LOS ANGELES (Reuters) - A major video game conference this week could prove pivotal for a multibillion dollar war over high-definition DVD standards brewing in Hollywood.

While most gamers are heading into the Electronic Entertainment Expo (E3) hoping to view the latest and greatest in video games and consoles, a key subplot will be Sony Corp.'s plan to use the PlayStation 3, the newest version of its market-leading video game console due late this year, to get its Blu-ray high-definition DVD standard into homes.

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By offering DVDs with far more capacity than current standard DVDs, studios hope to breathe new life into the $24 billion home video market. But their failure to use a unified format has paved the way for a costly battle similar to the VHS/Betamax war that caused widespread customer confusion in the late 1970s through mid-1980s.

There are two rival next-generation DVD standards, including Sony's Blu-ray and HD DVD, championed by Toshiba Corp..

While Blu-ray has drawn more support among Hollywood and electronics firms, HD DVD has garnered an ally in software giant Microsoft Corp. (Research), which plans to offer an external HD DVD drive for its Xbox 360 game console that will turn it into a high-definition DVD player.

The Xbox 360 hit stores late last year, and is the first of the next generation of game consoles offering high-resolution graphics and more realistic play.

DFC Intelligence, a market research firm based in San Diego, California, forecasts that the worldwide video game market will grow to around $42 billion in 2010 from $28.5 billion in 2005.

"The next move in the Blu-ray/HD DVD competition will be in the game industry. What Sony and Microsoft decide to announce publicly or to dealers at E3 will be key," said Richard Doherty, an analyst with research firm Envisioneering.

Microsoft has not given a shipping date or pricing for its HD DVD add-on disc drive, while Sony (Research) has not yet announced pricing for the PS3, which is due in November.

A widely expected price of $499 for would make the PS3 competitive with or cheaper than most stand-alone HD DVD or Blu-ray players. Toshiba has released an HD DVD player priced at $499.

"If Sony says it will sell the PS3 for $499, then people may wait until November to buy a PS3. If it doesn't give a price, then it might help in the sale of HD DVD players" in the mean time, said Doherty.

The high-end Xbox 360 package currently costs about $399 without a next-generation DVD player.

HD DVD titles have been trickling into stores since mid-April along with the first HD DVD players, while the arrival of the first Blu-ray format titles and hardware are now expected in June.

Video game analyst Michael Pachter of Wedbush Morgan Securities sees the DVD standards war determining the winner in the current video game console battle instead of the other way around.

Sony's decision to allow Microsoft to grab first-mover advantage with its Xbox 360 launch in November was "almost certainly" the result of Sony's desire to dominate the high-definition DVD market, Pachter said in a recent report.

Based on his assessment that Sony will win the high-definition DVD war, Pachter predicted that the PS3 would again be the dominant console at the end of this console cycle, although he predicted Microsoft would capture about 42 percent of U.S. and European combined next-generation hardware sales through 2007.

Microsoft's much-anticipated Vista operating system, to be available in early 2007, is also slated to support HD DVD, which will boost the installed base of HD DVD technology in PCs.