LG Electronics to produce HD DVD drives in addition to Blu-ray

Hanover (Germany) - In a stunning and totally unanticipated development, the European division president for LG Electronics, James Kim, told Reuters today that his company is expected to announce the production of HD DVD high-definition optical video disc players, in addition to the Blu-ray players already anticipated from the company.

The move from one of the world’s principal optical disc companies would be a hard blow to the hopes of the Blu-ray Disc Association, of which LG had been considered a founding, and most prominent, member. Now the BDA faces the prospect of watching CE manufacturers joining content providers such as Paramount and Warner, computer equipment manufacturers such as HP, and software providers such as Nero in proclaiming their neutrality in the high-def fracas.

This development may also be an indicator that the effort by manufacturers for their format of choice to distinguish itself substantively, somehow, from its rival, may be waning at last. If LG’s move garners followers, we’ll soon know, as the CeBIT conference will be kicking off tomorrow. But the impact of LG’s move may not be limited to BDA members alone. While BDA members Matsushita and Pioneer may be inspired to follow LG’s lead, disc manufacturers in the HD DVD Promotions Group - including NEC and Sanyo - may also be inspired to throw their hats outside of anyone’s ring, and join the growing band of neutral companies committed to supporting both sides in the absence of a clear victor. Hitachi and Mitsubishi staked out their commitment to straddle the fence months ago.

Reuters quoted LG’s Kim as saying that his company hasn’t yet found the "sweet spot" for pricing of its forthcoming BD-ROM drives. Kim’s comments imply that his company’s pricing formula awaits input from some outstanding factors, which may mean that negotiations for licensing fees for Blu-ray’s multiple digital rights management schemes may yet be unsettled. Furthermore, the industry may have been expecting Blu-ray’s champion proponent Sony to lead the way with its PlayStation 3 game console. But if indications from CeBIT are that the PS3’s release date could yet be postponed well into this year’s holiday season, it would be left to CE manufacturers to come up with entry-level Blu-ray players, at price points whose margins would be untenable for any extended length of time. With PS3 leading the way at the entry level, manufacturers could afford to introduce higher-priced BD players, while justifying their price premiums.

In a market with no clear format victor for a prolonged period of time, and with most of its leading advocates having proclaimed neutrality, it’s possible the two sides may have to come together to talk "convergence" after all, if only in the interest of cost reduction.