In response to this week’s Blu-ray Disc Festival in Los Angeles, Kevin Collins, director in the Microsoft Consumer Media Technology Group, defended the company’s backing of the next-generation HD DVD format.

“The [Blu-ray] camp’s claims about Microsoft’s desire to have a format war are baseless,” Collins said. ”Microsoft has over 100 people working on HD DVD interactivity and we believe that HD DVD is the next-generation optical format.”

During a presentation to journalists and home theater enthusiasts at the Blu-ray Festival earlier in the week, 20th Century Fox Home Entertainment worldwide president Mike Dunn intimated that the format war is being perpetuated by Microsoft in the hopes of confusing consumers so much they don’t support either format and ultimately buy their entertainment online. He didn’t mention the computer giant by name, but blasted “the orchestrated campaigns of confusion and anti-consumerism fueled by an 800-pound gorilla that would prefer to force us all into the practice of paying tolls for the right to exchange information and enjoy entertainment.”

Collins said Microsoft decided to join the HD DVD format two CES shows ago because the format’s replication costs were and still are the cheapest. He said there are only three plants in the world that can produce BD-50 discs, and those are all owned by Sony. He added that Microsoft’s predictions around costs and availability almost three years ago still hold true today.

Another feature that Microsoft liked was mandatory managed copy, which mandated that content authors allow customers to make legal copies of their HD DVD. At the time, Blu-Ray refused to do this, but has since changed their stance.

“AACS today is rapidly approaching the ‘final agreement’ that will start to make this available for customers, though I do not have a firm timeline on this,” Collins said. “The key fact is that Microsoft believed that a next-generation format should be ‘consumer friendly’ and at the time of the decision, only HD DVD supported this.”

Collins also said the interactive nature of HD DVD would play a big role in the format, since just having high-definition video was not going to be enough to convince customers to upgrade from DVD.

“HD DVD offers compelling features by mandating that there are three key hardware components (secondary video decoder, memory and networking),” Collins said. “These offer a lowest common denominator that allows studios like Warner Bros. to produce a title like 300 that has features that are not in the Blu-ray version.”

300 HD DVD exclusives include a strategy game, the ability to view and choose from the wallpapers and ring tones via the cell phone, picture-in-picture for the duration of the movie and the ability to have a community experience where users can share their favorite clips with other 300 HD DVD owners and rate those scenes.

Collins said Microsoft did not and will not bundle the HD DVD drive in Xbox 360 because the company believes that gamers are first and foremost gamers.

“If you look historically at the attach rates (i.e. the number of DVDs purchased per DVD player) you will see that game consoles have a single-digit attach rate, while dedicated DVD players have an attach rate in the mid-20s,” said Collins. ”Microsoft knew if we put in an HD DVD drive that we would have to raise costs and disenfranchise our customers (that are primarily gamers) as the unit would become too expensive.”

Collins said price has proven out in the game console business, as Wii is outselling both Xbox 360 and PS3, primarily due to price.

“The PS3 has yet to even come close to the sales estimates that Sony was telling everyone last year at this time,” said Collins. “If bundling an HD optical drive in a game console is such a smart idea, then why is the PS3 so far behind on sales targets?

“Another fact to look at is the amount of Xbox 360 HD DVD drives sold, compared to all Blu-Ray dedicated players. As of the latest NPD data, the Xbox HD DVD drive has outsold all combind Blu-Ray dedicated players by a substantial factor. While the Xbox 360 HD DVD drive is the best selling accessory over $100 for ALL game consoles, it only represents as single digit attach rate to Xbox 360.

“This proves the initial point that primarily, gamers are gamers, while there is a small percentage that also want to watch movies on it like they would a dedicated player.”

Microsoft Xbox research has shown that Xbox gamers spend more than 200 hours playing a game versus less than eight hours watching a movie on their consoles. Since customers can only do one thing on a game console at a time, they are either playing games or potentially watching movies.

“If you look at the introduction of the PSP, what was the biggest software sales for the PSP when it launched? It was UMD,” said Collins. “Who sells UMD discs today? Sony. Why? Because once there was compelling games for the PSP, consumers spent their time playing games on the device, the primary reason it was purchased in the first place.

“We believe that the PS3 will follow the same course and that this holiday, when compelling games come out, PS3 customers will be drawn to be playing more games. In fact, if you look at the recent press releases, execs in Hollywood have attributed the declining box office revenues to the “Halo effect,” where customers are staying at home playing Halo 3 instead of coming to the movie theater.

“Another proof point in this is the attach rate for Blu-Ray versus HD DVD. Including the PS3, Blu-ray has an attach rate slightly above one-to-one whereas HD DVD has an attach rate just below four-to-one. We believe that will improve for HD DVD with cheaper price points (such as the $169 HD DVD player at Sears for Black Friday) and more compelling games coming out for PS3 this holiday.”