Microsoft and Toshiba are considering to develop HD DVD players with Microsoft Windows software. Toshiba hopes this will lower the development costs for the next-generation DVD player.
In May the two companies announced a cross-licensing agreement that allows them to use each other's patents on computer and digital electronics technologies.
"We think the agreement will have practical benefits such as lower costs and shorter development times," Toshiba President Atsutoshi Nishida told a news conference in Tokyo also attended by Microsoft Chairman Bill Gates.
Toshiba is the frontman of the HD DVD camp while a group of other companies, including Sony, have developed Blu-ray. There were talks between the HD DVD and Blu-ray camp to create a unified next-generation DVD format but they failed to reach an agreement.
Bill Gates said Microsoft will hold its neutral stance in the DVD format battle.