Toshiba Quits; Sony's Blu-ray Wins DVD War

Toshiba said Tuesday it will no longer develop, make or market HD DVD players and recorders, handing a victory to rival Blu-ray disc technology in the format battle for next-generation video.

"We concluded that a swift decision would be best," Toshiba President Atsutoshi Nishida told reporters at his company's Tokyo office.

The move would make Blu-ray - backed by Sony Corp., Matsushita Electric Industrial Co., which makes Panasonic brand products, and five major Hollywood movie studios - the winner in the battle over high-definition DVD formatting that began several years ago.

Nishida said last month's decision by Warner Bros. Entertainment to release movie discs only in the Blu-ray format made the move inevitable, although his company had confidence in HD DVD as a technology.

"That had tremendous impact," he said. "If we had continued, that would have created problems for consumers, and we simply had no chance to win."

Warner joined Sony Pictures, Walt Disney Co. and News Corp.'s Twentieth Century Fox in that move.

Nishida tried to assure the estimated million people in the world who already bought HD DVD machines by promising that the company will provide continued product support for HD DVD.

Nishida said it was still uncertain what will happen with the Hollywood studios that signed to produce HD DVD movies, including Universal Studios, Paramount Pictures and DreamWorks Animation.

Toshiba's pulling the plug on the technology is expected to reduce the number of new high-definition movies that people will be able to watch on HD DVD machines.

Toshiba Corp. said shipments of HD DVD machines to retailers will be reduced and will stop by end of March.

Both HD DVD and Blu-ray deliver crisp, clear high-definition pictures and sound, which are more detailed and vivid than existing video technology. They are incompatible with each other, and neither plays on older DVD players. But both formats play on high-definition TVs.

HD DVD was touted as being cheaper because it was more similar to previous video technology, while Blu-ray boasted bigger recording capacity.

Only one video format has been expected to emerge as the victor, much like VHS trumped Sony's Betamax in the video format battle of the 1980s.

Sales in Blu-ray gadgets are likely to pick up as consumers had held off in investing in the latest recorders and players because they didn't know which format would emerge dominant.

Despite being a possible blow to Toshiba's pride, the exit would likely be good for business. Goldman Sachs has said such a move would improve Toshiba's profitability between 40 billion yen ($370 million) and 50 billion yen ($463 million) a year.

Toshiba's stock slipped 0.6 percent Tuesday to 824 yen after jumping 5.7 percent Monday amid reports that a decision was imminent. Sony shares climbed 2.2 percent to 5,010 yen after rising 1 percent Monday.

The reasons behind Blu-ray's triumph over HD DVD are complex, as marketing, management maneuvers and other factors are believed to have played into the shift to Blu-ray's favor that became more decisive during the critical holiday shopping season.

Once the balance starts tilting in favor of one in a format battle, then the domination tends to grow and become final, said Kazuharu Miura, an analyst at Daiwa Institute of Research in Tokyo.

"The trend became decisive I think this year," he said. "When Warner made its decision, it was basically over."

With movie studios increasingly lining up behind Blu-ray, the pick among retailers for the format they wanted to stock also became Blu-ray.

Friday's decision by Wal-Mart Stores Inc., the largest U.S. retailer, to sell only Blu-ray DVDs and hardware appeared to deal a final blow to the Toshiba format. Just five days earlier, Netflix Inc. said it will cease carrying rentals in HD DVD.

Several major American retailers had already made similar decisions, including Target Corp. and Blockbuster Inc.

The HD DVD is now the Highly Dead DVD.

Toshiba Corp., creator of the HD DVD, dropped out of the battle Tuesday over the next generation of movie-disc technology and conceded to Sony's rival Blu-ray format.

It was the biggest battle between two video formats since Betamax lost out to VHS in the 1980s. Some 35 million Americans now own a flat screen TV increasing demand for high-definition content, reports CBS News sci-tech correspondent Daniel Sieberg

"It's a bit of a knockout, said PC Magazine editor in chief Lance Ulanoff. Ulanoff told Sieberg that the 1.5 million people who bet on Toshiba's format are stuck.

"They knew what the risk was going in. No one has said over the last two years there was any clear winner,'' said Ulanoff.

In the long run, the end of the latest format war is expected to be good for consumers, who will no longer have to agonize over which technology to choose for high-definition movies, and won't have to go to the trouble and expense of buying two players.

But in the short term, Toshiba's defeat not only leaves 1 million HD DVD customers worldwide with dead-end hardware but also ends a rivalry that kept down prices for players and pushed the Blu-ray group to match the features available on HD DVD players.

Analysts say people interested in getting a Blu-ray player would do well to wait. For one thing, it will take 12 to 18 months for Blu-ray players to become as cheap and full-featured as HD DVD players, which have been selling for just over $100 (euro68), according to ABI Research.

Many people who did buy HD DVD players did so recently. In fact, Toshiba said the holiday season was its best ever. Stephen Brown, a Huntington Beach, California, technology manager who bought an HD DVD player in November, doesn't regret it, even though his wife now calls him "Betamax Brown."

"Just the fact that I could go out and spend $119 or $120 and have a really nice player, that was a no-brainer at that point," he said Tuesday.

Brown said it he will probably look at getting a Blu-ray player in a year or so, when the price comes down to around $150 (euro102) from about $400 (euro271) now and various features become standard.

Both HD DVD and Blu-ray discs deliver crisp, clear pictures and sound, a perfect match for the high-definition TVs sets Americans have been rushing to buy for the past two years.

But HD DVD players are also able to connect to the Internet to download trailers and other bonus content for discs, and can have a director or actor provide commentary in a small window while the movie plays.

The studios that supported HD DVD took advantage of these features in innovative if not always very useful ways: Viewers of Universal Studios' "Evan Almighty" HD DVD could shop for ecologically friendly items like recycled toilet paper through their player.

Blu-ray players capable of showing picture-in-picture - a feature called "Bonus View" - have only just started to appear. So-called BD-Live players, which can take advantage of Internet content, are expected on the market this spring.

The fact that the PlayStation 3 console included a Blu-ray drive is one reason the format eventually won out. Sony Corp. sold 10.5 million PS3 machines since its 2006 debut.

But the real death knell for HD DVD was the last month's decision by Warner Bros. Entertainment to drop the format and release only Blu-ray discs and DVDs.

"That had tremendous impact," Toshiba President Atsutoshi Nishida said Tuesday in Tokyo. "If we had continued, that would have created problems for consumers, and we simply had no chance to win."

Warner joined Sony Pictures, Walt Disney Co. and News Corp.'s Twentieth Century Fox in shunning the HD DVD, leaving Universal and Paramount Studios in the HD DVD camp. Universal on Tuesday said it would "focus" on releasing Blu-ray discs, but did not say if it would cease putting out HD DVDs.

After Warner's announcement, Toshiba was initially defiant. It cut player prices and kept touting the format's benefits. But the bad news kept rolling in. Last week, Netflix Inc. said it would cease carrying rentals in HD DVD. On Friday, Wal-Mart Stores Inc. said it would stop selling HD DVD players and discs.

Even with the HD DVD out of its way, Blu-ray isn't likely to be the success that the DVD was, given the many viewing options consumers have.

The big advantage of the DVD over broadcast and cable has been that the viewer can choose when to watch what. But that advantage has been eroded by video-on-demand from cable companies, many of which are now in high definition. Comcast Corp., the country's largest cable company, plans to offer more than 1,000 high-def movies this year.

Just last week, Apple Inc. upgraded its Apple TV set-top device to enable downloads of high-definition rental movies from the Internet. Microsoft Corp.'s Xbox 360 game console also shows downloaded HD rentals.

"Blu-ray Disc has passed its first real test by beating HD-DVD," wrote David Mercer, an analyst at Strategy Analytics in London. "But a much bigger challenge now lies ahead if BD is to become as successful as DVD, and content owners, retailers and manufacturers must now demonstrate that they can work together to promote BD effectively."