Blu-ray Disc and its main backer, Sony (NYSE:SNE) -- go the spoils.
Toshiba folded its rival format, HD DVD, on Tuesday, ending a 20-month
battle to determine the high-def successor to today's standard-definition
DVD.
Winners include the consortium of consumer electronics firms backing Blu-ray
Disc, which was led by Sony SNE and included Philips Electronics (NYSE:PHG)
PHG and Matsushita Electric Industrial MC, best known for its Panasonic
(NYSE:MC) brand.
Other winners include the major movie studios, which can unite around one
format to drive growth in the home entertainment business to make up for
sagging DVD sales. Retailers such as Best Buy BBY also stand to benefit as
HDTV owners try to get sharp HD video and surround sound on their sets.
Losers include HD DVD backers Toshiba and Microsoft (NASDAQ:MSFT) MSFT,
which together dumped millions of dollars into making and promoting
now-obsolete hardware. Toshiba built standalone HD DVD players and drives
for notebook computers. Microsoft sold an HD DVD accessory for its Xbox 360
game console.
With the format war history, some analysts expect a burst of sales of
Blu-ray Disc players because of pent-up demand. "There are people who have
been waiting for prerecorded (HD) content for awhile and have sat out
because of the format war," said Josh Martin, a Yankee Group analyst. "We'll
see a short-term pop from people who have been waiting on the sidelines."
Blu-ray Disc players could be big sellers this holiday season, he says.
Tech enthusiasts will buy Blu-ray machines now, but not the mainstream
public, says Danielle Levitas, an analyst with IDC.
With players costing $400 and movie discs going for $30, Blu-ray is still a
little pricey for the mass market, she says.
"I don't expect people to go out in droves in light of this news," Levitas
said. She expects Blu-ray Disc players to be a bigger deal at Christmas 2009
rather than this year. That's when the major consumer electronics vendors
will be making lower-priced devices.
The timing is right for a winning high-def disc format because of the
growing number of HDTV households.
Of U.S. households, 39% have high-definition televisions. Less than 10% have
the highest quality HDTVs, capable of displaying video in 1080p resolution
(1,080 lines of vertical resolution, noninterlaced), which Blu-ray can, says
Steve Koenig, an analyst with the Consumer Electronics Association.
The percentage of digital TVs sold with 1080p resolution is expected to jump
from 21% last year to 39% this year and 54% in 2009, he says.
Toshiba, which began selling HD DVD players in March 2006, has sold 1
million worldwide, including peripherals for Xbox 360 consoles. About
600,000 HD DVD players were sold in North America.
By comparison, 6.3 million Blu-ray Disc players have been sold worldwide,
including 4.1 million in the U.S. Those figures include Sony's PlayStation 3
video game console, which has an integrated Blu-ray Disc drive.
Toshiba on Tuesday said it would no longer develop, make or market HD DVD
players and recorders. Toshiba aims to clear out its remaining inventory by
the end of March.
"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," Atsutoshi Nishida, chief executive of Toshiba,
said in a statement.
The turning point 14 the format war came Jan. 4 when Time Warner's
(NYSE:TWX) TWX Warner Bros. studio decided to back Blu-ray Disc exclusively.
That gave Blu-ray the support of a clear majority of the major Hollywood
studios, including Walt Disney (NYSE:DIS) (NYSE:DCQ) DIS Sony and News
Corp.'s (NYSE:NWS) NWS 20th Century Fox.
In recent weeks, support for Blu-ray Disc grew even stronger. Online movie
rental company Netflix (NASDAQ:NFLX) NFLX and Best Buy announced plans to
phase out HD DVD in favor of Blu-ray on Feb. 11. Wal-Mart Stores (NYSE:WMT)
WMT on Friday revealed similar plans.
Blu-ray's biggest rival is likely to be digital downloads. Analysts say that
technology could take years to develop.
"There isn't enough bandwidth on the Internet to deliver even a fraction of
the HD DVD and Blu-ray movies that are out there," said Richard Doherty, an
analyst at the Envisioneering Group.
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