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HD DVD collapses, Blu-ray claims crown

Posted: 21 Feb 2008     Print Version  Bookmark and Share

Keywords:high-definition format war  HD DVD  Blu-ray 

Toshiba Corp.'s decision to discontinue its HD DVD business may help move the high definition video forward, but there is still plenty of work ahead.

After its struggle to keep up with rival Blu-ray, Toshiba announced Feb. 19 it will stop making products using its HD DVD format by the end of March. The news was especially sweet for Sony Corp. which uses Blu-ray drives in its Playstation 3 and saw the stock price of its U.S. arm rise four per cent on the news, according to Reuters.

Market transition
The HD DVD collapse could have ripples for many backers beyond Toshiba including partners Microsoft Corp. and Paramount and Universal studios over the next several weeks. But for the broader industry, the outbreak of peace is a call to get on with other work in the digital media transition.

"The format war was one obstacle for moving HD video forward, but there are many others," said Ross Rubin, director of analysts at market watcher NPD Group. "One primary obstacle is that consumers are generally satisfied with DVDs, especially if they have up-converting players."

With the format war over, Blu-ray backers may slow the pace of price reductions on the drives that sold for just under Rs.11,843.52 ($300) in the holiday season. But that would be a mistake, according to several analysts.

"Manufacturers have to realise that standard definition DVD has always been their biggest competitor," said Rubin, noting less than 10 lakh standalone players of both HD formats shipped in all 2007.

"The reality is that the end of format war confusion will neither boost an already saturated and naturally declining DVD market, nor suddenly spur mainstream Blu-Ray uptake," wrote Paul Erickson, a research director at DisplaySearch, part of NPD, in a report. "The mainstream consumer remains conservative about buying next generation DVD in the face of existing satisfaction with DVD and perceived high prices for next generation hardware and software," he added.

Both Rubin and Erickson noted the rise of new sources of HD content from cable TV providers and telcos building out their networks as well as Websites such as Microsoft Live and Apple's iTunes.

"The future of next generation DVD as the consumer's preferred HD content delivery method is far from certain," wrote Erickson. "The window of opportunity for alternative HD content delivery methods, particularly pay-TV and broadband services, will continue to widen," he added.

Toshiba's president and CEO, Atsutoshi Nishida, gave a nod to that same fact in a press statement announcing plans to end work on HD DVD products. "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 said.

War aftermath
Long term, having one DVD format could help accelerate the shift to high definition in the Rs.94,748.14 crore ($24 billion) market for packaged media. However, in the near term, backers also need to cope with an estimated 10 lakh HD DVD users left in the lurch.

"This is a lesson to the whole industry about working these things out between executives and engineers rather than letting consumers act as guinea pigs," said Richard Doherty, principal of analyst firm Envisioneering.

"Consumers were subjected to the largest test marketing exercise in history and at least a million of them are very unhappy about that today," Doherty said. "This format war should have been ended behind closed doors as companies did with DVD to avoid leaving users this bitter taste," he added.

Microsoft offered an optional HD DVD player made by Toshiba for its Xbox 360, countering Sony's move to put a Blu-ray drive in every Playstation 3. The move helped keep the Xbox much lower in price than the Playstation, but analysts were mixed as to the impact the Toshiba news will have on the console makers.

"This was the last thing Microsoft would have expected six months ago, and could slow the momentum of the Xbox," said Doherty. "This is a real shot in the arm for Sony," he added.

Rubin disagreed, seeing no major fallout from the Toshiba move for the Xbox, in part because Microsoft provides HD-capable game titles in standard definition DVDs. The Xbox is not likely to support the Blu-ray format anytime soon, however Microsoft will expand its offerings of HD movies on its Web service, Rubin said.

Only about 300,000 Xbox users bought HD DVD peripherals for their consoles of the total 10 lakh HD DVD players sold to date, according to one report. NPD estimates Sony has sold 35 lakh Playstation 3 consoles in the United States alone and the Blu-ray Disc Association estimated 63 lakh Blu-ray players have sold worldwide.

Eventual fall
Toshiba's HD DVD format took a series of body blows in the weeks running up to its decision to throw in the towel. They started with news just before the Consumer Electronics Show that Warner Brothers studio would shift to supporting only Blu-ray.

Toshiba downplayed the news at CES. However, one source reported hardware sales data the week after Warner's announcement showed 93 per cent of high-def players sold were Blu-ray, according to NPD Group.

Later retailer Target said it would support Blu-ray exclusively, soon followed by online DVD distributor NetFlix. Late last week mainstream retailer Wal-Mart said it would support only Blu-ray, pushing the format past the tipping point.

More than a year ago, Broadcom and other semiconductor houses developed chipsets that could handle both formats. The chips were adopted by the likes of LG Electronics and Samsung but some competitors charged the resulting systems were too expensive. In the wake of HD DVD's demise, chipmakers are likely to quickly refocus on cost reducing their Blu-ray silicon.

Dennis P. Barker, editor of Digital TV Designline, said the Toshiba move was unfortunate because it had the superior format in some respects.

"In terms of picture quality, HD DVD images are more colourful and robust than Blu-ray," Barker wrote in his blog. "I've been fortunate to receive a lot of content from the movie studios for evaluation, and, I can say unequivocally, that HD DVD images look better than Blu-ray when comparing the same film in both formats," he added.

Blu-ray backers championed their format as having significantly higher capacity than HD DVD. However, it also used new manufacturing techniques that many said made the players and disks more expensive, according to Serene Fong and analyst with ABI Research.

- Rick Merritt
EE Times




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