digital delivery.

The DVD player was the fastest selling electronics product ever. In 5 years, you had over 50% of the market. The reason why is because it was plug-and-play. You put a disc in and you pressed play. With HD DVD, the DVD Forum was looking at the future -- that's why you have an Ethernet and USB port mandatory, because they are thinking of the transition to the next generation.

But people collect movies like they did records, and share movies, which isn't possible in digital. And today, in order for the digital world to take off, it has to be very consumer friendly -- like plug and plug. As soon as you get complicated, you can't go after the mass market. Once it gets to being plug-and-play, you could see a shift. People once thought rental would always be the king, and now you have sell-through.

Over the course of the upcoming years -- the next 5, 8, 10 years -- physical media is still going to be dominant. That's not to say you're not going to have digital, because it's going to come, but it won't reach the masses very quickly.

Nate Mook: Is this format war going to be decided by the Hollywood studios and the manufacturers, or can the consumers have a voice? Over 1 million HD DVD owners is not a small number, and those consumers clearly don't want the format to go anywhere.

Ken Graffeo: Where the consumer has a say is what they do and what they purchase. That's probably the biggest statement that could be made. Word of mouth is the most powerful way to communicate. If you walk into someone's house and watch a football game on their HDTV, you'll want one. Most people are very happy with their DVD, but when they see a 1080p movie, it blows them away.

1 million units starts word of mouth -- people get exposed, people see it. When you're dealing with 200,000, you're at the early adopters and that's not really going to spread. That's why HDTVs finally started taking off, because consumers walked into their neighbors' houses and said "Look at that flat thing on the wall, that's great." You saw in November and December, everyone was aggressive with pricing. You could see how consumers are willing to buy HD movies when you get to an affordable price.

We released American Gangster and put it on combo disc (with DVD format on one side and HD DVD format on the other), because if there was confusion about the future, you don't lose an investment because you have both an HD DVD and a DVD. Look at how many machines exist with DVD. We don't want to limit our customers; we want to be as consumer-friendly as possible. It's hard to communicate everything, but once you start getting into the mass world, word of mouth is also very important.

NM: Is there any possibility of coming together with Blu-ray to unify the standards at this point, perhaps with hybrid players?

KG: Well, I'm never going to say it never can be done. I think everyone would like to see things work out, and I don't think anyone has any ill intention in this. It was a year and a half ago when we tried to put things together and it was unfortunate when it fell apart before. I think anything is possible, and again it comes back to the consumer who has the final voice.

NM: A recent report showed Blu-ray with 90% of the DVD recorder market in Japan. Does HD DVD plan to invest in this market? It seems there is little demand for DVD recorders in the States.

KG: DVD recorders are very big in Japan. In fact, I think the majority of DVD hardware in Japan is DVD recorders. There has never been a market here in the US, even though DVD recorders have been available. HD DVD does have recorders in Japan, but not in the United States, where most people have digital video recorders instead.

NM: What's the next step for HD DVD?

KG: I think Toshiba has put a very aggressive program in place not only with price, but also with marketing. We have been talking to the consumer, letting them make choices. We also had our big new release yesterday announcing American Gangster. The film has all of the interactivity and Internet features, and we're continuing to release titles. When I say business as usual, it's business as usual in releasing. But Toshiba has really stepped up with their campaign to the consumer.

NM: Where do things stand on CH-DVD, the Chinese format that's based on HD DVD. It seems to me that is a huge market with 2 billion people, and it's compatible with HD DVD. If studios want to sell in CH-DVD in China, wouldn't it make sense to also sell HD DVDs in the Unites States?

KG: Well, I know that CH-DVD players are in production and their date is in time for the Beijing Olympics. They are forecasting sales of somewhere around 8 million HDTVs because the Olympics are broadcast in high-def and the CH-DVD players are going to be launched in conjunction with that.

When you look at the Chinese market form a studio distribution standpoint, because of a lot of the past piracy issues it's not a developed market like most of Europe and US for the studios selling movies. Everybody is working to try to move forward with that, but I think it's further down the road. The more important issue than high-def in China right now is how to distribute without a fear of piracy.

NM: Will all future Universal HD DVD releases be combination discs?

KG: All of our new releases that Universal has made since last September have been combo discs [with standard DVD on one side]. We have no plans to change that, and our retail partners are saying if you want to go to the mass market, you don't want to limit consumers into only being able to play it on one device.

NM: Thank you for taking the time to speak with us today, Ken. We, and our readers, appreciate it.