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Blu-ray winner by KO in high-definition war

With studio support, Sony format reigns supreme as Toshiba throws in the towel.

February 20, 2008|Dawn C. Chmielewski and Bruce Wallace | Times Staff Writers

Sony Corp. has finally exorcised the ghost of Betamax.

The Japanese company's Blu-ray format emerged the victor in the battle to set the standard for high-definition DVDs. Its victory over Toshiba Corp.'s rival HD DVD leaves behind its embarrassing loss to VHS in last century's battle for the home videocassette market.

Toshiba announced Tuesday it was abandoning its next-generation high-definition disc format, saying it would no longer make and market players and recorders. The announcement followed a series of defections, including Friday's decision by the nation's largest retailer, Wal-Mart Stores Inc., to stop selling HD DVD hardware and movies and devote its shelves exclusively to Blu-ray.

Toshiba Chief Executive Atsutoshi Nishida told a packed news conference at the company's Tokyo headquarters that continuing the fight for control of the high-definition home video market "would have created problems for consumers, and we simply had no chance to win. Although this is a bitter decision, there would have been a greater impact on our business if we had continued any longer," he said.

With that, Nishida ended a battle between rival formats that had confused consumers, split the Hollywood studios and retarded the growth of a potential new market for movies and the games and extras that go alongwith them.

Ironically, HD DVD appeared to have an edge over Blu-ray. Its players were cheaper and its movie discs less costly to manufacture. But Sony trumped Toshiba by building broad support for its Blu-ray format among consumer electronics manufacturers and Hollywood studios. It also pursued a risky strategy that paid off: incorporating a Blu-ray drive into its PlayStation 3 video game console.

That decision cost Sony money -- about $300 per console, according to researcher iSuppli. But it helped put more Blu-ray players in the homes of early technology adopters, more than 8 million of whom have bought PS3s worldwide.

By contrast, Toshiba said it had sold about 1 million HD DVD players worldwide.

"The PlayStation 3 was a Trojan Horse," said Walt Disney Studios Home Entertainment President Bob Chapek.

Now that Toshiba has waved the white flag, one question remains: How many consumers will ultimately embrace high-definition digital video discs? Although high-definition offers a sharper picture, the benefits are not as dramatic as the transition from videotape to DVD -- and most noticeable on big-screen TVs. Moreover, the DVD itself is under assault from myriad technologies vying to supplant it as a means for delivering movies into the home.

"The market, it's moving to downloads," said researcher Rob Enderle, president of the Enderle Group, referring to services such as Apple's iTunes, through which consumers can purchase movies online. "Blu-ray may never ramp."

Toshiba's Nishida blamed the format's downfall on the actions of a single studio: Warner Bros. The studio announced on Jan. 4 it would abandon HD DVD and sell high-definition movies exclusively on Blu-ray discs. The shift gave the Blu-ray camp about 70% of the home video market, with Warner, Walt Disney Co., 20th Century Fox, Lions Gate Entertainment Corp. and Sony Pictures all backing the format.

Nishida said Warner's abrupt decision dramatically altered the competitive environment that triggered mass defections. In rapid succession, online movie rental service Netflix Inc. said it would exclusively stock Blu-ray discs and electronics retailer Best Buy Co. said it would "prominently showcase" Blu-ray hardware and movies as a way of steering consumers to the format. Then came the final blow: Wal-Mart's decision to sell only Blu-ray movies and players at its 4,000 discount stores and Sam's Clubs.

"Warner's sudden change -- and it came out of the blue -- and U.S. retailers also following, was the reason we lost," Nishida said.

Until Warner took sides, Blu-ray and HD DVD accounted for an equal share of high-definition, stand-alone movie player sales, according to market research company NPD Group. The following week Blu-ray sales skyrocketed -- grabbing 90% of all next-generation hardware purchased, according to NPD. A last-ditch effort by Toshiba to salvage the format by slashing prices in half failed to stave off the inevitable.

Movie sales quickly tilted heavily in favor of Blu-ray. The latest Nielsen VideoScan First Alert sales data showed that Blu-ray represented 81% of all high-definition movie discs sold in the week ended Sunday.

Toshiba's problems started even before the first players were sold.

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