[Felix Torres]

Yes, both formats support all three codecs but for different reasons.
And the studios can't afford codec proliferation; its not unlike OS migrations. You need new expensive back-end tools, training, etc. Now imagine the versioning control issues of managing multiple versions at different resolutions and different systems of each bit of content. The studios have no experience with that and they'd rather not acquire it if they can help it. Which is why the studious hate the format war and have tried to pick one format if possible. Going format agnostic is *expensive* in dollars and personnel.

This one reason BD was intended as an MPEG-2 only system from its inception. DVDs are MPEG2 and the structures are all in place to support MPEG2 and Sony sought to offset the higher hardware costs of BD with lower content-development costs, which is why they fought tooth and nail in the steering committee to keep it MPEG2-only. Adding VC-1, in particular, was done almost literally "over their dead body" and only because:
1- SMPTE tests had proven conclusively that VC-1 was markedly superior to the other two standards (the only reason SMPTE certified a MS-supplied tech)
2- HD-DVD had already adopted VC-1 as its *primary* codec.

Once VC-1 was on the table, Sony relented and added MPEG4 to try to dilute the VC-1 presence on BD. They were not happy with either addition, though; partly, because VC-1 is a cpu-intensive codec so it added costs to the player, but not as much as the costs added to the use of a JAVA-based menuing system; notice how the reviews point out the slow response of the BD menus? The BD-only studios are trying to save money on their end of the deal and likely ending up with the worst of all worlds, the way things are going.

Over on the other camp, MPEG2 is supported by HD-DVD for backwards compatibility and with the view that companies might want to take multi-dvd sets and condense them into one or two HD-DVDs without having to transcode. We may someday see non-HD TV seasons packaged in dual or triple-layer HD-DVDs.

MPEG4 was added to the HD-DVD spec at the last minute at the insistence of several hardware manufacturers who were uneasy at a spec that was starting to turn almost 100% Microsoft and who already had a lot of money invested in MPEG4 recording hardware. There has also been a lot of talk among the cell-phone vendors on standardizing on MPEG4 for phone-based video so the intent there was to support MPEG for end user-generated content, not for movie distribution. So adding MPEG4 to the spec was good for Apple, indifferent to MS, and bad for DiVX.

H.264 is basically a back-to-the-drawing-board, me-too, stretch of the basic MPEG4 spec to try to match DiVX and WMV (which isn't the same thing as VC-1, though they share common roots). Depending on the display device, H.264 can be pretty good at medium resolutions (VGA/XGA) but it is reportedly a distant fourth in the HD codec wars behind the various MS and DiVX products out there and the theatrical version of Motion JPEG2000.

(And yes, MPEG2 is decidely inferior to the four modern codecs; it doesn't compress as much, its color-space and dynamic range are more limited, and it produces more visible artifacts even at a lower compression rate. Think about it: would there even be an MPEG4, not to say anything about H.264, if MPEG2 were able to compete with DiVX and the MS codecs? MPEG2 was never meant for HD.)

Now, the differences between all four of the top contenders depends more on spec implementation and product limits than the average viewer's ability to discern, but the way I hear it, the current gold standard for absolute video quality is Motion JPEG2000, which is why it was adopted as the primary standard for digital cinema (in an implementation of greater-than HD resolution and very light compression that means each movie takes hundreds on GB of space and outrageous streaming rates--not a consumer product for a long time and that's the way they want it.)
Next up, come VC1 and WMV9 in their various incarnations including the form used in some digital cinema applications. Whether this continues depends on how cheap MotionJPEG2000 implementions can get. Indie movie makers like the low-cost WMV eco-system a lot so the MS spec may remain as a secondary digital cinema standard. It does allow for optical media movie distribution instead of encryted hard drives, after all.

DiVX HD reportedly has a slight edge over H.264 and they have even managed to sneak their codec into a few consumer electronics products but DiVX is probably fated to remain a PC-centric tech.

And then there is H.264 which is expensive to license but broadly supported in the cell-phone and camera arena. It is the codec of choice for those without a high-quality codec of their own, but it looks like it can barely play in the 1080p arena and won't likely stretch into QuadHD or digital cinema like VC-1 and Motion JPEG2000.

One of the reasons HD-DVD got an early start on BD (and could have launched as early as last summer if the DRM spec had been ready) is that it strongly leverages MS back-end mastering software for the creation of HD content. Because MS has long been aggressively courting the digital-theater market, they already had a suite of very high-grade mastering tools ready for VC-1 users on the day the submitted it to SMPTE.

BD, on the other hand, didn't finalize its spec until late this spring and, because Sony had envisioned it as an MPEG2 medium from day one, and in fact sold it on the basis that no new Mastering tools would be needed--just the existing DVD-generation tools, every single BD shipping this year and for the forseable future will be MPEG2. The BD camp simply has no tools with which to master the disks in anything else. Yes, theoretically, they can take a VC-1 file intended for HD-DVD and put it on a BD disk, but the data structures and data rates between the formats are different. And the audio and menu systems are different between the two standards, so it is a non-trivial effort to convert an HD-DVD release to a BD product. Hence the differences between the paired releases in the reviews.

From what I hear, what happened was the the MS folks did a very good job in setting the WMV parameters that produced the VC-1 spec and produced a near-optimal balance of compression, color space, data rate, and dynamic range. And, judging by the reviews I've seen, they hit a homerun in dynamic range so that VC-1 content, all else being equal on the originating source, produces more vivid, clean, lifelike output that is simply better looking to the human eye.

Now, theoretically, BD could come very close to replicating VC-1 quality just by throwing bits at the problem; running MPEG2 or MPEG4 at lower compression ratios, but they are limited by the amount of data they can stream out of the hardware and, worse, by their inability (to date) to produce measurable yields of the dual-layer BD50 discs. The rumor mill says the yield of usable dual-layer BD-ROMs are in the single digits and not too high, at that.

So, while each decision Sony and the BD-camp made in crafting the BD-ROM spec is individually defensible, the aggregate result is a flawed system that is potentially *fatally* flawed as a consumer product if they can't find a way to stamp out BD-50 discs within the next year or so. Getting the tools to produce VC-1 or MPEG releases alone won't do the trick because, without BD-50, HD-DVD would have the long-term edge in capacity (30GB, maybe 45GB vs 25GB), in disc cost (the film used to stamp out the data layer in BD disc is sole sourced, from Sony, of course), and (for now) in player retail pricing. (At $600 the PS3 is no panacea here.) Fixing the image quality problem does nothing to help sell BD because "as good as" is only a selling point if you are cheaper. If BD is going to sell at a premium over HD-DVD, it has to be clearly superior in enough aspects to justify the premium. And that is not in the cards for the first-gen BD-products, so HD-DVD seams to have the field to itself at least through summer 07.

So, as far as 2006-07 goes, the format war has in fact degenerated into an asymmetric race between a fully functioning system (HD-DVD) seeking to bring player prices down to the magic $300 before the competition can get their fundamental product manufacturing flaws fixed. And that doesn't even begin to address the player pricing issues BD faces.

The way it looks now, BD was rushed to market half-baked. If HD-DVD did not exist, we likely would not have seen a BD product hit the market before 07 or even 08.

In the world we live in, though, HD-DVD has a 2006 edge in available titles (400-200 announced by XMAS), cheaper, more responsive players, capacity, image quality, audio flexibility and/or quality, and are winning the hearts and minds of early adopters, especially the golden eyeball home theater crowd.

Its way early in the ballgame, but giving up grandslams in the first inning is not conducent to winning ballgames. BD has a *lot* of catching up to do in 07. And job 1 is getting those BD50 discs out the door. Cause otherwise its game over by 08.