The next generation DVD format war is over.  In the wake of the decision by Wal-Mart, which accounts for roughly 37% of the U.S. DVD market, to carry Blu-ray disks exclusively starting in June, a Toshiba source told Reuters on Saturday that it was ending support for the HD high definition format. 

The decision was driven by both retail and supplier losses for HD.   Target had already gone to Blu-ray, while Best Buy was now recommending Blu-ray as its 'preferred format' and NetFlix had decided to go completely Blu-ray. 

Blu-ray was also winning on the supply side--Warner Bros., which had been supporting both formats, had decided to go to Blu-ray only, leaving Paramount, Universal and Dreamworks as the only major studios still supporting HD DVD. But given its immense power in the retail DVD market, it was the decision by Wal-Mart that likely spelled the end of the format war, which has slowed the progress of next generation DVD sales.

As recently as December (see 'Both HD Formats Are Here to Stay') it appeared that the two formats would likely be able to continue to co-exist, but the very slow growth in sales of high definition DVDs and players demonstrated conclusively that consumers were going to sit on the sidelines until the format war was over.  Add in the difficulty of supporting two formats at retail and it's obvious that there were plenty of incentives for Warner Bros., Wal-Mart, Best Buy and Target to make the market-altering decisions that they did.  With sales of regular DVDs leveling off in 2007 and the number of new high definition TVs soaring, the studios are looking to the hi-def arena for growth in the lucrative home video market, so getting over the troublesome two-format hurdle was imperative.

It still remains to be seen if the consumers will find the qualitative difference between regular DVDs and hi-def Blu-ray disks compelling enough to spring for the higher cost Blu-ray players and disks, but it will certainly now be easier for consumers to invest in the hi-def format, since they can be fairly certain that the Blu-ray format won't be going the way of Super-VHS.  The studios and the mass market retailers won't be happy if the high definition DVD doesn't expand beyond its current status as a niche market for well-heeled early adopters, but that is the scenario which would probably provide the most opportunity for independent retailers.