Yesterday Paramount dropped a bomb on the format war. AV web forums and blogs are buzzing with the pro-HD DVD celebrating the victory and the pro-Blu Ray wringing their hands and making excuses. What impact does Paramount's decision have on the format war?

Before the announcement Universal stood alone with Weinstein (who is a smaller player) as the only HD DVD exclusive studios. Warner Bros. and Paramount released on both formats, and New Line is going to release on both formats as well. That left Blu Ray with Sony (Sony Pictures, Columbia TriStar and Screen Gems), Fox, MGM, Lionsgate and Disney. Very lopsided toward Blu Ray. Let's look at 2007 YTD box office receipts:

1. Paramount 18.1% 2. Warner Bros. 14.8% 3. Buena Vista (Disney) 14.1% 4. Sony (14%) 5. Universal (11.3%) 6. Fox (10.9%) 7. New Line (4.5%) 8. MGM (2.9%) 9. Lionsgate (2%) 10. Weinstein (1.9%) Excluding neutral studios, that gives Blu Ray 43.9% of the 2007 box office and HD DVD 31.3%. Obviously getting the number one studio at the box office for 2007 helps HD DVD out tremendously. Before, Blu Ray adopters might have missed being able to get Universal titles, but could have lived without them because of the one sided tilt of studio support. With Paramount going HD DVD things even out substantially.

Here's what we know: YTD Blu Ray versus HD DVD software sales are 66% to 34%. Toshiba and Universal could have continued to hold out for a year, maybe two, but the numbers don't lie and eventually Universal would have relented and started releasing Blu Ray. The Paramount decision strengthens Universal's HD DVD exclusivity as they no longer stand alone. Here's something else we know: Sony claims a dominant 10 to 1 advantage in installed hardware. However, the overwhelming majority of Blu Ray players in people's homes are Playstation 3's. People who buy stand alone Blu Ray and HD DVD players have high definition televisions. People who buy stand alone Blu Ray and HD DVD players will buy movies. People who buy Playstation 3's don't necessarily have high definition televisions and won't necessarily buy movies. In fact, people who buy game consoles are generally fickle and may not keep the hardware for a long period of time.

While Sony enjoys that big 10 to 1 number, here's the number that really matters: HD DVD stand alone player sales outnumber Blu Ray stand alone player sales 3 to 1. So, in the face of a 10 to 1 installed hardware disadvantage, HD DVD has managed to hold 40% of HD optical software sales and is outselling Blu Ray hardware 3 to 1. Not bad for a format that only had Universal. Since inception, Blu Ray enjoys a 60% to 40% lead in software sales. Look for this announcement to stimulate HD DVD player sales between now and Christmas, and look for that software sales ratio to even out to close to 50/50. Right now we are looking at a stalemate.

There are only so many things the two camps can do to strengthen their positions further. New Line would be a nice exclusive for either side, but after Lord of the Rings, the numbers their library would produce are negligible. Lionsgate could jump the Blu Ray ship, but again, the numbers their catalog would produce are negligible. Now that the two sides are on a level playing field, one studio can decide this format war, or force it to continue. Warner Bros. Warner Bros. would be the weight that would tip the scale beyond the other side's ability to recover. Warner Bros. has enjoyed decent HD sales on both formats, but has favored the HD DVD side with exclusive catalog releases like Batman Begins and The Matrix box sets. Warner may not be inclined to want to force the issue, and they may be just fine with the revenue they see from selling on both formats. Or, they may understand that picking a side and throwing their weight behind a single format, while initially losing them some sales, would eventually result in one HD optical format. This would result in a greater adoption rate, and eventually replacement of DVD as the standard medium for home video. I've said that neither side seems interested in winning the format war. Whoa Nellie! Toshiba just hit Sony with an uppercut to the chin. We'll see if Sony comes back swinging, or if Toshiba continues to pick up momentum. In any case, get some popcorn and take a seat, because the format war is starting to get interesting.