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Thursday, January 5, 2006 - Page updated at 12:00 AM

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Gates aims barbs at dueling formats

Seattle Times technology reporter

LAS VEGAS — Bill Gates' annual speech Wednesday to open the Consumer Electronics Show had the usual funny bits and views on future technology. But the Microsoft chairman also used the podium to fire a volley in a war over digital media formats that's erupting at the massive trade show and threatening to replay the VHS-Betamax fiasco of the early 1980s.

At issue are two competing formats for super high-capacity discs coming onto the market to record and play high-definition video content.

Within a few years, one of the formats is likely to eclipse DVD discs as the standard way consumers buy or rent movies. But movie studios, electronics companies, Microsoft and personal computer makers are still fighting over which format should become the standard.

Gates' keynote traditionally kicks off what has become the electronics and computer industries' largest consumer showcase. The speech is also an opportunity for Microsoft to pitch its technology vision to electronics manufacturers, retailers and journalists gathered at the huge show.

The company begins preparing Gates' speech midyear and hones the message over the holidays. Wednesday morning, Gates gave it a final polish during a rehearsal on stage at the Las Vegas Hilton with a coterie of executives who have spent years working to establish Microsoft's position in the consumer arena, including Chief Technical Officer Craig Mundie and Vice President Joe Belfiore.

Most of the speech focused on software Microsoft is developing to improve use of PCs, phones, television and video games.

Gates said the company is focusing on how to make all these devices work better together, in ways that recognize individual users and continually connect them to their information.

"It's not just software for the PC or software for the phone or the video game, it's software for the user," Gates said.

His presentation's focus on digital media — including formats and new ways to play, store and buy content — comes as consumers scoop up digital televisions that could create demand for higher-capacity recorders.

Sales of digital TVs grew 60 percent last year to $17 billion and are expected to surpass $23 billion in 2006, according to the Consumer Electronics Association hosting the show. The industry group forecasts total consumer-electronics spending of $135.4 billion this year, up 8 percent from $125.9 billion in 2005.

Backers of the different disc formats have been haggling for years trying to reach an accord, but this week they're taking the fight public, introducing different products and letting consumers make the final choice.

Most movie studios and the biggest electronics companies support a format called Blu-ray. It uses DVD-sized discs that can store up to 50 gigabytes apiece, compared with up to 16 gigabytes stored on a double-sided DVD.

Microsoft, Intel and Toshiba are the leading backers of a competing standard called HD-DVD, with discs that can store up to 30 gigabytes. Microsoft contends it's cheaper to produce HD-DVD products and that the standard offers consumers more flexibility.

For instance, Belfiore showed how users can make personal copies of HD-DVD movies.

"A lot of this show has to do with people taking positions and making statements, but where the rubber hits the road is at the retail level, where consumers speak with their wallets," said Andy Parsons, senior vice president at Pioneer Electronics, which introduced a home Blu-ray player to go on sale in May for $1,800 and a Blu-ray recorder and player for PCs to go on sale by March for $995.

Gates weighed in by demonstrating a Toshiba HD-DVD player for sale later this year for about $500, less than a third the price of first-generation Blu-ray players.

Gates also said Microsoft will sell an HD-DVD drive that attaches to its new Xbox 360 video-game console for viewing high-definition movies recorded in the format. The company didn't disclose a price or display prototypes of the gadget.

Consumers are likely to be frustrated by the dueling formats, and it may take until 2008 for them to widely embrace one or the other, said Rob Enderle, a Santa Clara, Calif.-based industry analyst who has consulted for Microsoft.

"Right now it's a Betamax vs. VHS fight; in fact, some of the same players are involved in this one," Enderle said.

Gates' HD-DVD pitch was subtle. He mostly talked up new products from Microsoft and industry partners.

A highlight was demonstrations of the interface and media player in Windows Vista, the new operating system going on sale around the fall.

Also unveiled were new Windows-powered mobile phones, including the Treo 700w from rival Palm and a model from Motorola, and "Flight Simulator X," the latest version of the company's venerable PC game.

Gates showed off two upcoming home phones from Uniden and Philips that resemble standard cordless phones but connect to Microsoft's messaging software to place calls over the Internet.

The company brought pop star Justin Timberlake on stage to pitch a new digital music service called Urge, being developed by Microsoft and MTV.

Gates opened the speech by showing potential future innovations, including a large PC display and message center that could be available to consumers around 2010.

He also unveiled an iPod-like device from Microsoft partner Toshiba.

Instead of the usual humorous video, Gates ended his speech with live-action comedy. He and Microsoft Chief Executive Steve Ballmer took each other on in a virtual boxing match, the Wizard of Windows vs. the Motor City Hitman, demonstrating an upcoming Xbox 360 game called "Fight Night Round 3."

Brier Dudley: 206-515-5687 or bdudley@seattletimes.com.

Copyright © 2006 The Seattle Times Company

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