Technology giants Toshiba and Sony are in talks to come up with a compromise on the next generation of DVD format.
The rival formats have been courting firms for three years
The two have been pushing different formats which has so far split movie studios and technology firms.
Toshiba, with NEC and Sanyo, is promoting the HD-DVD format, while Sony's Blu-ray technology is backed by a group including Dell and Samsung.
Both want to avoid a format war. The next generation of DVDs will store much more, including high-definition video.
This offers incredible 3D-like quality pictures which major Hollywood studios and games publishers are extremely keen to exploit.
But the technology and movie industries recognise that a format war, like the VHS-Beta battle in the 1980s which saw the death of the Beta video cassette, is undesirable.
"The two groups are in talks to jointly develop a new standard for next-generation DVDs to give the best benefit to consumers," a Sony source told the Reuters news agency.
Toshiba said a single "hybrid" format would be better for people and it said it would aim for that as a compromise.
Sony is reportedly pushing Blu-ray's disc structure and HD-DVD software technology as a hybrid solution.
Toshiba wants to use HD-DVD's disc structure, which is closer to that of DVDs now, and use Sony's multi-layer data recording technology.
Blu-ray discs can store 50GB of high-quality data, while Toshiba's HD-DVD can hold 30GB.
Next generation DVD players use blue lasers to give a shorter wavelength than red light used for current DVDs and CDs.
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Both disc formats offer much better quality audio and video, and could also mean there is a lot more room for interactive elements.
Gamers will also benefit from the next generation of discs. The storage capacity means that console titles will fit onto a single disc and the graphics will be much improved, almost film-like.
Movie studios and technology companies have been choosing which format to back, but many have been leaving their options open for alternative formats.
Blu-ray backers include Apple, Dell, Hewlett Packard, Samsung, and Disney.
HD-DVD supporters include Paramount Pictures, Universal Pictures and Warner Brothers Studios.
Toshiba and Sony have been in talks with studios and technology companies to come up with a compromise, that would mean discs work on all types of players.
Technology manufacturers hope that the next generation of DVDs will mean people buy up new DVD players. Some are available in Japan already.