Sony can't afford to spend too long drinking the champagne. The real news isn't that HD-DVD's future looks grim. It's that if Blu-Ray's backers can finish off HD-DVD quickly, Blu-Ray might have one.
With Apple , NetFlix and Microsoft pushing downloadable movies and cable and phone companies peddling a plethora of on-demand, high-definition content, the day is coming when the stacks of plain vanilla DVDs that clutter many home entertainment centers will go the way of the CD collection.
JVC even introduced a flat-screen television at the International Consumer Electronics Show that allows users to simply pop in one of Apple's iPods to watch video content--threatening to turn the slim media players into an alternative to digital video discs. And Panasonic is building iPod docks into its home theater systems alongside an integrated Blu-Ray player.
Another worry, according to Robin Harris, an analyst with the Data Mobility Group, is that Blu-Ray adoption will be slow because few people will notice the difference between formats, since many players can neatly "up-convert" DVDs for high-definition sets. As a result, few will opt to replace their entire DVD libraries, as many did with the earlier generation of videotapes. "So is this going to be a pyrrhic victory for Sony? I think that there's a fair chance that it will be," Harris says.
Blu-Ray's victory came at a high price. Sony delayed the release of its PlayStation 3 so it could include the pricey Blu-Ray technology in its console. Partly as a result, the PlayStation 3 has lagged behind the Nintendo Wii and Microsoft Xbox 360 in sales--even as analysts credit the PlayStation 3 with giving Blu-Ray an edge over HD-DVD.
That edge was vital to blunting HD-DVD's price advantage. HD-DVD players can be had for as little as $99, and its HD-DVDs cost less to produce. By contrast, Blu-Ray players start at $350.
That said, analysts say the chances of a comeback for HD-DVD are slim. Harris points to the move by Blockbuster (nyse: BBI - news - people ) to expand its Blu-Ray offerings last year as one key point. And Warner's move signals the studios are tiring of pitting the competing consumer electronics manufacturers against one another. "Hollywood is now done with this particular argument," Harris says. "They are worried about movie sales and they don't want consumers hesitating about high-definition content."