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Toshiba's Surrender Imminent

Feb 18th, 2008
Peace in our time

As I reported on Friday, it was confirmed that Wal-Mart and Sam's Club will cease selling HD DVD players and discs at the end of May. This was just another in a series of serious retail setbacks for the beleaguered format. Netflix and Best Buy had made similar decisions. This domino effect was kicked off by Warner’s declaring for Blu-ray Disc weeks earlier.

The Hollywood Reporter then published a report that Toshiba is considering dropping HD DVD sometime “in the coming weeks,” quoting industry sources who wished to remain anonymous. Toshiba America Consumer Products VP of marketing Jodi Sally was quoted as saying “given the market developments in the past month, Toshiba will continue to study the market impact and the value proposition for consumers, particularly in light of its recent price reductions on all HD DVD players.”

Over the weekend, Japan’s public broadcaster NHK reported more firmly that Toshiba is about to withdraw HD DVD from the market. A Toshiba insider was quoted as saying, “We have entered the final stage of planning to make our exit from the next generation DVD business.” Soon after, the Ars Technica site reported having dug a little deeper and discovered that Toshiba had started formulating a withdrawal plan soon after the Warner announcement.

As these news reports circulated, the timetable for withdrawal seemed to creep up. The Wall Street Journal reported just this morning that Toshiba could pull out of the HD DVD business early this week. Its source offered reassuring words for existing HD DVD player owners, explaining that Toshiba will likely continue to provide customer support for its HD DVD players.

When Toshiba does make a public announcement, Paramount Pictures Home Entertainment and Universal Studios Home Entertainment would be released immediately from their contractual commitments and would be free to publish on Blu-ray Disc.

Toshiba’s financial loss is expected to amount to hundreds of millions of dollars, and yet, the prospect of withdrawing HD DVD from the market is finding favor with financial analysts. In a Forbes article, Nikko Citigroup analyst Hiroyuki Masuko said today that Toshiba’s cutting its losses on HD DVD could boost the company’s operating profit by 20% in the next fiscal year. He raised his rating for Toshiba stock to buy from neutral. Japan's Tokyo stock exchange is about twelve hours ahead of Wall Street, and the news of HD DVD’s imminent demise bolstered Toshiba’s stock; it rose 5.9% to $7.70, halting a long slide. Not coincidentally, Sony’s stock had been on the rise for months, perhaps buoyed by the success of Blu-ray Disc; it got a more modest boost of 1.9% to $45.82.

Having received some vociferous and nasty email flames from HD DVD player owners and supporters who objected to my stated preference for Blu-ray Disc, it’s very clear that the format war has provoked strong passions on both sides. But this is not a time for gloating, a sentiment apparently not shared by director Michael Bay.

In a story by Home Media Magazine, the director spoke about the format war at the Visual Effects Society's award show, ”Blu-ray's better, and I told everyone. I was very vocal about it. I knew HD [DVD] was not going to make it. Am I thrilled? It really wasn't my fight, but remember what I said in the press? I was kind of saying HD [DVD]'s going to lose. No one believed me. [Blu-ray is] just sharper. It's just [that] the tools are better. I just think it's closer to what it should look like. Blu-ray’s better, and I told everyone ... I was very vocal about it. I knew HD [DVD] was not going to make it.” Gee, Michael, tell us how you really feel.

Instead of gloating, this should be a time for healing and embracing the future. The technology has reached the point where it’s possible to reproduce the motion picture theater experience at home: home theater Nirvana. But for a format to truly succeed, it must be accepted by mainstream consumers. To date, high definition on disc has been purchased predominantly by enthusiasts. All surveys point to the format war causing consumer confusion and uncertainty, and that a resolution will spur sales in the victor’s format. With a resolution comes security and confidence that the victor will provide us with terrific entertainment for some time to come. I’d be very surprised if Blu-ray Disc didn’t dominate for well over a decade.

I’m looking forward to the end of this destructive format war and the widespread transition from standard definition DVD to high definition Blu-ray Disc. All I really want to do is enjoy motion pictures in the highest possible quality at home, presented in a manner that the films’ directors would approve.

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