In a written statement issued on Saturday, Microsoft said:

"As a result of recent decisions made by Toshiba, Hollywood studios, and retailers, Microsoft plans to withdraw from HD DVD.  Xbox will no longer manufacture new HD DVD players for the Xbox 360, but we will continue to provide standard product and warranty support for all Xbox 360 HD DVD Players in the market.  As we stated earlier, we do not believe this decision will have any material impact on the Xbox 360 platform or our position in the marketplace.

"HD DVD is one of the several ways we offer a high definition experience to consumers and we will continue to give consumers the choice to enjoy digital distribution of high definition movies and TV shows directly to their living room, along with playback of the DVD movies they already own."

The company did not specify whether the "digital distribution" would entail a switch over to a Blu-ray player add-on, or a move to a content download model which extends on the company's Xbox Live offering.

Outspoken Transformers Director, Michael Bay tipped the latter as early as December last year. On his official blog he wrote: "What you don't understand is corporate politics. Microsoft wants both formats to fail so they can be heroes and make the world move to digital downloads. That is the dirty secret no one is talking about. That is why Microsoft is handing out $100 million dollar checks to studios just embrace the HD DVD and not the leading, and superior Blu Ray. They want confusion in the market until they perfect the digital downloads. Time will tell and you will see the truth. [sic]"

Conspiracy theories aside, Toshiba's decision to back out of HD DVD was followed by an announcement that the company would focus on flash NAND storage for portable devices, sparking further industry speculation over the digital download model.

Mark Whittard the General Manager of Toshiba Australia said at the time of the announcement that Sony and Blu-ray may have won an early battle in the format war, but they have not won the war. He said to SmartHouse that he believes content delivered over the web direct to TVs, some with full PC capability built in, coupled with a new generation of portable storage that will allow consumers to download movies from a kiosk in a retailer or at a public transport locations and then play it on their TV will be the next battle for Blu-ray.

However, critics argue that there are still a few barriers in place before high definition content downloads direct to the home come into place, with the most obvious one being broadband speeds and bandwidth. Research from the Consumer Electronics Association also found that of those consumers who have tried downloading movies, most still prefer to own the disc outright in their home collection.