What we've found most puzzling about this format war, is why Microsoft - a company that makes neither movies and TV shows or home theater hardware, is arguably the single biggest corporate supporter of the HD-DVD format outside of Toshiba and Universal. And though no one will say it on the record (though many industry insiders admit, off the record, that they believe it), we'd be surprised if Microsoft wasn't subsidizing both Toshiba's hardware losses and Universal's exclusive commitment to HD-DVD in some way. That's just our gut feeling. We can't prove it. But even Warner, which has a significant financial stake in the disc structure patents for DVD (and thus HD-DVD) has opted to support both high-def formats. Meanwhile, Microsoft has an office of "HD-DVD Evangelism" in house.
So why would Microsoft do this? The are three reasons why it makes good business sense for the company. First, having HD-DVD playback capability on their Xbox 360 (via the add-on drive) is a smart strategic move to counter-balance Sony's having Blu-ray playback capability built into their PS3 system. Second, HD-DVD uses Microsoft's VC-1 video compression codec almost exclusively. For a variety of reasons - not the least of which is that it's a great codec - this has encouraged a number of Blu-ray Disc studios to adopt VC-1 as well, so more and more Blu-ray releases utilize it too. This again benefits Microsoft. But more importantly, Microsoft's real long-term goal is to dominate the content downloading arena - particularly the downloading of entertainment content to devices in living rooms. That's what many industry observers, including many in Hollywood, see as the ultimate future of the home video industry. Selling lots of Xbox 360s and having everyone adopt the VC-1 codec (not to mention their iHD interactivity spec) both work to further Microsoft's goals in this area by helping to drive the growth of Xbox Live. According to the company's own recent press releases, Xbox Live is already "the number one online distributor of television and feature film content in the living room where it's most easy for consumers to access." In addition, "the service has quickly become the number two online distributor of television and feature film content, second to iTunes." Finally, Xbox Live is currently "the ONLY online distributor of major feature films and television programming in high definition (HD) resolution."