Discobolus Game*

Roberto Remes Tellodemeneses

November 1998



This article deals about the history of Digital Video (Versatile) Disc, DVD, and the series of games that this invention represents, in accordance with game theory. DVD is the continuation of Compact Disc technology, with more potential, due to its storage capacity, up to 25 times a CD, and it could revolutionize some industries. Nevertheless, none of the players has incentives to make DVD really versatile, then DVD is not Digital Versatile Disc yet, as originally was named, but Digital Video Disc, as marketing promotes it.


*This paper was prepared to be presented at the course of Applied Game Theory and it is also posted at http://www.oocities.org/CapitolHill/Senate/6123/itam.html




Discobolus Games

A little history of DVD

In 1982, Compact Disc audio systems were introduced. Between 1982 and 1996, more than 400 million players and more than 6 billion discs were sold.1 Some years later, the CD-ROM appeared, based on the same disc, but aimed to computers. ROM means Read Only Memory, and by 1996, 35 million CD-ROM drives were sold. For audio systems, CD contains approximately the same recording time than the older long plays, time in audio discs is enough to storage an album of more than 60 minutes. For computers, CD-ROM may have some limitation, basically due to its storage capacity 0.68 Gigabytes (Gb). It can store video but not in full-screen unless the video is short or low resolution.

The manufacturers of Compact Disc players began to research on a newer and powerful system that could allocate more music, information and also video. Videocassettes are cheap, but they are not able to allocate high quality images nor CD quality audio. Laser Discs have been unable to penetrate successfully in this market. Then, the manufacturers saw new opportunities if they could make a portable video disc that could establish a new standard. "The industry was seeking a new absolutely must-have product".2

Two groups of investors began to design the new system. One of these groups was Toshiba-Matsushita (Panasonic)-Time Warner. The other was Sony-Philips, the inventors of the original CD. Each of them was developing their own standards, and obviously, they wanted its standard to be kept by the industry.

Sony-Philips system was similar to the original CD. It would store 3.7 Gb on a single side disc, and it was based on similar technologies. It was named Multimedia Compact Disc (MMCD) and its standard was considered conservative among motion-picture industrials.

Toshiba's was planning a new revolutionary format: double sided discs, super density, with 5Gb storage capacity on each side. Then, Toshiba got support from many motion-picture industrials. It was thought that their format was the only way to accommodate full-length digital movies.

If any of the new system developers would have launched its product, the failure of the videocassette recording would have repeated. The two incompatible formats would have led to the drop of one of them. The consumers of the failed technology would waste their money. Sony and Philips created a group of storage experts to review their format, but it also reviewed Toshiba's format. This group was named Technical Working Group (TWG) and it made an overwhelming conclusion. Sony had to develop, with Toshiba, the standard to compatible high capacity discs.3

"In August 1995 the TWG deemed each format acceptable for computer applications, but the team found it unacceptable that both formats had not been unified".4 IBM offered to arbitrate technical differences. Sony and Toshiba accepted, and TWG was still leading the agreement between the two groups. Finally, on September 15, they got a single format. It took "the thin substrate and error-correction code from the Toshiba/Time Warner proposal and the signal modulation code from the Sony Philips format".5

The next three months of 1995 were dedicated to fix the remaining details. On December 8, the new format for read-only discs was announced as Digital Versatile Disc or DVD-ROM. TWG continued its work on the erasable formats (DVD-RAM) and write-once DVD-R. Some marketers have also christened DVD as Digital Video Disc. A DVD ROM can store 4.7 Gb per layer (8.5 in a dual layer side and 17Gb in a dual layer double side disc, DVD-RAM has less capacity).

Once this agreement was reached, the problem was not only to produce DVD drives, but also to encourage software and video makers to use this new technology. Some motion-picture producers had the opportunity to resell their old movies in the new format, besides the promotion of the newest. Nevertheless they were afraid of new piracy potential. VCR pirates did not keep video and audio quality, but with a digital reproduction, pirates would be able to duplicate with the same quality of the licensed discs. "No problem. Hollywood and home-electronics makers agreed to make the hardware pirate-proof".6 This pirate-proof hardware was against computer industrials, who said that computers would not be able to copy software nor files.

The next step was setting regions to avoid piracy among them. For example, if one DVD was produced in USA, it will only be played in North America, excluding Mexico; with the region code, every equipment can play a DVD only from its region, but not from other regions. That was an insistence from Hollywood firms. The world was divided into six regions: Region 1, United States and Canada; Region 2, Europe (excluding ex USSR), Japan, Middle East and South Africa; Region 3, Southeast Asia (including Hong Kong); Region 4, Oceania and Latin America; Region 5, Africa (except South Africa), Ex USSR, India and not mentioned Asian regions (except China); Region 6, just China.7

Mexico provoked some problems in setting regions, because MCA, the owner of Universal Studio, wanted that Mexico would stay in Region 1, but Warner Bros. wanted Mexico to be in Latin American region. Hollywood would not produce DVD movies until the regions were fixed and pirate-proof. And then, no software, no hardware.

Launching of the first DVD

"Since DVD Video was first launched in early 1997, it has surpassed industry expectations and is quickly becoming the most successful new technology launch since compact discs were introduced", says the site of the nonprofit organization that controls standards for DVD, DVD Video Group.8 Nevertheless, the problem with technology standards remained some months before the launching, originally scheduled for October 1996 (for both video and computer industries), and titles of DVD are still a few.

One of the main reasons to this slow advance is the two generations of DVD. Some manufacturer launched, as Creative Labs, first generation drives and promised to update the equipment when the second generation were sold. The difference between first and second generation is not clearly established. First DVD sold around the world were mostly Region 1.9

Region 4 was launched in Mexico just some weeks ago, now December 1998, and the promoters in Mexico are Panasonic, Sony, Philips, Columbia Tristar Home Video and Warner Home Video. Some computers now come with DVD, and they are announced as 2nd generation, and the region is not important yet.

Originally, DVD should be the tie between all electronic devices. Until now, the digital discs are developing different routes. Computers use their DVD drives for computer software, audio industry is still selling CD discs, and video industry is selling both VHS and DVD-Video. Since DVD video are not still compatible with DVD computer drives, rewritable DVD drives cannot record DVD video and DVD-RAM will not be an alternative to jump regional codes. It is expected that in the next years DVD will be compatible to all systems. The main problem is supposed to be that the technology is very expensive, and it will be cheaper when DVD rise its market share in both computer and video systems.10

A 1997 forecast predicted that by end of 1998, "the DVD PC market will grow to 24 million units, six times the predicted number of DVD video players".11 ATI Technologies is now selling a chip that allows computers to play movies on the monitor or to send the signal to TV screen.

But, what about regions? Some manufacturers announce free-code systems or chips, and they guarantee that their systems are compatible with the six regions. Additionally, the discs are being enforced with codes that avoid duplication. Copies from DVD to VCR are now almost impossible, because the DVD reproducer interprets the signals and send errors to the VCR. Piracy seems not to be a problem in the short term.

The Discobolus games

The short history of DVD is a series of different games, where the players play in accordance with their expectancies. I will analyze five different games.

  1. Standard's specifications
  2. Anti piracy policies and a little more
  3. Mexico's region
  4. Video versus versatile
  5. Fiasco in the expansion of DVD

1. Standard's specifications

Once Toshiba and Sony were known that the other was developing a powerful technology for digital discs, each of them tried to defend their own technology. Every one of them had incentives to do it. They have not only invested a lot of money, but also they expected that the owner of the predominant technology will win the storage information and video market. Nevertheless, they were afraid to lose in this battle.

This game is similar to the battle of the sexes, but the outcome could be unexpected. Suppose that both players, Toshiba and Sony, decide to launch their own disc system. One possibility was that the DVD had a low performance in the market and nobody bought it, typical "battle of the sexes" game. The other possibility is that the battle reproduced the VHS-Betamax war, where the winner was VHS, and the losers were Betamax and first Betamax buyers.

Every one of them saw itself to have almost the same risk than the other. Toshiba's technology was more powerful, but Sony's was closer to in force CD technology. None of them was significant players in VHS vs Betamax struggle, but they were significant participants in the electronic devices market. If both would have launched their discs, they would have also sent a signal to the market: next time we may fight ... we will fight.

Then, the possibility that the standard specification would be a repetitive game, incentived the players to establish a common standard. But, who did the first step? Sony was thinking in the last details to launch its system, and that is why they decided to call TWG to check their format. TWG saw not only that Sony standard meant a less aggressive change to the industry, but also that Toshiba's had more potential. TWG should have recommended Sony to bargain with Toshiba, because Sony's risk was actually bigger.

If Toshiba's disk had less risk, why Toshiba's group accepted an agreement? Under this uncertainty, and the possibility to bargain, Toshiba had three different scenarios: bargain, no bargain and win, no bargain and loss. First and second scenarios were positive and third was negative. The gains for scenario two were the same than the losses for scenario three, but there had uncertainty despite Toshiba knew that its technology was better. In the first scenario, the gains were less, but there had some certainty to be.

These were the payoffs that Toshiba must have analyzed in August 1995:


where A=gains with bargain, B=gains with no bargain and win, C=losses with no bargain, p=probability of win with no bargain. Gains with bargain may have included the possibility of having another struggle with standards specifications in the next years. The outcome was a common standard for high capacity discs.

2. Anti piracy policies and a little more

Digital Versatile Disc was, at least in the newspapers, a revolutionary product that could tie computers, video, audio, video-games, and also it could transform the way other things work. Just imagine this: instead of tons of inventories in videoclubs and audio stores, just one disc of each item, and the customer goes to the store (same for video and audio) and ask for a movie that is saved at the moment in the client's language. Once the client have watched the movie, he/she deletes it and calls to the store to report a security code that the DVD reproducer sent to the screen, instead of going back to the store (or the movie can be programmed to play for two days). Another option is that every customer may decide what songs of different discs is going to pay for. A complete transformation of many industries.

Nevertheless, the potential of the DVD was against some of the promoters of the technology. Copiable DVD means more piracy than that we have today (which is a big problem). But not only this. Copiable DVD means that anybody could install its video store, only paying licenses, instead of having big, and monopolistic, videoclubs. However, the biggest videoclub chain is Blockbuster, and its owner is the same owner than Paramount, a big Hollywood company. Like this example, there are some more. Columbia Tristar, Time Warner, Polygram, MCA, etc., were in DVD business, as disc producers; they were afraid of piracy potential. Then, no discs, no disc players.

The game for makers was between limit piracy or not. If they limited piracy, they would have higher costs and the market would grow slowly. If they would not limit piracy, there would not be discs, and nobody would like to buy a DVD player. The threat of Hollywood firms about not to launch their movies in DVD was credible.

If the game for Hollywood was between fight or not, the Nash equilibrium, and also the dominant strategy, was that DVD player makers agree with discs makers some codes that would limit the industry, but guarantee that pirates would be away from DVD.

DVD participants agree to establish regions to restrict piracy. Players sold in one region cannot play discs form other regions. China, a frightening pirate, was set in an specific region, which will limit the develop of DVD in that country. This agreement is an opportunity to keep different marketing strategies among regions, different times to sell DVD of Titanic in United States and Europe. But, what about Mexico?

3. Mexico' region

Since Octavio Paz' Labyrinth of solitude, Mexico has been wondering to what part of the world belongs. NAFTA reinforced North American destination, but racially and historically Mexico is Latin American. For MCA, Mexico is North America, because most of the movies come to Mexico with differences of days, and usually we got newer technology than in Central and South America. For Warner Bros., Mexico has the same potential for developing piracy. Then, Mexico is in the fourth region.

If MCA wanted Mexico in Region 1, was because MCA was calculating a good business in that agreement. Did the firms involved in the DVD think in customers when they divided the world in six regions? For me, it is clear that they thought in themselves. Suppose now that MCA threatened DVD team with going out of the team if they put Mexico in Region 4 instead of Region 1. Was it a credible threat? I do not think so. If MCA went out of the team, the team can still function without an agreement, and some years later MCA would have to pay more to sell Universal movies in DVD format. Of course that the rest of the team wanted to have Universal-MCA in the team, but without agreement, the team simply did not work.

Mexico was set in Region 4 because MCA preferred an agreement, rather than fight with the rest of the team. Suppose that every time that MCA or Warner said Region 1 or Region 4, respectively, the agreement had to be postponed one week, to the next meeting. Every week meant that DVD was going to be ready one week later. Then, the argue between MCA and Warner costs money. More time for the agreement, more money spent.

I think that MCA evaluated the decisions of Mexico consumers, and probably most of them are a priori indifferent to the Region. Nevertheless, some years later, we will need to buy some DVD upgrades, in order to read both Region 4 and 1 in Mexican players.

4. Video versus versatile

The name of Digital Versatile Disc comes, obviously, from its supposed versatility: one disk that can store either video, audio or information. DVD should have gone from TV to computer or to the audio store. Nevertheless, what we are seeing is a powerful disk that can only be watched on TV or PC, but not in both. It is no longer versatile. Most of player makers consider the DVD as Digital Video Disc, and probably it is so.

Officially there are some technical problems to make DVD "versatile". However, it is not completely credible that player makers are unable to join video and computers through DVD. For example, there are some digital video cameras that can save a movie in a computer card and with an adapter they could send the signal to the television.12 Besides, internet can be used through the TV. Technologies can be expensive, but they are close to us, and in a bigger market, DVD could be cheaper and versatile.

Then, why no one has sold a really versatile DVD? I checked about DVD in the page of the Federal Trade Commission (FTC) of United States, and there is not any demand about DVD. None competitor of DVD makers has demanded about this product. None consumer has demanded it in the United States. Why? DVD Video Group is a nonprofit organization that makes the promotion of the technology. Codes are available for US$5000, but penetration is advancing so slowly that it seems to be a game where everybody cooperates with the others: Tit-for-tat.

Everybody wants to sell its product, video players, drivers, audio players, movies, music, games, encyclopedias, etc. Nevertheless, none of this competitors wants the other in its industry. It is enough with the competence that everyone confronts now. But, what about being the only player in selling an universal DVD? May one be the king of DVD throwing the truly versatile DVD first? I do not think so. It is a simultaneous game. Most of player makers should have a universal player designed, but they are waiting that the other take the first step, because nobody wants to buy an additional lamb, unlike "The Tragedy of Commons".13

Is ATI Technologies an important player? Of course it is not, that is why they are promoting a chip to watch video DVD in PC. The makers of DVD Booster, that jumps regional codes, are not important players. But, there is no new player that threaten Panasonic, Sony, Toshiba, Philips, etc. If they tried to introduce a compatible player for video and PC, they would, in fact, be introducing a lamb to their common land (market).

Everyone's game is introducing or not a powerful player, and the game is simultaneous but repetitive. If one introduces the game, but the others do not, the first wins; nevertheless, in the next time the rest of the players will introduce their versatile DVD, and everybody will lose. Everyday is the game, until one of day one say "it's my turn". Tit-for-tat.

5. Fiasco in the expansion of DVD

The first time I read about DVD technology, in 1996, it really surprised me. Accustomed to the 1.4 Megabytes (Mb) of a diskette, and hard disks drives smaller than 1 Gb, the idea of having 17 Gb in a disk or at least 9.4 Gb in a recordable DVD-RAM, is still amazing. I was thinking that in a few months we would see DVD video recorders in the windows of electronics' shops. Nevertheless DVD is advancing slowly, very slowly.

Is it common with other products? Well, in video games, when Nintendo governed the market of 8-bit systems, Nintendo did not think that it should introduce 16-bit systems to avoid competition. Then, Sega introduced 16-bit systems and Nintendo lost market participation. Is this the case of electronics' makers? I hope so, but I do not think so. All important participants are involved with DVD Video Group, and if one of them is not, it does not matter, next day the rest of the players will sell their powerful DVD equipments.

In the future, DVD will be available for universal applications. How? Like in the case of Booster or ATI chips. Small players will improve technology of the bigger players. Small players do not participate in Tit-for-tat, and bigger players are not able to "convince" them, because it could be considered unfair, by FTC.


The case of DVD is an interesting case of how DVD participants play a series of games, some of them simultaneous, repetitive, and cooperative. In DVD industry participate different kind of players: from electronics makers to Hollywood enterprises, everyone has its own game.

From its beginning, DVD design was a game. The battle of the sexes can be the first chapter. Two standards, none of the developers wanted to concede, both tend to be losers. Agreement was finally reached, and the losers were the consumers, DVD is being introduced slowly, Hollywood invented the regions to avoid piracy, and DVD now is weak. Some gadgets are available to avoid regions, but duplication is almost impossible, then DVD is a little weaker. DVD has lost its original potential. I think one day it will recover it, but meanwhile DVD is a fiasco.