DVD FORMATS

http://www.theglobeandmail.com/servlet/story/LAC.20080220.RBLURAY20/TPStory/?query=Toshiba

DVD FORMATS: HOW SONY'S BLU-RAY TRIUMPHED OVER TOSHIBA'S HD
Stringer makes his mark
Sony's CEO led his company to victory in the high-definition sweepstakes by convincing the major studios to come aboard
BARRIE MCKENNA AND MATT HARTLEY
February 20, 2008

WASHINGTON, TORONTO -- Howard Stringer made history in 2005 for being the first non-Japanese executive to take the helm at Sony Corp. But he may be better remembered as the one who won the high-definition war, erasing the stain on the electronics firm's image ever since it lost the videotape war two decades earlier.

Although celebrated yesterday, the victory was sealed last month when Sony swayed Warner Bros. to back Sony's Blu-ray technology and quit producing movies using Toshiba Corp.'s rival HD DVD format.

What remains a mystery is just how big a push Warner needed to pick sides. Analysts say Sony only prevailed following a heated bidding war against Toshiba, with the reward reaching as much as $400-million (U.S.). Neither side has confirmed the size of any bids or payments.

It was supposed to be the technology equivalent of First World War trench warfare: A prolonged battle to the death between Toshiba and Sony for global domination in high-definition DVDs.

In the end, the denouement was more like Germany's swift 1940 end run of the Maginot line.

Less than two years after its first HD DVD player hit the market, Toshiba president Atsutoshi Nishida raised the white flag, declaring yesterday that it would stop making and selling the devices altogether within a month.

Toshiba's unconditional surrender leaves the spoils to Sony, maker of the rival Blu-ray disc player - a technologically superior format that had the backing of virtually all the major movie studies and retailers.

"We simply had no chance to win," Mr. Nishida acknowledged bluntly.

The final straw, he said, was Warner's decision last month to exclusively release movies in Blu-ray. The decision by Warner, with about 20 per cent of the movie market, put a critical mass of the industry in the Blu-ray camp.

With billions of dollars in global sales at stake, experts had predicted the Toshiba-Sony battle would go on for years - not unlike the 1980s battle of videotape formats between VHS (Matsushita) and Betamax (Sony). That war lasted a decade, leaving Sony battered and humiliated.

So how did this epic battle come to such an abrupt end?

The answer lies in part with the bruising Sony experienced with Betamax, which, like Blu-ray, was also the better product on paper.

For more that 20 years, Sony has been "haunted by Betamax" and was fiercely determined not to let history repeat itself, explained Xavier Drèze, a marketing professor at the University of Pennsylvania's Wharton business school.

"Sony was much smarter," Prof. Drèze said. "They understood this time they couldn't do it alone. They understood that they needed strategic partnerships with industry players."

The war was over when Sony managed to line up a critical mass of partners - in Hollywood, Silicon Valley and on Main Street.

The tipping point was Warner Bros. But Sony Pictures, Walt Disney Co. and News Corp.'s Twentieth Century Fox Film Corp. had already done the same - signing exclusive sealed deals with presumably rich royalty arrangements.

"This was heavy hitters in a back room talking about what the royalty structure was going to be and how much money they were willing to put on the table to be exclusive with one camp or the other. That was the determining factor here," concluded Van Baker, an analyst with market research firm Gartner Inc.

Until last month, Warner had been backing both technologies.

Last Friday, Wal-Mart Stores Inc. announced it would sell only Blu-ray DVDs. Officials said "customer feedback" prompted its decision.

Netflix Inc., Best Buy Co. Inc., Blockbuster Inc. and Target Corp. had earlier done the same.

"Everyone was tired of the format war, the retailers were tired of it, the consumer electronics vendors were tired of it and they just wanted this thing to get settled," Mr. Baker said.

"Consumers and the industry learned the hard way with Beta and VHS that a prolonged format war was disastrous. There was a lot of motivation to get one or the other to win and the only thing that protracted it was the amount of money flying around."

The groundwork for Sony's stunning victory, however, came months, even years ago. Prof. Drèze said Blu-ray had several things going for it that helped it to build loyalty with consumers and the industry.

Six years ago yesterday - and years before the first Blu-ray disc or player was sold - Sony had lined up most of the other computer and electronics makers, including LG Electronics, Panasonic, Samsung, Apple and Dell.

Sony also owned a major movie studio. So it could push its own technology.

Third, the company sold Blu-ray to rival movie studios with the promise of superior digital copyright protection.

Sony also used its PlayStation video game console, which also works as a Blu-ray player, as a sort of "Trojan horse," Prof. Drèze said.

Sony has already sold 10.5 million of its PS3 consoles, compared with roughly one million HD DVD players. PlayStation buyers, he said, unwittingly embraced Blu-ray and undermined HD DVD.

Ultimately, the technology is superior. Blu-ray can hold up to three times more data (200 gigabytes versus 60) and offers higher resolution.

In the end, it could be a pyrrhic victory for Sony. The age of hard copy discs is already giving way to digital downloads, stored and played from PCs, iPods and other portable devices.

"I don't think the heyday of DVD is going to return," said Mr. Baker, the analyst. "For most consumers, digital downloads are going to be very appealing."

How Sony lost Betamax

1 QUALITY OVER

QUANTITY Despite better picture quality, Sony's original Betamax tapes could record only one hour of video, while rival VHS tapes could store double that.

2 SECRET RECIPE

Sony initially failed to license its Betamax technology to a sufficient number of manufacturers, thinking it could go it alone. This led to a situation where VHS players competed against one another for share, driving down prices and making the format more attractive to consumers.

3 BUYING V. RENTING When both systems arrived in the United States in the mid-1970s, VHS machines were less expensive to rent. When consumers began to purchase rather than rent their video players, they tended to go with VHS machines. 4PORN CONUNDRUM Sony refused to license the Betamax technology to adult film companies, who turned to VHS tapes and ended up creating a multibillion-dollar industry.

How Sony won Blu-ray

1 BIGGER IS BETTER

Sony's Blu-ray discs can store upward of 50 gigabytes of data on a single disc, while HD DVDs hold about 30 gigs.

2 PLAYSTATION 3

By including a Blu-ray drive in its next-generation video game console, Sony was able to drive sales of both the PS3 and its new DVD format.

3 SOLID PARTNERSHIPS Not wanting to duplicate the Betamax mistake, Sony took the initiative to license its Blu-ray technology with as many partners as possible. When Blu-ray was first announced in 2002, Sony had already signed up eight partner companies committed to producing players.

4 CONTENT IS KING

By signing exclusive deals with more studios and content providers than Toshiba, Sony was able to squeeze its competitor to the sidelines. Warner's defection to Blu-ray was the fatal blow.

Matt Hartley

Dead technologies

Media formats we have used, loved and discarded for the next best thing

The cassette tape

A Walkman and roller skates, anyone? Tapes were the original portable format and made music pirates of us all. (Can I tape your Fleetwood Mac Rumors?) But they were hated by record companies. The sound quality tended to go tinny after a few dozen plays, and many tapes wound up melting in a car on a sunny day.

Eight tracks

Developed by plane maker Bill Lear, eight-track tapes were large and couldn't be rewound. And because of their high tape speed, didn't sound great. Nevertheless, they were popular in the 1970s, thanks to the auto industry, which installed thousands of eight-track players. When sales slipped, companies eager to pare formats quickly dropped the eight track. Vinyl

Cumbersome to play and easily damaged, albums faded out in the late 1980s. But album covers managed to become a genuine art form and another way to grab music buyers' attention. Lately, albums have a enjoyed a comeback, thanks to collectors, club DJs and scratching (ask your kids).
Compact discs

CDs are dead? They will be soon. Who needs all those plastic cases and discs when you can fill your hard drive and iPod with thousands of songs? Using a credit card, of course. Downloading music for free is wrong, isn't it?