Viacom, Blu-ray, and Michael Bay

Transformers director Michael Bay did some quick morphing himself this week in response to the announcement that movies from Viacom's (NYSE: VIA  ) Paramount Pictures and DreamWorks Animation (NYSE: DWA  ) would move exclusively to the HD-DVD format.

In one fell swoop, Paramount and Dreamworks dissed the heck out of poor Sony (NYSE: SNE  ) and its Blu-ray technology. Producer/director Bay expressed his displeasure with an angry early-morning post on his website, condemning the action and bemoaning the fact that his Transformers hit would bypass Blu-ray. Bay was quoted in The Hollywood Reporter as writing, "I want people to see my movies in the best formats possible. For them to deny people who have Blu-ray sucks!"

Ouch! Tell us how you really feel, Mike. He even floated the idea that he would deny Viacom a sequel to Transformers. Soon thereafter, he took it back. He composed a happier post later in the afternoon expressing regret that he reacted so indignantly to the HD-DVD news earlier. He explained that he had some dinner guests over that were Blu-ray owners ... and they were miffed that Transformers wasn't coming out on Blu-ray ... and yadda yadda yadda.

Well, I obviously can't tell you how Michael Bay really feels, because I don't have access to his thoughts, but I speculate that the first post was more of a true opinion. He's right -- Paramount really is shunning an opportunity. We all have to remember that Sony's PlayStation 3, debacle that it's been so far, nevertheless contains Blu-ray technology. As time passes and price cuts occur, the PS3's installed user base will grow. Hardcore gamers are definitely the target audience for many elements of Viacom's content library, particularly Bay's action-heavy fare.

The exclusive HD-DVD commitment will include all movies distributed by Paramount, DreamWorks Pictures, Paramount Vantage, Nickelodeon Movies, MTV Films, and DreamWorks Animation, according to a press release. The deal excludes Steven Spielberg from format exclusivity, though the director may go HD-DVD only in the future.

Several of the major production companies have already picked an exclusive hi-def disc format. Sony Pictures, News Corp.'s (NYSE: NWS  ) 20th Century Fox, and Disney (NYSE: DIS  ) have all sided exclusively with Blu-ray. Time Warner's (NYSE: TWX  ) Warner Brothers sits on the fence, doling out both formats. And now Viacom joins Universal -- GE's (NYSE: GE  ) studio arm -- in the HD-DVD corner.

But is there more to this week's announcement? According to some reports, there has been speculation that companies sympathetic to HD-DVD technology paid Viacom and DreamWorks Animation to make this move, perhaps as much as $150 million. A manufacturer of Blu-ray discs, Blue Ray Technologies, fired off a press release complaining about the payment. Erik Hansen, founder of the company, said, "Toshiba and HD-DVD offered this deal because they are desperate. The public has chosen Blu-ray discs with their pocket books, buying BDs 2-to-1 over HD-DVDs this year." He also can't fathom why Viacom would put retailers in the position of buying the less popular format. I see his point; in fact, Disney's CEO Bob Iger told investors a similar tale in a conference call not long ago.

As my Foolish colleague Rick Munarriz noted earlier in the week, the decision to deny Blu-ray owners the magic of Shrek films smacks of the old VHS vs. Beta war. Media investors and consumers don't need that. What they need is one format for content libraries to be re-released on.

I find Viacom's decision disappointing, and have to wonder whether it will eventually reconsider. The market will ultimately tell Hollywood what it wants; in the meantime, spreading out one's bets would seem to be a smart thing to do.

Foolish fun with the format wars:

Disney, DreamWorks Animation, and Time Warner are proud members of the Motley Fool Stock Advisor recommendation list. Sign up for a free 30-day trial of the service with no obligation whatsoever. The Gardner brothers can help you construct a long-term, wealth-building portfolio.

Fool contributor Steven Mallas owns shares of Disney and General Electric. As of this writing, he's ranked 13,952 out of more than 60,000 investors in the CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.


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