The “Wal-Mart effect” and a series of crushing setbacks in Hollywood have left Toshiba facing defeat in its format war with Sony for domination of home entertainment.

A possible decision by Toshiba to pull out of its HD-DVD standard of next-generation DVDs — expected to be announced this month — would effectively end the battle with Sony’s Blu-ray discs after only a year of serious retail competition.

Paramount remains the largest of the big American studios still loyal to the HD-DVD format, but members of the HD-DVD consortium, which is the 135-strong corporate alliance formed to promote the Toshiba format of next-generation DVDs, told The Times that they expected the group’s “total collapse” within the next few weeks.

Toshiba’s expected withdrawal will leave millions of consumers around the world as disappointed backers of a “dead format” — with fledgeling high definition film collections on HD-DVD that will now expand no further.

The decision will also deal heavy blows to the largest corporate backers of HD-DVD, particularly Microsoft. The software giant, which competes directly with Sony in games consoles, has been the staunchest defender of the Toshiba format.

Toshiba is understood to have poured more than $2 billion (£1 billion) into developing and promoting HD-DVD, a figure thought to include the cost of offering sweeteners to various Hollywood studios for exclusivity agreements on content.

— Microsoft will announce a deal with Paramount today to supply high- definition films on demand for users of its Xbox 360 games console. The service, which will go live in the UK and Ireland tomorrow evening, allows owners of Xbox 360 consoles with high-speed internet connections to rent selected Paramount releases at a cost of around £2 for DVD standard films or £3.20 for high-definition.

The rental terms are “14:24” — the customer can view the film for 14 days, but once viewing starts it must be completed within 24 hours. At the end of the rental term the film deletes itself from the Xbox 360’s built-in hard drive. Paramount is the second big studio to join the Xbox Live distribution network after Warner Brothers.

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