This has been a debating topic for many years, and there's no conclusion or a compromised solution as of now. This reminds the Betamax vs VHS in home video tap format.
I will start with a quick comparison:
DVD
(for the sake of comparison, I will add DVD)
disc capacity: 4.7 GB (single layer) and 8.5 GB (dual layer)
supported video game consoles: PlayStation 2, PlayStation 3, Xbox, Xbox 360, Nintendo Revolution
Blu-ray
The main company behind this format is Sony
disc capacity: 25 GB (single layer) and 50 GB (dual layer)
supported video game console: PlayStation 3
HD-DVD
The main company behind this format is Toshiba.
disc capacity: 15 GB (single layer) and 30 GB (dual layer)
supported video game console: Xbox 360
Most movie studios would support both formats, except Sony Pictures (MGM/Columbia TriStar) would go for Blu-ray only and Universal would go for HD-DVD.
Note: The GB used in this post is defined as in one thousand million bytes, as in general terms used in tech specs.
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