HD-DVD and Blu-Ray are contending to be the next DVD. Since it isn't clear which, if either, will win, there is uncertainty in the market that is depressing DVD sales. This comes at a bad time for The Studios because they were expecting a rise in DVD sales to compensate of the declining relevance of first run theatres.
One of the reasons that the Format War is dragging on is that the two formats are very similar to each other. They even share the same DRM system, AACS. AACS was cracked recently, but last week AACSLA announced that they were issuing device revocation codes for WinDVD. That means if you play a disc with updated AACS DRM codes on your WinDVD player, the player will stop working.
This is obviously very bad news for people who own WinDVD. Since it is a software product, you can get patches which will provide it with a new set of keys. It will also contain new code which is intended to make it harder for hackers to discover the keys. Will it be effective? It's doubtful.
Meanwhile, a new hack was released that allows an Xbox 360 HD-DVD to reveal volume keys. The dilemma that the AACSLA has to face now is should they revoke the Xbox 360 HD-DVD? This is a hardware device. If they revoke these devices, those boxes are dead. The owners of these devices will have a reasonable expectation to some sort of legal remedy. The marketshare of the new format players will take a huge leap backwards. Consumers will see that if you buy a DRM product, it might fail due to no fault of your own. Because it is certain that the Xbox 360 HD-DVD hack will not be the last one, other devices will be compromised, and the business consequences of revocation will get worse and worse.
Or AACSLA can accept the defeat. CSS, the DRM system in DVD was defeated years ago, and yet DVD is still a great business. The fact is that DRM doesn't work. It would be nice if it did work, but the reality is that it doesn't. You can make more money without it.
They say that where there's smoke there's fire. But sometimes, where there's smoke there's guys blowing smoke.