HD DVD post-mortem: why did Toshiba fail?

HD DVD post-mortem: why did Toshiba fail?

Summary: On the face of it Toshiba's HD DVD format had a lot going for it. What went wrong?


On the face of it Toshiba's HD DVD format had a lot going for it. What went wrong?

They had parity - or better - with Blu-ray:

  • First to market with a high-def player by 3-6 months
  • A great movie experience with plenty of capacity for extras
  • Lower costs for disk production - the format used much existing technology unlike Blu-ray - and players since they didn't need the fancy blue laser diodes
  • Almost as many movie titles as Blu-ray - despite not owning a movie studio like Sony

Here's what killed them Toshiba made several strategic mistakes:

  • Too timid: With their earlier shipment and lower-cost products, Toshiba could have trounced Blu-ray by very aggressive pricing. By setting the price bar low enough they would have encouraged the early adopters and started building volume for retailers.
  • Studio support: Hollywood is all about the benjamins - they didn't care which format won as long as they were selling more product. By pushing the player cost curve faster, Toshiba would have moved more HD DVD product for the studios and put Sony on the defensive. Instead, Toshiba waited until the damage was already done to pay the studios for exclusives. Too little, too late.
  • Relying on Microsoft: Toshiba thought the Xbox was the right answer to the PS3/Blu-ray combo. In studio pitches it probably sounded reasonable. But Microsoft's support for HD DVD was tepid - like their support for anything non-Microsoft - and the optional Xbox HD DVD player never generated the volumes Toshiba hoped for.

The bottom line: over 6 million Blu-ray players have been sold and only 1 million HD DVD players. That's what drove the studios to support Blu-ray.

The download threat The wildcard was the retailers. It was no accident that Blockbuster, the video rental chain, was the first to announce exclusive Blu-ray support last June (see Blu-ray vs HD DVD: game over). They face a slow death if people stop driving to stores to rent movies. If you can download movies without going to stores, sayonara Blockbuster.

Best Buy, Target and Wal-Mart were slower to see the downloading threat. The second version of Apple TV - lower priced and near HD quality - finally roused them.

The big question now: given a choice between a new player or an Apple TV-like appliance for downloads, which will America choose?

To Sony's credit Sony's key strategic move was to bundle Blu-ray into the PS3. That cost them hundreds of millions of dollars as the price of the PS3 didn't recover costs. It also delayed their entry into the market, giving the loss-making Xbox a valuable head start.

But it's the single most important thing that tipped the balance in Blu-ray's favor.

Going forward The value of Sony's victory remains to be seen. It isn't clear that Blu-ray is a big win (see Is Blu-ray worth it?) for most consumers. Very few people are going to upgrade their DVD collections to Blu-ray as many people did with VHS to DVD or LP to CD - Hollywood's great hope to reverse declining DVD sales.

Other technologies are quickly eroding Blu-ray's capacity advantage. Mempile's 1 TB optical disk is well on its way. Only by persuading consumers to watch even higher defininition video will retailers be able to fend off downloaded rentals.

The Storage Bits take This battle, like the Betamax-VHS battle in the early '80s, will be dissected by MBAs and strategists for decades. Only in time will the real winners emerge - and who's to say that Toshiba won't ultimately be the biggest winner.

Comments welcome, of course.

Topics: Mobility, Hardware, Toshiba

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  • HD_DVD could have still won

    The real competition to both formats has always been regular DVD. So the content really wasn't a issue. Market penetration was and Toshiba could have dumped their prices low enough to get that market penetration and win the war.

    Only thing is I think Toshiba realized that the optical disc format's days are numbered. Sure they could have war only to have that mean nothing as people move to the next format which will be solid state technology. So they can let Sony have this format for as long as it last them, I figure about 2 years.
    • More like 8-10 years

      Solid state technology will take at least that long to be competitive in pricing for the same storage space, and by then the optical solutions may surpass solid state even further. And besides, people like the CD style media size and dimension. Getting people to buy a chip that will get lost in the cracks of the sofa will take some convincing.

      Besides, how much more can we improve on the quality of 2D media? I don't see any real consumer push for anything better until 3D media becomes viable, and that's going to be at least a decade or more into the future. And think about it, now that a format has been selected for them, why would they even want to push for the next generation media yet? They got ~10 good years out of DVD and I'm sure they will want at least as many out of BluRay.
      Michael Kelly
      • Pricing is coming down

        Pricing will also come down with a mass market like movies. I read a article on this back in 2003 I think, that predicted that by 2010-2012 we would see Solid State media for movies and predicted the size increases and price drops correctly so far. So it looks to me that this could be the next big thing. That's when you will start seeing I'm thinking so even if it takes till 2012 that 6 or 7 year for Blu-Ray? When did Blu-Ray first come on the market? 2005? It's been a few years since that I've been seeing the movies on the shelves. So 10 years for Blue-Ray seems reasonable. They won't be as big as DVDs but around for some time.
      • Blu-ray supports 3D

        Mitsubishi demonstrated this already.
        glocks out
        • 3D What???

          Supports 3D what????
          • Supports 3D what????

            See for your self...

          • I don't think he means 3-D movies

            I think he was talking about holographic storage
            3 dimensional storage medium
          • Holographic Versatile Card (HVC)

            From the same people who put nearly 4TB on a CD-sized Holographic Versatile Disk (HVD) comes a card the size of a credit card, that does not spin (fewer moving parts, fewer mechanical points of failure, less noise, less battery drain on portable players, etc.), holds 30GB (more than HD-DVD or single-layer Blu-Ray, less than dual-layer Blu-Ray, but this is first generation and can improve), is more durable and scratch-resistant, and has faster access and transfer rates than any disk format.

            As for HVD, just imagine an entire TV season (or even multi-season series) box set at full 1080p HD [i]uncompressed[/i] quality with lots of extras, all on a single disk!
            Joel R
      • Not especially

        Yet people trust their kids with $30 Nintendo DS cartridges! They get misplaced around our house all the time, but so do DVDs and CDs, even while still in their cases! Yes, the prices need to come down, but I don't think physical format will be an issue for future movies any more than it is for portable games and memory media now. The twin benefits of greatly reduced storage space and protection from damage will be huge factors in the acceptance of solid state media.
    • Toshiba already dropped their prices too low

      That was a problem. Toshiba was losing money on their players, and they posted huge losses in their CE division because of it. On top of that they pushed competitors out of the market. RCA initially supported HD DVD but dropped out because they couldn't compete on price with Toshiba. Venturer came out as the "low cost solution" and Toshiba dropped their prices again edging them out of the market, and then Onkyo sold all of 50 players because Toshiba was so much cheaper.
      glocks out
    • My analysis

      I think those of us that follow trends and details over estimate what impacted Joe Consumer. I don't think the average person had a real clue about the differences between BD and HD-dvd or even cared. I often hear comments that the format war prevented adoption of either one, but I seriously believe with an installed base of hdtv's of only about 35% who is going to buy a player they can't benefit from unlike dvd's that didn't require an additional investment?

      In the end I don't think any visual quality differences were existent and even so would not matter to the majority. Most people don't bother watching extras so capacity is moot. Very few would even know the BD spec is still being worked on. I really thought this race would come down to price, however buying a couple of sample discs for your kids video game system to check out seems to have been the key. Who wudda thunk?
      • No, b/c apparently a third of PS3 owners don't even know it'll Play BluRay

        And apparently don't care, either, b/c most of them w/HD televisions probably had the local cable company set them up (now THERE's a way to guarantee quality HiDef viewing!). Odds are they plugged their PS3s into the composite Video In jack of their teevee sets, so they can't understand what's the big whoop about HD is - it doesn't look any better than standard DVD, far as they can tell.

        Sad fact is, most people think they're getting a "HiDef" picture if they're watching a 4:3 SD image stretched out to 16:9 so it takes up the whole screen - and have no idea what those funny humpy HDMI ports in the back are for, or why they should get some three-plug cable just for component video when that composite cable that came w/their old VCR used to do just fine. Those people could care less about HD-DVD or BluRay - and the only reason they care about standard DVD is b/c it's more convenient than videotape and doesn't smear the picture.
  • RE: HD DVD post-mortem: why did Toshiba fail?

    Should have seen it coming, given the similarities between the online fanboys for HD-DVD and Ron Paul. Hindsight's 20/20, I guess.
  • Good analysis

    Can't find too much to disagree with in your analysis. I bought an HD-DVD player
    at Christmas, along with a few disks. Even if I have to pitch the whole mess in a
    few years, I've still gotten my money's worth. From everything I can tell Blu-Ray is
    still a year or two from having solid affordable Profile 2.0 players.

    I don't think that downloads are going to be as big a threat as Apple et al would
    like us to think. There's a huge, easily-seen difference between downloaded/PPV
    HD and what comes on a disk. As long as the disks generally come in under $20,
    that will beat having to fiddle around with home servers and short-lived

    So long live Blu Ray, I guess.
    • Keep in mind...

      ...that most people surveyed can't see the difference between HD and SD content, perhaps because they don't have the equipment to make the difference noticeable. I recently bought a HD TV, and went with a 720P plasma because at the typical viewing distance I could not resolve the difference between 720P and 1080P, and therefore could not justify spending a few hundred dollars more. Also, 720P is the standard for broadcast, so once again, why pay more?

      Regarding BluRay, as you say it is a couple of years away from having a mature product. Will anyone still care by then? I doubt it.
      • About perceiving quality

        Funny, but lots about people can't perceive quality until they've been with it a
        while. For most people, DVDs initially looked only a 'little better' than VHS. But
        now take a look at VHS and most people say it looks horrible. Same with CDs and
        LPs (yes, I'm aware that a small fringe group violently disagrees with that). It will
        be the same with HD. A flat-screen with the quality of my very nice Samsung will
        be half the price I paid in 18 months. More people will take the plunge--especially
        with analog TV going away in a year. As more people get familiar with 720p or
        1080p, they'll become more discriminating. So BluRay will take a while to reach the
        market penetration of DVD. But it will get there.
        • True, but

          dont forget that the quality of regular DVDs has steadily improved over time. The digital encoding systems have got a lot better, as have the players. If you compare the original DVDs with VHS there was a smaller step up than from VHS to today's SD DVDs.
      • 1080i is the standard broadcast

        Fox and ABC use 720p but everyone else uses 1080i. 1080p displays can take advantage of this additional resolution.
        glocks out
        • Europe is heading for 1080p/50

          according to the EBU. Thats because they realised they can compress progressive much better than interlaced, so the bandwidth "saving" from using 1080i is just a myth. Also, interlace is a crap idea these days anyway, and few TVs have really good deinterlacers. Roll on 1080p. Thats what I'll buy.

          Oh, and a decent upscaling DVD player. BluRay? No thanks, not at those prices. Maybe I'm old fashioned, but I tend to rate movies by the quality of the script and the acting. Those dont get any better with more pixels.
        • 1080i is not necessarily better

          1080i, being interlaced, is only delivering 540 lines of resolution per frame. On still objects, you may see a bit more resolution than with 720P, but with moving objects the twitter and interlace artifacts make for reduced image quality. I have seen both, and prefer 720P over 1080i. 1080P is dramatically better than either, but only if you are close enough to resolve the difference. With my 42" display, at about 6 feet the difference becomes difficult to notice.