"Paramount is poised to drop its support of HD DVD after Warner Brothers' recent backing of Sony's Blu-ray technology, in a move that will sound the death knell of HD DVD and bring the home entertainment format war to a definitive end.
Paramount and DreamWorks Animation, which makes the Shrek films, came out in support of HD DVD last summer, joining General Electric's Universal Studios as the main backers of the Toshiba format.
However, Paramount, which is owned by Viacom, is understood to have a clause in its contract with the HD DVD camp that would allow it to switch sides in the event of Warner Bros backing Blu-ray, according to people familiar with the situation.
Paramount is set to have a bumper 2008 with several likely blockbusters, including the latest instalment in the Indiana Jones franchise.
Paramount joining the Blu-ray camp would leave HD DVD likely to suffer the same fate as Sony's now obsolete Betamax video technology, which lost out to VHS in a similar format war in the 1980s.
Warners decision last week to throw its weight behind Blu-ray saw it join Walt Disney, 20th Century Fox and Metro-Goldwyn-Mayer as backers of the Sony format.
The Warners move gives Blu-ray about 70 per cent of Hollywood's output, although the format's grip on film content will increase further when Paramount comes aboard.
It is unclear whether DreamWorks Animation has the same get-out clause in its contract with the HD DVD camp.
However, Paramount and DreamWorks have a close relationship, with Paramount distributing DreamWorks Animation films. The two companies also signed their HD DVD contracts at the same time. Meanwhile, Universal has declined to comment on its next-generation DVD plans since the Warners move.
Sir Howard Stringer, chief executive of Sony, on Monday held out an olive branch, saying the company would be "open to dialogue" with the HD DVD camp to "grow the market". The move came as new figures showed that Blu-ray had opened up a decisive lead over the rival home entertainment format.
Sir Howard said: "We are not going to push people around. We'll talk to anyone ... we have a lot of work to do to grow the market. We'll be systematic and open to dialogue at all times."
He added that Sony still had "a lot of work" to do to get Blu-ray "widely accepted" among American consumers.
"With Warner's support you saw billboards going up in different places and you saw television commercials getting more and more sophisticated and that's what we'll continue doing," said Sir Howard."