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Toshiba Ends Format War

19 Feb, 2008 By: Chris Tribbey

The high-definition format war is officially over. Toshiba Corp. Feb. 19 announced it will discontinue developing, manufacturing and marketing HD DVD players and recorders.

The announcement ends a two-year-long battle with Blu-ray Disc to succeed DVD, and was welcome news to both retailers and industry analysts. Also, former HD DVD stalwart Universal Studios announced it would begin releasing its titles on Blu-ray. Fellow HD DVD backers Paramount Pictures and DreamWorks were expected to follow suit.

“We carefully assessed the long-term impact of continuing the so-called ‘next-generation format war' and concluded that a swift decision will best help the market develop,” said Atsutoshi Nishida, president and CEO of Toshiba. “While we are disappointed for the company and, more importantly, for the consumer, the real mass-market opportunity for high-definition content remains untapped and Toshiba is both able and determined to use our talent, technology and intellectual property to make digital convergence a reality.”

He added that Toshiba has no plans at this time to adopt Blu-ray.

Toshiba will stop shipments of HD DVD players and recorders by March, and will stop production of HD DVD drives for computers as well. The company added it would continue to provide product support and services for current HD DVD owners.

“Toshiba also intends to maintain collaborative relations with the companies who joined with Toshiba in working to build up the HD DVD market, including Universal Studios, Paramount Pictures and DreamWorks Animation, and major Japanese and European content providers on the entertainment side, as well as leaders in the IT industry, including Microsoft, Intel, and HP,” stated a press release.

“Toshiba will study possible collaboration with these companies for future business opportunities, utilizing the many assets generated through the development of HD DVD.”

How HD DVD died

Michael Pachter, media analyst with Wedbush Morgan Securities in Los Angeles, said HD DVD's demise was inevitable since Toshiba couldn't compete with Sony on sales volume. Sony included Blu-ray playback on the PlayStation 3 game console, which has sold more than 3 million units in the United States alone, according to research firm The NPD Group. Toshiba revealed during its announcement that only 1.03 million HD DVD players, including the Xbox 360 HD DVD add-on, had been sold worldwide.

Ross Rubin, director of industry analysis for The NPD Group, said a combination of things killed the HD DVD format. “I think there were a number of suspects, but you can't quite pin down one murderer,” he said.

First at the Consumer Electronics Show in January, Warner Bros. stunned the home entertainment world by announcing it would exclusively back Blu-ray, leaving HD DVD with Paramount Home Entertainment and Universal Studios Home Entertainment as the only major studios supporting the format. Hardware sales data the week after Warner's announcement showed 93% of high-def players sold were Blu-ray, according to The NPD Group.

Toshiba responded by significantly lowering its player prices, and Microsoft dropped the price of its Xbox 360 HD DVD add-on by $50 earlier this month. Toshiba also bought a 30-second Super Bowl ad for a reported $2.7 million. But apparently the moves were ineffective in boosting sales or digging into Blu-ray's lead.

Nielsen VideoScan data has consistently shown Blu-ray software outselling HD DVD by a 3-to-1 margin or better, and earlier this month both Wal-Mart and Netflix announced they would only carry Blu-ray product, and Best Buy announced it would give preference to Blu-ray.

“Wal-Mart's decision certainly was impossible to bounce back from,” Rubin said.

On Feb. 14, industry sources told Home Media Magazine that Toshiba was about to call it quits, due to the rapid loss of support for the format and the piling financial losses the company was incurring on its standalone players.


Retailers expressed relief following Toshiba's decision.

Noah Herschman, director of audio and video for Amazon.com, said that while HD DVD players were among the retailer's best sellers during the holidays, its death will make things easier on customers.

“We believe both of them were viable high-def formats for people with HDTVs,” he said. “Now that there is one format, we hope consumers embrace that.”

However, he added, the price points for Blu-ray players are too high for some consumers, and there has been less supply than of HD DVD. He said Amazon.com will continue to carry HD DVD until “they're no longer made,” and will be marketing its lowest-priced HD DVD player in stock, the HD-A3 ($109), as an “upconverting DVD player.”

“We still have a lot of customers who have purchased HD DVD players, and we want to accommodate them,” Herschman said.

Best Buy spokesman Brian Lucas said the retailer's decision on when to stop selling HD DVD products would be dictated by consumer demand, however “at a certain point we'll start pulling them from shelves.”

“From the beginning we thought the format war was not good for anyone, not good for any retailer,” he said. “But (one high-def format) is great for consumers.”

Bo Andersen, president of the Entertainment Merchants Association, the nonprofit international home entertainment trade association, said Blu-ray's victory is a relief for everyone in the industry.

“Now that consumer confusion concerning dueling formats has ended, it is time for suppliers and retailers to redouble their efforts to bring home the message that Blu-ray Discs deliver the finest viewing experience for the world's best entertainment,” he said. “The marketplace has spoken. It is time that consumers hear the message … We believe there is pent up demand for high-definition optical discs in thousands of applications.”

What's next?

At least one of the two studios exclusive to HD DVD is already gearing up to join the other team.

“While Universal values the close partnership we have shared with Toshiba, it is time to turn our focus to releasing new and catalog titles on Blu-ray,” said Craig Kornblau, president of Universal Studios Home Entertainment.

“The path for widespread adoption of the next-generation platform has finally become clear. Universal will continue its aggressive efforts to broaden awareness for high-def's unparalleled offerings in interactivity and connectivity, at an increasingly affordable price. The emergence of a single, high-definition format is cause for consumers, as well as the entire entertainment industry, to celebrate.”

Paramount and DreamWorks Animation, which went HD DVD exclusive in August, had not made any announcement regarding its plans. Both Universal and Paramount have titles announced for HD DVD in the coming months. It's unknown what the status for those releases is. A Warner Home Video spokeswoman said the company had no comment regarding its plans at this time. Warner had planned on ending its HD DVD releases in May, and has several titles announced.

Analysts said the industry could expect an uptick in consumer adoption of high-def now, but warned that just because Blu-ray has won the battle, it hasn't won over everyone's living room.

“This certainly clears an obstacle for Blu-ray,” Rubin said. “The format will become more appealing to consumers, and the economies of scale kicks in and player prices should go down. But the technology is still sandwiched between consumer satisfaction with DVD on one side, and the growing number of digital distribution options on the other.”

Rob Enderle, media analyst with The Enderle Group in San Jose, Calif., said players are too expensive and need to drop below $200 for wider consumer adoption. In addition, current standalone Blu-ray players will soon be obsolete and can't be updated to play all the features on some Blu-ray Discs. HD DVD had fewer compatibility obstacles, as all players required the same specifications from day one.

“The current technology was rushed to market incomplete and is different than the typical technology update cycle,” Enderle said. “It seems like most of the Blu-ray and HD DVD supporters on the content and technology sides have moved to downloads as the next big thing suggesting that this fight took too long and may have missed a market which is in the process of moving on.”

Wedbush Morgan Securities' Patcher said to expect Blu-ray player sales from 20,000 to 30,000 units over the next several months, and that retailers like Best Buy would aggressively cross sell the PS3 in order to up-sell consumers video games in addition to movies.

“They will not focus on entry-level $200 Blu-ray players,” Pachter said.

Thomas K. Arnold and Erik Gruenwedel contributed to this report.

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