Format War Officially Over: Toshiba Buries HD DVD, Admitting Defeat to Blu-ray

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Toshiba has finally admitted defeat to the Blu-ray format. So what does this mean? Well, Toshiba and Microsoft lost a boatload of cash on a now-defunct technology, but the industry now has a standard. That is, if Blu-ray can compete against the Internet.

Digital Journal -- Toshiba was first rumoured to be thinking about dropping HD DVD on Feb. 15 (see DigitalJournal.com's coverage here), and it's finally caved.

The company has announced its withdrawal from the format war for control over who makes the next generation of DVDs, conceding defeat to the competing Blu-Ray technology backed by Sony. Toshiba will no longer develop, make or market HD DVD players and recorders.

"This was a very difficult decision to make...but when we thought about the trouble we would cause to consumers and our partners, we decided it was not right for us to keep going with such a small presence," Toshiba president, Atsutoshi Nishida, told reporters at Toshiba's Tokyo offices. "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," he said.

A press release issued by the company says, "Toshiba will begin to reduce shipments of HD DVD players and recorders to retail channels, aiming for cessation of these businesses by the end of March 2008. Toshiba also plans to end volume production of HD DVD disk drives for such applications as PCs and games in the same timeframe, yet will continue to make efforts to meet customer requirements. The company will continue to assess the position of notebook PCs with integrated HD DVD drives within the overall PC business relative to future market demand."

Nishida said the company was confident with HD DVD, and assured the estimated one million people (600,000 of whom live in North America) who bought an HD DVD player that Toshiba will continue to provide product support.

"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," said Nishida.

The battle has been ongoing for years but the scales finally tipped in 2008 when Warner Bros. announced it would release movies on the Blu-ray format exclusively. That defining moment meant Blu-ray now controlled about 70 per cent of the home video market.

Then, vice president of marketing for digital audio and video at Toshiba America Consumer Products, Jodi Sally, said, "It's difficult for me to read the comments of the pundits that HD is dead. We've been declared dead before."

Toshiba president Nishida told reporters Tuesday it was this moment that changed everything. "That had tremendous impact," he said. "If we had continued, that would have created problems for consumers, and we simply had no chance to win."

Following the Warner Bros. announcement, Toshiba lost its grip in countless key industry footholds.

The first big blow came when a Microsoft employee (Toshiba's partner in the HD DVD camp) said the company would consider backing Blu-ray if that's what customers want. The industry was shocked that Toshiba's strongest ally would even suggest such a thing.

Now, Microsoft is rumoured to be working on an external Blu-ray drive for its Xbox 360 console which could be available as early as May. It's certainly just a rumour at this point, but Microsoft is not foolish enough to let the PlayStation 3 totally monopolize the Blu-ray gaming market so there is likely a lot of truth behind this rumour.

Then the dominoes tumbled: HD DVD loyalists, Paramount and Universal, were rumoured to be looking for ways to get out of their HD DVD contracts to go Blu-ray. New Line, HBO and the lucrative porn business were also said to be limp on the idea of HD DVD.

The first indication from within Toshiba that it was in trouble was the company's last-ditch effort to lower prices by as much as 50 per cent to woo customers to the format. Microsoft marched in stride, announcing it was also dropping the price of the external HD DVD drive for the Xbox 360 console. But it didn't work.

By mid-February it wasn't looking good for Toshiba and its death blow came all in one week: mail-order DVD company Netflix announced it was going Blu-ray exclusive; big box behemoth Best Buy said it would support Blu-ray; and on Feb. 15 the world found out the almighty Wal-Mart had announced it would no longer carry HD DVD.

The minute Wal-Mart pulled the plug on HD DVD, Toshiba had to have known it was in trouble. A lot of industry pundits note Wal-Mart is one of few companies that has enough power to be product executioner; the company can kill a format, product or company just by preventing it from getting an inch of floorspace.

Knowing it can not survive without the support of studios and retailers, Toshiba has called off the format war, admitting defeat to Blu-ray. Finally.

The battle (similar to that of Betamax and VHS) has confused customers and made many weary of buying either format, which has slowed development in the high-def DVD industry.

HD DVD's death will be a very expensive lesson for Toshiba, as the company has spent millions on manufacturing, distribution, marketing and promotion. Some sources project the company will also suffer losses of almost $100 million to scrap its HD DVD players and pull out from the business.

In the end, the savings could outweigh the costs of an ongoing format war, as Goldman Sachs estimates Toshiba now stands to improve profitability by about $370 million to $460 million a year.

Toshiba says it has "absolutely no plans" to make or sell Blu-ray players. As for the studios that currently use HD DVD? Well, they're just going to have to switch to Blu-ray now.

With any luck, Toshiba has learned a lot from its marketing mistakes with HD DVD. Making everything from refrigerators to laptops, Toshiba did not execute a marketing strategy as cohesive and strong as that of the Blu-ray camp. One would hope Toshiba can learn from its mistakes and ensure it uses a different strategy in its other businesses.

If you've held off purchasing a high-def DVD player, you can take comfort in knowing Blu-ray is now the industry standard. If you've never seen the format, we do recommend you venture in to your local retailer and check it out, because the visuals are pure eye candy.

The next step in the battle for HD will be Blu-ray versus the Internet and on-demand content; when Blu-ray was conceived, the DVD market controlled everything. But times are a changin' and the advent of Internet-based TV and downloadable content from the likes of Apple's iTunes or file-sharing networks have changed how people access content.

Indeed, downloading movies is not an industry norm (yet), but it's an industry that is evolving very quickly. Blu-ray might have won the format war, but it may also have become the industry standard in a time of major transition.