TOKYO--A major development in the next-generation disc wars took place this week, with Sony's top rival in the format flap inking a pact with its main competitor in the games market. At a Tokyo press conference on Monday, Microsoft and Toshiba announced that they will jointly work on the development of HD-DVD players that use Microsoft Windows CE technology.

Toshiba hopes the alliance with Microsoft will help streamline production of the next-generation DVD player. "I believe this will bring practical benefits, such as a shorter development period and lower costs," stated Atsutoshi Nishida, president and CEO of Toshiba. The two companies also announced that they plan to develop mobile PCs that use the next version of the Windows operating system, known as Longhorn.

Microsoft chairman Bill Gates, who also attended the event, commented that Microsoft "has taken a neutral position as to the format [dispute]" between HD-DVD and Blu-ray, the format Sony is backing. However, when asked if Microsoft's Xbox 360 will adopt HD-DVD, Gates commented that initial shipments of the console will be based on the current DVD format as planned, but the machine may incorporate an additional capability to read HD-DVD in the future.

The Blu-ray and HD-DVD factions have waged a three-year war to get their format adopted as the next-generation standard for home media. In February, the two sides called a truce when they began negotiations for a unified standard that takes advantage of both formats. The negotiations broke off without any results, and the two camps have sent mixed messages about whether or not they will resume talks.

Nishida dodged questions about whether his company's new project with Microsoft would have any impact on negotiations for a unified disc format. "It's hard to answer that," he said. "We must see things from our end user's point of view."