In the late 1980s, several companies used MPEG 1 video compression for various five-inch video disc formats, including CD video (CDV) technology, a five-inch disc that held five minutes of MPEG 1 video and 25 minutes of digital audio, and CD-Interactive (CD-i), an interactive video disc promoted by Philips. But the road to what eventually became DVD didn't open up until the higher quality MPEG 2 compression appeared in November 1994.

By this time, parallel digital video-on-CD efforts were underway. Toshiba, in partnership with Warner Brothers and supported by Matsushita, were working on a five-inch digital video disc project called "Taz" after the Tasmanian Devil cartoon character from Warner's Looney Toons, which evolved into the Super Density (SD) digital video disc format. This effort was pushed forward primarily by Warner executive Warren Lieberfarb and Toshiba executive Koji Hase. Sony and Philips, the original developers of the CD, enlisted the help of computer industry giants such as IBM, Apple, Microsoft and Hewlett-Packard, to make sure its high-density CD or HD-CD, digital video format was PC-compatible.

In December 1994, Sony officially unveiled its digital video CD, now renamed MultiMedia Compact Disc (MMCD) format. A month later, Toshiba, supported by Matsushita and Hitachi, announced its competing SD digital video CD, along with the formation of the SD Alliance, which later evolved into the DVD Alliance, comprised of a number of manufacturers and Hollywood studios.

Both MMCD and SD used MPEG 2 compression to fit two-plus hours of digital video on a five-inch disc, but each format used differing and incompatible physical layering and modulation technology. The MMCD disc was a single 1.2mm-thick disc that could hold 3.7 gigabytes and used an enhanced version of the standard CD modulation technique. The SD disc consisted of two back-to-back bonded .6mm layers, each capable of storing five GB on each side, and used a newer modulation scheme.

With a potential digital videodisc format war looming, the two sides enlisted IBM to lead a multi-company committee called the Computer Industry Technical Working Group (TWG) to mediate a solution. Along with IBM, Apple, Microsoft and HP, other members included Compaq, Sun, Kodak and Intel. IBM executive Alan Bell chaired the group.

After several meetings with both the SD and MMCD camps throughout 1995, the TWG recommended a unification of the two formats proposed by Sony: a disc adopting the SD physical configuration along with the MMCD modulation scheme, which reduced the capacity of the disc to 4.7 GB per side.

In late August 1995, most of the TWG found itself at the regularly scheduled Optical Storage Trade Association in Maui, Hawaii. The group summoned representatives of the SD and MMCD sides to the Waikiki Sheraton in Honolulu to work out the final details of the unification. The agreement was announced at the Fall Comdex in November 1995, but it wasn't until December that the SD and MMCD camps issued press releases officially announcing the new digital video disc – now dubbed the less generic digital versatile disc (DVD) – format, along with the formation of the DVD Consortium, which later evolved into the DVD Forum.

The DVD format wasn't quite finished yet, however. The Hollywood community wanted assurances against illegal copying of movies committed to digital perfection on the new discs. A new TWG, the Copy Protection Technology Working Group (CPTWG), consisting of representatives from the motion picture, consumer electronics, recording and computer industries – was formed. While Warner's Lieberfarb and others lined up studio support for the new format, the CPTWG wrangled with technical copyright protection problems.

Finally, on October 31, 1996, the industry agreed upon the content scrambling system (CSS) copy protection technology. The first DVD decks and the first prerecorded DVD titles finally went on sale in December 1996 in Japan and in early 1997 in the U.S.

DVD was not an immediate success. The laserdisc was the format of choice for early adopters and not all Hollywood studios wanted to commit themselves to yet another new video format, especially one co-owned by a competitor. It took a few years before all the major studios adopted the DVD format, with Paramount, Fox and Disney being the final holdouts.

In September 1997, Circuit City, in partnership with the Hollywood law firm Ziffren, Brittenham, Branca and Fischer, launched a limited pay-per-view DVD format called Digital Video Express, better known as DivX. An inexpensive disc would play unfettered for 48 hours using a special DivX player connected to a phone line; buyers would then have to pay for each subsequent post-48-hour viewing. In June 1999, after universal derision from consumers, Circuit City shut DivX down after spending nearly $350 million.

Despite the DivX controversy, 1998 proved to be the breakthrough year for DVD. Approximately 23 million players were shipped and nearly 2,500 titles were available by the end of the year. In 1997, video retail giant Blockbuster began renting DVDs. In 2001, dollar sales of DVDs surpassed that of VHS. In late 2001, several DVD titles including "Shrek" earned more in DVD sales in their initial release weekend than in their initial theatrical weekends.

While progressive scan technology was known, it took two years before the first progressive scan DVD players to hit the market. It took less time for a DVD-Audio deck to be introduced, by Panasonic in late 1999.

At around the same time that DVD-Audio was being introduced, a limited number of companies demonstrated recordable DVD decks. But the handful of manufacturers making the new recordable decks could not agree on a single format. Pioneer, supported by Apple and Compaq, led an effort for the DVD-R ("dash") format, Philips and Hewlett-Packard led a DVD+R ("plus") coalition and Matsushita and Hitachi championed the DVD-RAM standard. In 2002, Matsushita and Hitachi both unveiled combination DVD-RAM/DVD-R equipment. By 2004, several manufacturers had introduced dual-format player/recorders to reduce consumer confusion over formats.

While a single recordable DVD format is still far from certain, a dispute over possible high-definition DVD recording formats is developing. In February 2002, Hitachi, LG, Matsushita, Pioneer, Philips, Samsung, Sharp, Sony and Thomson – announced a high-definition DVD recordable format called Blu-ray. Using a short-wavelength blue-violet laser instead of the red lasers used in current optical drives, new Blu-ray discs will store up to 27GB of data on a single-sided disc. The first Blu-ray decks are expected to hit store shelves in the fall of 2005.

Less than a month after the first Blu-ray announcement, the DVD Forum's steering group approved the HD-DVD recording standard, co-developed by Toshiba and NEC, and based on the current DVD red laser format and using MPEG 4 compression rather than MPEG 2. In early 2005, calls for compromise and development of a single format began to grow.

Another disc-based digital format was unveiled in 1999 – hard disk-based personal video recorders (DVR) – from two new companies, Replay and TiVo. Each company offered an onscreen programming guide and software that allowed a consumer to program favorite shows for recording by simply choosing that show from the on-screen guide, or telling the unit to record anything featuring a particular actor or a particular genre of programming. Since the machine essentially recorded everything, the viewer could pause a "live" broadcast and continue watching the show at their leisure.

Several hardware makers including Panasonic (Replay), Philips and Sony (TiVo), along with Microsoft (Ultimate TV), promptly licensed the technology to manufacture their own stand-alone hard-disk recorders and to incorporate them into a number of allied products, such as set-top boxes, satellite receivers and TVs.

In 2002, several manufacturers started selling combination DVR/DVD recordable decks, and in 2003, the first DVRs capable of recording an HDTV signal were unveiled. In the fall of 2004, combination HDTV DVR/HDTV cable set-top boxes became available from cable operators, and the first combination HDTV DVRs and Cable CARD-enabled cable receivers went on sale from mainstream hardware manufacturers.

In addition to disc-based movies, digital video took off. In early 1994, digital satellite broadcasting began, beaming signals back to rooftop satellite dishes measuring just 18-inches in diameter, about the size of a large pizza.

Within a year, thanks to the demonstrable benefits of its clear digital pictures, digital sound and a variety of programming, the new satellite systems sold more units in a shorter period of time than any other new technology. In 2000, elliptical high-definition TV dishes that received high-definition digital television (HDTV) signals from space went on sale.

But 40-year-old analog NTSC broadcast television still makes up the bulk of TV viewing and, therefore, is the weakest link in the home theater experience. The lessons of the DVD alliance between Hollywood and hardware manufacturers provided the blueprint for the next great television advance.