In a fight Faultline has tracked since 2004, the high definition Blue laser technology for high definition DVDs is going to be the Sony inspired Blu-ray, with Toshiba, the last backer of the HD DVD format, created by the DVD Forum’s decision to opt for a Toshiba NEC technology submission, now officially dead.
The pressure on Toshiba had grown unbearable over the past few weeks, despite most of the world’s analysts defying logic and initially backing anything that did not come out of Sony, just to see it defeated in yet another format war. But with recent decisions by Best Buy, Netflix and Blockbuster to exclusively support Blu-ray, the backing of Warner Brothers to concede the format and this week’s decision by Wal-Mart to go with the flow, the decision was inevitable.
Toshiba told the US Wall Street Journal over the weekend that is was preparing to exit the HD DVD business over the coming months, and that instead it would re-focus its efforts into Flash memory.
But there are only so many format wars that a company like Sony can fail in, and we have backed it unwaveringly since 2004 as the technology of choice and the only possible winner in the DVD wars. The decision to bundle a Blu-ray player into the PlayStation 3 has been given the plaudits, and brave as that decision was, and even braver to stick to it when it meant ceding a one year led to Microsoft in the gaming platform battle, it was not the deciding factor.
The backing of Samsung, Panasonic and Philips plus Sony gave the Blu-ray Disc Association around 90% of the retail consumer electronics capacity globally, and for as long as that stayed unwavering, the win was safe. But of course if you add to that the support of Disney and Fox, not to mention Dell, Hewlett Packard, Hitachi, LG Electronics, Pioneer, Sharp, TDK and Thomson, with only one or two of them ever backing both standards, along with the 200 or so other members of the BDA, this was a fight that was only ever going to go one way, until Microsoft and Intel threw in their support for the HD DVD standard in September 2005.
That was like two tug boats sailing out to save the Titanic the day after the ice berg had hit, and all it ever did was delay the inevitable and send confusing signals to the US studios.
Did Microsoft make the right decision then? Was the entire gamble done so that it could get to market a year earlier with a gaming console? Well you might think so, currently ahead of Sony having sold about 2 current generation gaming consoles to Sony’s one, and with US analysts roundly claiming that Microsoft has taken over the Sony mantel as gaming market leader.
Well we don’t think so. First off Nintendo and PlayStation 3 are set to over take the Xbox anyway, if a report this week from iSuppli is to be believed, and while it says that we will have to wait until 2011 for that pleasure, there are a few other things that will accelerate this.
iSuppli said that the Wii has been outselling the Xbox since its launch and that by merely extending current rates of sale it will overtake the Xbox 360 by the end off 2008, with some 30 million plus devices sold. It will only take that long if Microsoft continues to make inroads, and ends up selling its predicted 25.7 million Xboxes. Over the Christmas break Microsoft said that it was component constrained and it could have sold even more Xbox 360s.
iSuppli goes further and says that by 2011, the PS3 will overtake both devices with sales of 38 million units, with the Wii in second place at just under that number.
There is in fact a notion out there that Microsoft may have not only backed the wrong High Definition DVD format, but that the decision could make its games console sales implode. There are a number of potential futures that support this view.
First off, if Apple can upset consumers by offering the iPhone at one price and then lowering the price, forcing it to give credit vouchers to thousands of customers, how badly do you think Microsoft Xbox customers will feel when they realize they just bought a HD DVD player in a fire sale as Microsoft dropped the prices anticipating this decision, in order to clear its stock. Microsoft cut prices of the HD DVD add on drives by $50 earlier this month to $129 and offered five free movies bundled in.
Microsoft’s only sensible tactic going forward would be to offer to replace all of the HD DVD players that it has sold so far, with Blu-Ray players or else it will turn a number of Xbox recommenders into PS3 recommenders, slating Microsoft and praising Sony out there on all those influential gaming sites. It has already had a major recall for Xboxes in July in what was the largest ever recall in gaming history.
That move was reckoned to have cost $1.1 billion and as many as a half of the recently made Xboxes returned. That has already created a discernible amount of discontent among gamers.
Failure for Microsoft to act positively will continue to upset the gaming community. If, as iSuppli has pointed out, the gaming community is pretty much in love with the Wii, and that the PlayStation is set for a comeback as prices come down, then Microsoft will need all the friends it can get, not more enemies. It must at least ‘let’ someone else launch add-on Blu-ray devices for the Xbox 360 which work just as the HD DVD players worked, or better still it should swallow its pride and ask Sony to provide one.
But once the dust has settled on the Toshiba announcement, there is no longer any necessity for Sony to continue to ONLY sell the PS3 with a Blu-ray drive. If it takes off the $200 (likely today pricing) that this costs, and sells a bare PS3, then they could come in at the same price or less than the Xbox, and that might stop console sales in their tracks for Microsoft. ‘Let’s see, do I want a Wii or a PS3, they both cost less than an Xbox,’ is not something Microsoft can live with. Its only option would be to slash it prices to the floor, and go back into the $multibillion losses that its entertainment division has always been known for.
Microsoft immediately has moved to say it does not see the Toshiba decision affecting sales of its Xbox 360. Already back in January, Microsoft conceded that it might agree to support Blu-Ray technology for Xbox 360, if the market wanted that. Well it does, so pony up.
The Wall Street Journal carried the quote, ‘It was a heartbreaking decision, but we considered the impact of continuing the business on our earnings, the next-generation DVD market and consumers,” said Toshiba Chief Executive Atsutoshi Nishida.
The move has also blind-sided Sony consumer electronics rivals Samsung and LG Electronics that have both brought to market devices that can read both formats, something that we at Faultline have always said is pointless, believing that the HD DVD format would not last that long.
Around a million HD DVD players have been sold around the world, and Microsoft was probably responsible for close to half of these, a far cry from Blu-ray’s 6 million plus players.
In the aftermath of this battle Sony will make hay. It can ask whatever prices it likes for any of the anti-Blu-ray hold outs, it can double the amount of shelf space its devices receive, and the attach rate of content could do anything as much as doubling, as all the doubt goes out of the market and studios the world over begin to spend. The Sony royalty base can now also be established, and it will have to share this with 17 other companies that the MPEG LA deems to bring essential patents to the Blu-ray patent pool it is working on, including CyberLink, Dell, Hewlett-Packard, Hitachi, Philips, LG Electronics, Matsushita, Mitsubishi, Pioneer, Samsung, Sanyo, Sharp, Sony, TDK, Victor Company of Japan, and Warner Home Video. The notably absentee here is Toshiba.
However although Sony will suddenly sense less resistance in the market, it is likely that the market is smaller, and will remain slow to shift from conventional DVD format to Blu-ray, for some time to come, a transition that is likely to take 7 to ten years.
Meanwhile Toshiba, number 2 in the global Flash memory market, says that it will strengthen its Flash memory business by investing almost $16 billion, with US partner SanDisk, to build two new flash plants in Japan. The two have already spent an estimated $2.5 billion on a plant that came on-stream with 300 mm wafers in the second half of 2005, at the time it used 90 nm geometry and it first made 4 gigabit chips for 8GB devices.
The aim is to go the next step towards Flash memory replacing hard disks in Personal Computers, which will require it to move on several more generations of technology and keep spending to keep up with market leaders Samsung and the chasing pack led by Intel.