The innovative Rolly robotic speaker system, which is not yet available, is emblematic of the company's improved fortunes. Image: Sony

LAS VEGAS – After a rough couple of years, Sony is beginning to look like its old self.

It might be too soon to declare a total comeback, but the electronics giant finally seems to have momentum. Those quarterly losses that at times topped $500 million as Sony (SNE) struggled to turn around its core electronics business? They’re not quite a distant memory. But here at the Consumer Electronics Show, Sony does exude a confidence it hasn’t shown in a while.

At a dinner with journalists Monday night, Sony Electronics President Stan Glasgow was upbeat. Despite the slowing economy, consumers responded to Sony’s risky $100 million marketing campaign, and turned out in force to buy high-definition TVs, camcorders and other gear in November and December. The industry support for Sony’s Blu-ray format for high-definition video is also encouraging. “I think across the board we demonstrated we had a good holiday season,” Glasgow said.

Sony executives didn't reveal specific sales figures but said that the company recorded double-digit revenue growth in 2007 over the previous year.

“I’m excited about our little video product, the Walkman," Glasgow said. "It sold out over the holidays. I think we learned that going open and not keeping as much proprietary has some very positive effects sometimes.”

The new open mentality at Sony appears to be more than a fad. Sony Electronics executives said they were surprised by customer enthusiasm for its embrace of the MP3 and WMA formats in its media players. And even the corporate culture is opening up. At a recent corporate rally, Welsh-born CEO Howard Stringer sat company’s newest, most fired-up engineers closest to the stage, in the auditorium’s front-row seats in the middle section. The clear message: It will take new energy and new ideas to secure Sony’s future.

That message of change carried over to the Sony booth here in Las Vegas. Rather than organize products by business unit, Sony for the first time organized them by how they are used. Home entertainment devices are all together, whether they are game consoles, Blu-ray players or PCs. Mobility products are together as well. The approach is reminiscent of an Apple (AAPL) Store, where the company groups products together to show customers how they might get work done.

Not everything at Sony is going right. The PlayStation 3 and PSP are losing this round of the video game console wars to Nintendo’s Wii and DS. Sony Pictures Entertainment also faces challenges, with the Hollywood writer strike and declining DVD sales. But it’s the core electronics business that supplies 75% of Sony’s revenues, and the change in fortunes there brightens up everything else.

LAS VEGAS – Why did Warner Bros. choose last week to exclusively back the Blu-ray format for high-definition DVDs and ditch HD DVD, a move that could end the bitterest battle in the electronics industry?

Warner Bros. Home Entertainment President Kevin Tsujihara said there's evidence that holiday DVD sales were a casualty of the format war between Blu-ray and HD DVD. Image: Warner Bros.

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Partly because the studio's research turned up an alarming trend: the next-generation format fight hurt overall DVD sales this holiday season.

DVDs have become an important piece of Hollywood’s revenue pie, and an unexpected dip in sales can be painful. And that's exactly what happened in the fourth quarter, according to Warner, when DVD sales fell from the previous year.

And you can't just blame the economy, or the popularity of video games. Here at the annual Consumer Electronics Show, Kevin Tsujihara, president of Warner's Home Entertainment Group, told Fortune that with high-definition TVs selling briskly and a strong summer at the domestic box office that topped $4 billion for the first time, Hollywood executives expected a merrier Christmas than the one they got.

"We saw evidence that the format war was actually hurting standard definition," Tsujihara said. "The industry had very high expectations for the fourth quarter. The summer was the highest box office quarter in history. We ended up the year somewhere down 2 percent or a little bit more than 2 percent. That was a little disappointing, given the summer we had." Warner Bros. and Fortune are both owned by Time Warner (TWX).

Market research showed it wasn't just NetFlix (NFLX) or Apple’s (AAPL) iTunes hurting traditional DVD sales, either. Consumers who bought HDTVs were so afraid of backing the wrong high-definition movie format that they decided not to buy movies at all.

"Consumers were confused by the format war, and they were saying they weren't going to make a decision on either for a while, until they could figure out which one to buy," Tsujihara said. "Salespeople were having a hard time telling people why they should convert to HD."

So Warner Bros. made a call. Based on consumer trends, which have shown Blu-ray movies outselling HD DVD 2 to 1, Blu-ray was the obvious choice.

Still, Hollywood's not out of the woods yet. Though Warner's move gives Blu-ray a clear advantage over HD DVD, there's no guarantee the masses will embrace either disk format. It's up to industry marketers to devise a way to convince consumers that it's a good idea to keep buying movies on discs, rather than rent or download them.

Those strategy sessions are increasingly at the heart of CES, a show that used to focus on the nuts and bolts of electronics. Hollywood dealmakers descended on Las Vegas in force this week to hobnob with technology and retail executives in the hotels along the Strip and, they hope, hit upon a formula that will reinvent the business of entertainment.

"It’s become more important to us, especially as it relates to digital distribution,” Tsujihara said. "Longer term we believe that the growth for our industry is going to come from transitioning that standard definition player base to higher definition, and transitioning some of that to digital distribution as well."

Journalists prepare for the start of the Sony pre-CES press conference. Image: Jon Fortt

LAS VEGAS – Fresh from its news that Warner has backed its Blu-ray format for high definition, Sony (SNE) is vying to show that it is still an electronics innovator, and isn't languishing in the shadow of iPod maker Apple (AAPL).

To that end, the electronics giant said it will immediately begin selling an 11-inch version of a super-slim TV in the United States. The TV uses OLED techonology, which allows devices to be thinner than today's LCDs and more power efficient. Sony also showed off new cell phones, cameras and the Rolly speaker system, a novel egg-shaped robotic speaker system that actually moves to the sound of the music it plays. Below, the way the Sony press conference unfolded:

The press conference has begun.

In a video, Sony is showing its Rolly, an odd speaker system that sort of dances and rolls on the floor.

The senior VP of the digital imaging and audio division is taking the stage. He's making the case that in digital entertainment and devices, all roads lead to Sony. "Rolly is a sophisticated piece of entertainment technology," he says, and the camera turns to one dancing around on stage. "Simply stated, it provides a new way to listen and enjoy music out of the box." A push of the button gets things started he says, allowing it todance to its own beat. It will be available in limited quantities at the beginning of the year.

He's now talking about the Walkman video players, saying Sony kept its fingers crossed when it launched. He's calling the reaction tremendous in the U.S., saying it's getting Sony recognized in the audio and video space again – but he doesn't give numbers to prove that Son'y gaining on Apple.

Next he quickly touts the PSP, Playstation Portable.

Now he's announcing the mylo personal communicator, a wireless handheld with a keyboard that allows you to IM, take photos, and use Adobe (ADBE) Flash.

Also, there are new VAIOs. Sony doesn't do desktops, so these are all laptops. He doesn't go into much detail. Now he's describing the VAIO TP, a high-def device for the home theater that we'll have to find out more about later. He moves on to talk about Sony's noise-canceling headphones and its Sony Reader, an e-book reading device that competes with Amazon's (AMZN) offering. Sony's device now supports PDF.

Now he's moving on to navigation devices – a Nav-U, with 4.8- and 4.3-inch displays. They feature Position Plus, a system that estimates where your vehicle is, even if the GPS signal is lost. They will have Bluetooth included, and will ship next month.

Now the VP marketing for Sony Ericsson is taking the stage to talk about phones.

Sony has done well with the Walkman phone, selling 45 million worldwide as of September, she says. The w760 has an FM radio, stereo speakers, and a slider design. It also has tilt gaming controls, so that you can control action by tilting your wrist. It will be available in q1 2008. It's 3G (Sony Ericsson's first 3G Walkman device), with a 3.2 megapixel camera.

The w350 is an interesting black phone with a gold disk controller in the center that slides down to reveal the keyboard. It's 10 millimeters thin, with a 1.3 megapixel camera. This one could challenge the RAZR's old coolness factor.

The z555 has a diamond-inspired desgin that's sort of garish, but fits today's youth fashions. The coolest feature – you can wave your hand over the phone to silence a ring or snooze an alarm. It comes in two colors: "dusted rose" and "diamond black."

Now Sony's talking about the DVDDirect recorder, an appliance that lets you easily archive images to DVD.

An executive is going through the Cyber-shot camera features, face detection and smile detection.

Camcorders. Sony's got 16 new models tonight, including HD models with solid-state memory built in. These have face detection technology as well. They'll all go on sale this spring. Some will capture 1920 x 1080 resolution. There will be hard disk drive and DVD formats as well.

Now, SLRs. Smaller, faster, steadyshot and dynamic range optimizer. This is more for the pros and semi-pros, as these are bulkier than the point-and-shoots – they're available later this month.

Sony is demonstrating TransferJet, a near-field wireless technology for moving data. (This is yet another proprietary format choice from Sony, and it's having glitches. It's not working at the moment, which is embarrassing for the company. Why does Sony keep building products based on proprietary formats? Didn't they learn from ATRAC3?)

Sony is now touting its experience with HD technology. They're talking up Blu-ray's progress over the past year, including the standalone players and computers. He's announcing an external Blu-ray drive that connects to PCs – it will cost less than $200. He's touting the 2-1 ratio in which Blu-ray is outselling rival HD DVD, and predicts that Blu-ray's lead with expand throughout the year. He touts Warner's move in recent days to distribute HD movies exclusively on Blu-ray by May 2008. "We believe this decision will further strengthen and accelerate the adoption of Blu-ray disk technology," he says.

Now, TVs. Bravias will have an Internet Video Link that will sport walled-garden content from a number of providers. Also, a DMex link will allow you to connect other devices to the TV. The most impressive: wireless HDMI through Bravia Wireless Link. Components can be up to 200 feet away, Sony says.

There's a new series of Bravias today with thin bezels and new colors. Two new models is particular are being shown off now. (Some of this is making be rethink my earlier criticism of Sony's proprietary format choices. Sometimes you have to invent something and put it out there if you want to innovate. The question is whether Sony will license it on friendly terms, or drop it if a more broadly adopted format comes out.)

Stan Glasgow, the head of Sony Electronics, has taken the stage. He says Sony's sales have grown by double digits compared to the year before, and in part it owes to Sony listening to consumers – something the company hasn't done as well in the past. (Two examples of this that he has mentioned to me in the past: the way Sony has moved its music players to open formats, and has begun pricing TVs low enough to be sold in mainstream retailers like Target (TGT) and Wal-Mart (WMT). He says Sony has not been affected by talk about a U.S. recession.)

Glasgow also said Sony will immediately begin selling an 11-inch, 3-millimeter-thick OLED TV in the U.S. for about $2,500. OLED has advantages over the LCD technology now used in most flat-panel televisions; OLED displays are brighter, the images crisper, and the power demands lower.

Sony probably won't sell many of the displays at that price – for $2,500 consumers can buy a $42-inch LCD TV. But by beginning to manufacture the panels in volume, Sony can hope to bring down prices over time. The strategy might yield results for Sony, however; if portable televisions take off, for example, OLED could be the favored technology because its thin dimensions and frugal power use would encourage compact devices with longer battery life.

With less than two weeks to go before Steve Jobs' Jan. 15 keynote, analyst Shaw Wu of American Technology Research offers his best guess for what Apple's (AAPL) CEO might have up his sleeve at Macworld Expo 2008. In a note to clients issued this morning, Wu predicts:

• Blu-ray. Citing unnamed sources, Wu says that Apple will outline an HD strategy that backs Sony's Blu-ray format over the HD-DVD standard favored by Microsoft. (Although Wu hedges his bets and suggests that Apple might also use a combo Blu-ray/HD-DVD drive.)
• Subnotebook. Wu says Apple will re-enter the subnotebook space (nothing new there) but adds that Jobs may call the new machine the MacBook mini or MacBook slim. Any preferences?
• Movie rentals. Wu points out that the digital movie rental deals expected to be announced at Macworld are a departure driven by necessity, and represent a new business model for Apple. "Whether these movies expire based on time and/or usage is unclear to us," he writes, "But we do believe that rentals are a significant change in its philosophy."
• Speed bumps and external HDD: In the category of smaller announcements, Wu is picking up potential news related to speed bumps and or capacity bumps in current Macs and iPhones, and an external HDD storage/dock/streaming device for the Airport Extreme and the new MacBook mini/slim.
• Apple TV. Wu sees two big shortcomings in the current product: 1. no way to connect directly to the Internet for TV and movie content and 2. lack of a TV tuner. "Our sources indicate that AAPL is working on fixing these weaknesses to make Apple TV a much stronger product," he writes, later in 2008 or perhaps 2009, but not at Macworld 2008.
• 3G iPhone. Coming mid to second-half 2008 at a higher price point, Wu says, allowing Apple to reposition the current iPhone as a "more mainstream" product.

Despite the uncertainty, this much is clear: We won't soon see a run in tech stocks like the one that just petered out.

Break out the orange juice and aspirin: Wall Street's tech party is officially in hangover mode.

Investors don't have to look far to see the signs. Apple (AAPL) shares are down 14 percent from their high of $192 earlier this month. Google (GOOG) shares are down 15 percent, and Research in Motion (RIMM) 22 percent.

Of course, it's hard to feel too much pity for long-term holders of these feel-good stocks, since their recent tumbles have merely put them back at their September and October levels. But now is a good time to face a sobering truth: It will be many months before the markets throw another another tech party like the one that just ended — and holiday sales could be the best gauge of how bad things will get.

Slowing down

Nasdaq Chart: Jon Fortt

Why the buzz kill? Blame the subprime mortgage fiasco, gas prices and a credit crunch that is slowly infecting other parts of the economy. Because the consumers and businesses who have driven tech industry growth for the past few years are finally getting skittish, they're knocking tech's growth prospects into a lower gear.

That's a change from the positive tech momentum that the stock market has enjoyed for much of 2007. The Nasdaq Computer index — which includes computer services, Internet, software, computer hardware, electronic office equipment, and semiconductor companies — was up about 30 percent for the year until it lost nearly 10 percent this month. By comparison, the S&P 500 had gained only about 11 percent for the year before it gave up more than half of those gains over the last two weeks.

As for the outlook on tech sales to large businesses, investors will be listening closely to Hewlett-Packard (HPQ) CEO Mark Hurd as he goes over the company's financial results this afternoon — and in the next two weeks, technology investor conferences hosted by Credit Suisse First Boston and Lehman Brothers will give more insight into the corporate mood.

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The Cisco effect

The first big sign of the slowdown came two weeks ago, when networking giant Cisco (CSCO) offered growth forecasts that met, but didn't exceed, Wall Street's expectations. Analysts zeroed in on one particular bit of bad news: CEO John Chambers said that sales to large U.S. businesses, particularly banks and brokerages, had dipped precipitously.

Chambers tried to reassure investors by emphasizing the fact that U.S. financial services companies don't hold the sway over Cisco that they used to. Because of the global nature of the company's business now, and because of growth with mid-sized companies, the large enterprises alone can't stop Cisco's growth. "The market I would watch would be the U.S. commercial," Chambers said in the company's earnings call, referring to mid-sized companies. "As long as it holds up well, barring a surprise, the service providers feel good. … So the U.S. will be OK as long as those two of the three hold, and this again speaks to the balance."

But there are early hints that mid-sized businesses like the clothing makers that sell their wares through department stores won't hold up so well after all, which means there could be two wobbly legs on Chambers's three-legged stool. Most glaringly, holiday retail sales projections don't look so hot, and that could affect the mid-sized companies that are increasingly buying tech gear.

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Holiday outlook

Department store chain J.C. Penney (JCP) last week warned that the uncertain U.S. economic environment will stifle year-end sales, echoing misgivings that Wal-Mart (WMT), Home Depot (HD) and Macy's (M) had expressed days earlier. If those businesses do end up logging disappointing holiday sales, chances are their mid-sized suppliers who buy technology from companies like Cisco will, too. "If the mid-market business starts to weaken, I think the spillover is going to be undeniable," said Jason Ader, an analyst with Thomas Weisel Partners. "If the market continues to deteriorate like this, I think you'll see a lot of CEOs and CFOs of big companies say you know what, we can hold off on some spending.

"Strong overseas markets won't be a cure-all either, Ader cautioned. "If the U.S. slows down, you're not going to get bailed out by India — even though India's growing really fast, it's still really small relative to the U.S."

New design in HP’s business displays (Photos 1-5)

Still, it's too soon to completely write off the holidays. Greg Joswiak, Apple (AAPL) vice president of iPod and iPhone product marketing, sounded optimistic last week when he talked to Fortune about the company's holiday iPod lineup and overall prospects. And Sony Electronics (SNE) President Stan Glasgow earlier this month expressed confidence that the season will be strong for high-definition video products and electronics in general, based on orders from major stores and sales through Sony's own retail operation.

Even so, some things about the current mood in tech are already pretty clear. For instance, it's time to put away those party hats.

Sony expects that products like this KDL-46XBR2 TV will be a hit this holiday season. Image: Sony

Never mind the mortgage blues: Sony executives say signs already point to this being one of the best-ever holiday seasons for consumer electronics sales.

During an invitation-only press event Monday night in San Francisco, Sony Electronics President Stan Glasgow said that despite recent doom-and-gloom predictions about fallout from the subprime mortgage mess, he is confident that it will be a healthy holiday season for technology spending. Glasgow's gauge is based on orders from retailers such as Best Buy (BBY) and Circuit City (CC) and brisk business in Sony's (SNE) own stores.

Sony's prediction also bodes well for companies such as Apple (AAPL), Microsoft (MSFT), Nintendo, Dell (DELL) and Hewlett-Packard (HPQ) which always count on strong end-of-year sales to drive their financial results.

New Sony Walkman lineup takes aim at the iPod (Photos 1/6)

Sony Electronics is so confident that consumers will be ready to spend this holiday season that the unit is launching a major marketing campaign to tout its lineup of high-definition products, including televisions, cameras, camcorders and Blu-ray disc players.

"You'll see more advertising than we've ever done before," Glasgow said. "The campaign is a little over $100 million. It's being rolled out very heavily starting this month."

Sony's expectations line up with recent numbers; research firm iSuppli expects large-sized LCDs to reach 370 million units by the end of 2007. "iSuppli expects 20 percent unit growth for monitor panels, 35 percent growth for notebook panels and 51 percent growth for the TV panel market in 2007 compared to 2006," said Sweta Dash, director of LCD and projection research.

New design in HP’s business displays (Photos 1-5)

To capitalize on consumer demand, Sony is also trying to reach a broader segment of the market than it has in the past. Glasgow said a 32-inch $799 flat-screen TV that Sony recently began offering through Wal-Mart (WMT) is doing better than expected. The TV was unusual for Sony in that it was designed in the U.S., and its LCD panel didn't come from Sony's joint venture with Samsung. In the past, Sony would not have offered such a TV, fearing that low-cost products would dilute its brand.

"Certain consumers can only afford so much," Glasgow said. "Does that mean we shouldn't cater to them? I don't think so. We're going to design products at much lower price points than we have in the past."

Wal-Mart was an ideal partner for that type of effort.

"They need help bringing in certain consumers, and our brand helps them do that," he said.

Samsung P-1400 Blu-ray player. Image: Samsung

It's been quite a busy few days for the high-definition format war between Blu-ray and HD DVD. First, Wal-Mart (WMT) confirmed that it has begun selling the Toshiba HD-A2 HD DVD player in stores for less than $200. The next day Amazon (AMZN) and Circuit City (CC) began offering the player online for a penny less.

Now there are reports that Wal-Mart today will sell the Toshiba player for less than $100 for a limited time; Best Buy (BBY) might follow suit.

So what's the Blu-ray camp thinking about all this?

Microsoft’s Zune: The sequel (Photos 1-4)

The best way to find out is to ask. So I got on the phone with Bill Sheppard, who serves as a director of the Blu-ray Disc Association and the Chief Digital Media Officer of the Client Software Group at Sun Microsystems (JAVA).

Sheppard had plenty to say. He's still confident that Blu-ray will beat HD DVD, unless millions of shoppers "take the bait" and buy the low-cost HD DVD players. But the Blu-ray camp has some of its own cards left to play – he said to expect to see them offer discounts to shoppers who pick up a TV for the holidays. But how far will Blu-ray backers drop their prices to compete? Listen to the two interview segments below to find out.

Part 1:

–

Part 2:

Toshiba HD-A2. Image: Toshiba

A pre-holiday retail skirmish in high-definition DVD players has begun. Just days after Wal-Mart (WMT) slashed its in-store price on the Toshiba HD-A2 to $198, Circuit City (CC) and Amazon (AMZN) followed suit by offering the player online for $197.99.

Consumers seem eager to buy the HD-A2, which had been selling on Amazon for $230 and as much as $280 elsewhere. The Toshiba player, which had been one of several top-selling DVD players on Amazon before the price cut, has quickly become the favorite: On Monday morning it was the 24th most-purchased electronics item on Amazon's site. The next closest DVD player ranked 46.

The low prices could shift momentum in the high-definition format war between HD DVD and Blu-ray, which are vying to succeed today’s ubiquitous DVD. Like mainstream DVD players, HD DVD and Blu-ray players accept DVDs. But they also play high-definition discs in their own formats, which look sharper on today’s large, flat-screen televisions.

Microsoft’s Zune: The sequel (Photos 1-4)

Blu-ray had been seen by some industry watchers as having a better chance of winning the format war, mainly because more Hollywood studios had agreed to release movies exclusively on the format. But Blu-ray technology, which was created by Sony (SNE), is more expensive to produce than HD DVD. The result is that while retailers are jousting with sub-$200 HD DVD players, the most affordable standalone Blu-ray players still cost twice as much.

The Spider-Man trilogy comes out on Blu-ray October 30. Image: Sony Pictures

Meanwhile, each format has amassed a passionate following online. Blu-ray backers argue that Blu-ray's high-end technology will win out over HD DVD's more basic approach. They say that Toshiba's HD-A2, which outputs images in 1080i resolution, is inferior to Blu-ray players that output sharper 1080p. The Blu-ray backers are often fans of Sony's PlayStation 3, which comes with a built-in Blu-ray drive. HD DVD backers counter that HD DVD quality stands up well to Blu-ray, and that the companies supporting HD DVD have embraced a pragmatic strategy that will beat Sony's more expensive methods. HD DVD backers are often fans of Microsoft's (MSFT) Xbox 360, which has an optional HD DVD attachment.

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This week the rivalry will grow more intense. Tomorrow, Sony Pictures will release the Spider-Man trilogy on Blu-ray, marking one of the most highly-anticipated HD releases of the year. Pre-orders of the HD trilogy were the 20th bestselling item in Amazon's DVD store Monday morning, two slots ahead of the Transformers movie on HD DVD.

Toshiba HD-A2. Image: Toshiba

The battle for the future of the high-definition DVD has taken an intriguing turn: For the first time, mega-retailer Wal-Mart (WMT) has begun selling a player for less than $200.

In various online forums, enthusiasts have reported seeing the Toshiba HD-A2 HD DVD player available in stores for $198, significantly less than its common price of $230-$280.

Such low prices could shift momentum in the high-definition format war between HD DVD and Blu-ray, which are vying to be the successor to today's ubiquitous DVD. Like mainstream DVD players, HD DVD and Blu-ray players accept DVDs. But they also play high-definition discs in their own formats, which look sharper on today's large, flat televisions.

Microsoft’s Zune: The sequel (Photos 1-4)

"We reduced our HD DVD Toshiba player, the generation-two, to $198 earlier in the week," Wal-Mart spokeswoman Melissa O'Brien confirmed. "It's happening now, and that's really all I can tell you. We don't give any information on what we're planning to do for the holidays. We know HD DVD and Blu-ray are going to be popular items this holiday season for some of our customers. … They will be more popular this year than they were in previous years."

O'Brien said rumors that each Wal-Mart store would stock only 18 units of the Toshiba player were false. "There are no limited quantities for stores or purchases."

Samsung P-1400 Blu-ray player. Image: Samsung

If the cut-rate Toshiba HD DVD players prove especially popular, Wal-Mart's move could also set up a holiday-season retail showdown with Best Buy (BBY), Circuit City (CC) and others who rely on popular items to lure shoppers into stores. Those other retailers could feel pressure to stock their own low-cost HD-DVD players to drive store traffic.

The best-designed Bluetooth gear (Photos 1-8)

As I wrote in June:

Blu-ray has an early lead, but that doesn’t count for much. What matters is, who will have the lowest-priced high-definition players at a decent quality level when mainstream consumers finally start buying HD?

If the mainstream starts buying HD players this holiday season, expect to see HD DVD surge ahead of Blu-ray in a big way. Market makers like Wal-Mart will run with whatever player they can price below $200, just to draw people into stores. And most people in the mainstream won’t necessarily buy 10 HD movies; they’ll buy one or two, and wait for the studios to follow the installed base.

And if HD DVD sells big, you’d best believe the Hollywood studios will follow. Aside from Sony, they really don’t care which HD format wins – just as long as they get to sell a lot more movies.

It's not clear what the Blu-ray camp will do to respond to the price cuts. While the Sony-backed Blu-ray format has more support from Hollywood studios as mentioned above, Blu-ray players also cost more than HD DVD to manufacture. That's why Blu-ray players continue to cost more than $400 while HD DVD is available for half the price.

Apple’s new iPod lineup: An analysis (Photos 1/5)

Transformers on HD DVD, released October 16, had a stronger launch week than any HD title so far.

Blu-ray does have its technical advantages. Chief among them: its discs hold more information than those from the HD DVD format, potentially allowing studios to pack more special features and higher-quality audio onto a disc. Blu-ray's manufacturing costs will also come down over time — but if HD television buyers choose this holiday season as the time to seriously consider getting a high-def player, Blu-ray will be at a disadvantage because of some of the choices Sony made in developing the technology.

"Sony has great technology, but Sony many times makes closed technology," said Randy Giusto, group vice president of the mobility, computing, and consumer markets at technology research firm IDC.

Meanwhile, there are signs that this could indeed be the season where holiday shoppers open their wallets for HD equipment.

The summer blockbuster Transformers, released on HD DVD on October 16, has had the strongest debut of an HD movie so far, selling 190,000 copies in its first week.

Also, the large-sized LCD market is expected to reach 370 million units by the end of 2007, according to researcher iSuppli. That could create a hunger for high-definition players that connect to them. “iSuppli expects 20 percent unit growth for monitor panels, 35 percent growth for notebook panels and 51 percent growth for the TV panel market in 2007 compared to 2006,” said Sweta Dash, director of LCD and projection research for iSuppli.

The cost of HD players at Wal-Mart:

• Blu-ray at Wal-Mart: Sony ($488), Phillips ($498) and Samsung ($448 and very limited; not in all stores)
• HD DVD players at Wal-Mart: Toshiba ($198) and RCA ($298)

To hear an interview with a director of the Blu-ray Disc Association, click here.