Sony Wins Format Wars with Blue Ray
Sony Wins Format Wars with Blue Ray
Toshiba has said it will stop making its high definition DVDs, ending a battle with rival format Blu-ray over which would be the industry standard.
Following a review of its business, Toshiba said it would stop production of HD DVD players and recorders.
The HD DVD format has suffered as major US film studios backed the Blu-ray format, which is being developed by electronics firm Sony and partners.
Analysts said the move would allow Toshiba to focus on other products.
"It was an agonising decision for me, but I thought if we kept running this business it would have grave ramifications for the management of our company," Toshiba president Atsutoshi Nishida said.
"We made a quick decision, judging that there is no way of winning the competition," he said.
Tipping point
Toshiba said the tipping point came last month when Warner Bros' followed a number of other film studios in deciding to release its movies only in the Blu-ray format.
"It shows what a highly competitive market it is. When it comes to video, it is the person with the most content that wins," Gartner analyst Paul O'Donovan said.
Warner Bros' decision means an estimated three quarters of new film releases will be available on Blu-ray discs. Other major studios backing Blu-ray include 20th Century Fox, Walt Disney and MGM.
Last week, Wal-Mart, the world's largest retailer, announced it would sell high-definition discs only in the Blu-ray format at its 4,000 US stores.
Video rental firms Blockbusters and Netflix will also offer customers only Blu-ray.
Universal, Paramount and DreamWorks studios signed up to produce movies in HD DVD, but Toshiba's withdrawal is expected to significantly reduce the number of films available in the format.
Industry boost
The end of the battle is expected to give the industry a boost, as it removes uncertainty for consumers over which format to buy.
"The industry can now focus on getting the right product to the consumer, at the right price and in the volumes required," Paul O'Donovan said.
Toshiba will continue to supply retailers with HD DVD machines until the end of March this year.
After that, Toshiba will provide technical support to the estimated one million people worldwide who own HD DVD devices.
Microsoft offers an HD DVD drive with the Xbox 360 games console. The company told the BBC it did not believe the apparent end of the format would have an impact on Xbox sales.
"It is games that sell the consoles and the Xbox has the largest next-gen games library," a Microsoft spokesperson said.
Toshiba also makes HD DVD drives for PCs and laptop computers.
The HD DVD versus Blu-ray battle has been likened to the VHS versus Betamax war of the 1980s.
For Blue Ray:
Sony
Matsushita (Panasonic)
Warner Bros
Wal-Mart
Walt Disney
20th Century Fox
Blockbuster
Netflix
FOR HD DVD:
Universal Studios
Paramount Pictures
DreamWorks Animation
Intel
Microsoft
HP
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How the Sony PS3 led Blu-ray's triumph:
The next-generation DVD format war is over, and the future is Blu-ray.
Ever since the two rival high definition DVD systems were launched in 2006 - Sony's Blu-ray and Toshiba's HD DVD - there could only be one winner.
In a re-run of the VHS and Betamax video cassette battle of the early 1980s, each raced to win over both the home consumer and the big Hollywood film studios.
Toshiba's announcement that it is to stop production of HD DVD players leaves the way clear for Blu-ray to become the industry standard.
Yet how did Toshiba fail while Sony succeeded?
It is a story of computer game consoles, marketing savvy and schmoozing in Los Angeles, as well as Sony's determination not to let history repeat itself.
Which, at the end of the day, all boils down to much higher sales figures for Sony.
Playstation advantage
The first factor that needs to be put completely to one side is picture quality. Unless you are a technology geek with a television the size of multiplex cinema screen, there is no difference between the output of HD DVD and Blu-ray machines.
Both offer high definition DVD playback superior to standard DVD players.
Where Sony had the killer edge is that its Playstation 3 (PS3) computer games console comes pre-fitted with a Blu-ray player.
So as Sony has sold 10.5 million PS3 consoles since it was launched in late 2006, that is 10.5 million Blu-ray machines already in homes around the world, before you add sales of stand-alone Blu-ray players.
By contrast, Toshiba has sold only one million HD DVD machines.
Toshiba does have a tie-up with Microsoft's Xbox 360 games console, but Xbox users are required to buy an external HD DVD drive.
And as Toshiba's one million sales figure for HD DVD machines also includes shipments of these drives, it appears that not many Xbox owners have been bothered to go to the additional expense.
Hollywood moves
Sony also had a head start over Toshiba in persuading the big US film studios to back Blu-ray - its own Sony Pictures is one of the main players in Hollywood.
It's good for consumers, some of whom must have been resisting buying next-generation DVD recorders because of the two incompatible formats
Gartner analyst Hiroyuki Shimizu
Walt Disney and 20th Century Fox joined Sony Pictures in supporting Blu-ray.
And although Paramount Pictures, Universal Pictures and Warner Bros initially decided to back HD DVD, Warner Bros switched sides last month.
For many analysts, this was the final nail in the coffin for HD DVD.
"When Warner made its decision, it was basically over," says Kazuharu Miura, an analyst at Daiwa Institute of Research in Tokyo.
Key US DVD retailers Target and Blockbuster have also decided to go with Blu-ray.
Betamax lessons
Other analysts also point to Sony's better marketing campaign for Blu-ray, fuelled by its determination not to lose a format war that brought back painful memories of the defeat of its Betamax video format by the JVC-developed VHS.
Is HD DVD going to go the same way as Betamax?
Although Betamax offered better picture quality, VHS machines were cheaper and quickly gained the majority of market share, eventually killing off Betamax.
It appears that Sony spent many years analysing that defeat and this time around, it was much better prepared.
Putting a Blu-ray player in each PS3 was the secret weapon to ensure the format's presence in customers' front rooms around the world, effectively making their choice of high definition DVD player for them.
Toshiba's gain
While Toshiba's decision to end the production of HD DVD players is undoubtedly a humiliation for the company, analysts say it will be good for the firm's profits.
Goldman Sachs estimates that the move will boost Toshiba's profitability by up to 40bn yen ($370m; £190m) a year.
"The potential losses are small compared to the savings," said Goldman Sachs analyst Ikuo Matsuhashi.
Commentators also point to the fact that as consumer electronics is such a small part of Toshiba's business, it could afford to lose the format battle.
For while finished electrical goods such as laptops, DVD players and televisions make up just 6% of Toshiba's profits, it makes 40% of them from the sale of computer chips and a similar proportion from its nuclear power operations.
By contrast, consumer electrical goods have always been core to Sony's profits.
Uninterested consumers?
But what does it all mean for consumers?
"It's good for consumers, some of whom must have been resisting buying next-generation DVD recorders because of the two incompatible formats," says Hiroyuki Shimizu, an analyst at IT research company Gartner.
"If there's only one format, consumers don't have to worry about Incompatibility."
Yet while Mr Shimizu predicts sales of Blu-ray player and discs will now take off, other analysts say the format battle is meaningless.
They say this is because a growing number of consumers are already turning their backs on DVD players to download their movies via the internet instead, or from their satellite or cable television provider.
Adding that electronics companies are wrong to assume that viewers want ever better picture quality, they point to the failure of high fidelity music formats Super Audio CD and DVD-Audio in the face of the explosion in the popularity of music downloads.
While typical digital music formats such as MP3 have reduced sound quality compared with even standard CDs, their convenience has more than won over consumers.
The future of high definition DVD players may very well be Blu-ray, but whether they can make a dent in the face of the growing march of computer downloads is quite another story.
Toshiba climbs on 'HD DVD exit'
A number of films were released solely on Sony's Blu-ray last year
Shares in Toshiba have gained more than 5% as speculation intensified that the electronics giant is set to scrap its high definition DVD format, HD DVD.
The firm said it was reviewing its business strategies, but added it had made no decision over HD DVD's future.
The format has suffered from the defection of major US film studios to Sony-backed rival Blu-ray.
Analysts said that an end to the war meant Toshiba could refocus on other areas and the industry would gain too.
The comments come as UK department store John Lewis told the BBC that it did not expect to order more supplies of HD DVD players when current stocks run out.
"We have sold both players since launch to give our customers the best choice of available technology," said John Kempner, buyer for the firm's vision arm.
You'll struggle to find anyone in the business who believes that HD-DVD players will still be coming off the production lines six months from now
Rory Cellan-Jones
BBC Technology Correspondent
Read Rory's thoughts
"Recently customer demand has moved strongly towards Blu Ray as a result of the decisions made by the US film studios."
Tilting the balance
Toshiba acknowledged media reports that it would discontinue its HD DVD business but said that nothing had yet been decided at the moment."
Toshiba shares climbed 5.7% to close at 829 yen and was one of the biggest risers on Japan's benchmark Nikkei 225 share index.
Last month, Warner Brothers became the latest Hollywood studio to throw its weight behind Sony's Blu-ray format, leaving just Universal Pictures and Paramount Pictures favouring HD DVD.
Analysts had seen this decision to switch allegiances as a tipping point.
Video rental firms, including Blockbuster and Netflix, have said they will phase out the Toshiba-backed format.
And last week, Wal-Mart, the world's largest retailer, announced it would only sell high-definition DVDs in the Blu-ray format at its 4,000 US stores.
It doesn't make sense for Toshiba to continue putting effort into this
Koichi Ogawa, Daiwa SB Investments
Does anyone care about high definition?
"It doesn't make sense for Toshiba to continue putting effort into this," said Koichi Ogawa, a chief portfolio manager at Daiwa SB Investments.
"It needs to cut its losses and focus its resources on promising businesses."
Swift resolution?
Paul O'Donovan, principal analyst at research firm Gartner, predicted that Toshiba could announce its defeat "within weeks".
"They are under a tremendous amount of pressure to pull out following Wal-Mart's stance and Best Buy's decision to recommend Blu-ray disc players over the HD DVD format," he said.
He attributed Blu-ray's success to Sony's exclusive tie-ups with the industry's biggest DVD player manufacturers, including Philips, Panasonic, Denon and Pioneer, which convinced Hollywood to back the more sophisticated technology, despite the higher initial cost.
According to research firm IDC, the cheapest Blu-ray player on the market is Sony's Playstation 3 video game console, costing about $400, while the cheapest HD DVD system is priced at £117 ($228) on online retailer Amazon.
HI-DEF FILMS IN BLU-RAY
Harry Potter and The Order Of The Phoenix
Spider-Man 3
Pirates Of the Caribbean: At World's End
Ocean's Thirteen
Some observers now predict increased competition among Blu-ray players leaving the consumer the ultimate winner.
"This has been a long overdue end to the format war that has frustrated and confused consumers, and will allow vendors to focus resources on the Blu-ray technology," said Claudio Checcia, an IDC analyst.
Return to the 1980s
Blu-ray and HD DVD have fought to become the pre-eminent high definition format to help revitalise the $24bn global home DVD market.
There is not much difference between the formats. Both feature superior picture and sound quality and have better data storage capacity, though Blu-ray has 20 giga-bytes more storage space than its rival.
But the two formats are incompatible with each other and so consumers have had to choose between machines that played only one type of disc.
HI-DEF FILMS IN HD DVD
Beowulf
Bee Movie
In the Valley of Elah
American Gangster
As a result, many have held back to see which would become the industry standard and, like the battle between Betamax and VHS video recorders in the 1980s, this has been damaging to the industry as a whole.
DVD players from South Korean firms LG and Samsung are the only two to play both rival high-definition DVD formats, but they can cost twice as much as single-format players.
The video machine war lasted a decade, so the prospect of Toshiba abandoning its HD DVD just two years after launching the player has been cheered by investors and analysts.