HD DVD's End Is Fresh Start For Blu-ray

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Toshiba's decision last week to drop HD DVD ended days of speculation on the fate of the format after it lost support of key retailers and shifted the competition from a battle for format supremacy to a familiar market share contest between Blu-ray Disc player brands.

Meanwhile, retailers and HD DVD studios were preparing their next steps in the wake of Toshiba's decision.

In its statement, Toshiba said after a "thorough review of its overall strategy," it had decided to no longer develop, manufacture and market HD DVD players and recorders and to be out of the format by the end of March 2008.

The company's decision was due to "recent major changes in the market," which included Netflix, Best Buy and Wal-mart backing Blu-ray the week of Feb. 11 (see p. 36). The company said it will continue to provide full product support and after-sales service for all owners of Toshiba HD DVD products.

"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," stated Atsutoshi Nishida, Toshiba president and CEO. "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."

Toshiba will now begin to reduce shipments of HD DVD players and recorders to retail channels by the March deadline. This includes ending volume production of HD DVD disk drives for PCs and video game players in the same time frame, but "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," Toshiba said.

Toshiba will provide ongoing product support and after sales service for purchasers of HD DVD products. Customers can contact, (888) MY HDDVD — (888) 694-3383 — for operational assistance with players and further guidance on HD DVD products.

The decision will not include the company's commitment to standard DVD, and the company will continue to market conventional DVD players and recorders.

The company will also contribute to the development of the DVD industry through its membership in the DVD Forum, which is the 200-member international organization involved with defining optimum optical disc formats for the consumer and the related industries.

Toshiba said it also intends to maintain "collaborative relations with the companies who joined with Toshiba in working to build up the HD DVD market, including Universal Studios, Paramount Pictures, DreamWorks Animation and major Japanese and European content providers on the entertainment side, as well as leaders in the IT industry, including Microsoft, Intel and HP."

Toshiba said it intends to continue collaboration with its partners for future business opportunities, utilizing the many assets generated through the development of HD DVD.

Following the announcement, Universal Studios Home Entertainment and Paramount said they will be transitioning to Blu-ray Disc.

"The path for widespread adoption of the next-generation platform has finally become clear," stated Universal Studios Home Entertainment president Craig Kornblau. "Universal will continue its aggressive efforts to broaden awareness for high-def's unparalleled offerings in interactivity and connectivity, at an increasingly affordable price. The emergence of a single, high-definition format is cause for consumers, as well as the entire entertainment industry, to celebrate. While Universal values the close partnership we have shared with Toshiba, it is time to turn our focus to releasing new and catalog titles on Blu-ray."

Meanwhile, retailers began adjusting to the news last Tuesday. Amazon.com, a prominent retailer of Blu-ray Disc and HD DVD players and discs, reduced the price of Toshiba's entry A3 model from $149 to $99.99, and added a disclaimer that the manufacturer was discontinuing the format. (See the TWICE Retail Roundtable on p. 32 for opinions on the effect of the format debacle.)

Noah Herschman, Amazon A/V director, said HD DVD players were among the e-tailer's best-selling DVD players through the holidays.

The site is now recommending Blu-ray Disc as its preferred digital format in order to give customers better guidance, he said, but it will also continue to sell HD DVD discs and players while supplies last for those customers who want them.

Herschman said that in addition to playing HD DVD's, the Toshiba players were among the most popular up-converting DVD players in Amazon's selection, and continue to be useful home theater components.

Bill Trawick, NATM Buying Corp. president/executive director, said his organization is awaiting direction from Toshiba on how to proceed with inventory. "Toshiba got very aggressive on price and we stepped up and bought product. It's still early in the process, but they have assured us that they will not let our members get hurt," he told TWICE, suggesting that a dealer rebate to enable sub-$100 closeout prices would not be unexpected.

Trawick added, "So for $100 the consumer essentially gets five movies and a free up-scaling DVD player. It may not be 100 percent HD for regular DVDs, but it looks pretty damn good. It's 97 to 98 percent there. I'm glad a decision was made because we need a high-definition technology and we needed to get down to one format. But the question is, how will the consumer feel about paying more for Blu-ray?"

Shortly after the parent company's announcement in Japan, Toshiba's U.S. sales division acknowledged that "it is continuing to work closely with and communicate directly with its retailers on next steps. Additionally, Toshiba does not plan to make any further price reductions at this time."

As for Toshiba's next steps, the company cryptically mentioned in its HD DVD disclosure that it continues development of NAND flash memory and has established a new joint venture with flash-memory maker SanDisk, possibly suggesting the medium as a storage option for digitally distributed high-definition video in the future.

Toshiba said it will "continue to lead innovation, in a wide range of technologies that will drive mass market access to high definition content. These include high-capacity NAND flash memory, small-form-factor hard disk drives, next-generation CPUs, visual processing, and wireless and encryption technologies."

The company said it expects to make forthcoming announcements around strategic progress in these new areas. — Alan Wolf contributed to this story.

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