HD DVD: Time to quit?

  • Opinion - The HD DVD camp suffered two major blows today and no matter you look at it, begins to look like the certain loser of the high-def format war. HD DVD better has a secret weapon that it can aim at Blu-ray now. Otherwise Toshiba can only hope for a miracle or actually admit defeat. But it is not only Toshiba that loses: A victory of Blu-ray may actually be much more painful for Microsoft.

    If you own a HD DVD player and hoped that the format will win in the end, I can feel your pain. I am among those people who purchased such a player, although for different reasons than your typical HD customer: My player was actually cheaper than an upscaling DVD player, I got seven free HD DVD movies and I knew that even if the format doesn’t win in the end, I still can use it as a DVD player. I am still happy with that decision, but if I have to say that the 35-second startup time of the player and the loud fan noise (there’s a Pentium 4 processor inside) is annoying.  

    If you have spent $400 or more on a HD DVD player, you may be upset about the HD news recently hitting the web. But then, you’ll also have to admit that you should have waited with the purchase and if you are upset that those $400 and perhaps several hundred dollars more (because you obviously purchased HD DVD movies) are thrown out the window, you have to realize that couldn’t afford this HD DVD player in the first place. Part of being an early adopter means that you can swallow such a loss and you shouldn’t complain about it.

    No one right in his mind (and a budget) would have bought an HD DVD player within the past few weeks after the Blu-ray camp began scoring one success after another. Interestingly, if you look at it, the pendulum started moving towards Blu-ray only two months ago. Right before CES 2008, Warner Home Video announced that it would begin backing Blu-ray exclusively (even if HD DVD support was a bit extended afterwards). This announcement sent a shockwave through the industry and was widely seen as a sign that the movie industry would begin focusing on Blu-ray. Following the announcement, Blu-ray player sales skyrocketed, HD DVD player sales plummeted and we heard more movie studios and retailers saying they would move towards Blu-ray. In late January, Gartner said that it expects Blu-ray to be winning the format war.

    It is interesting to note that we are under embargo on some of these announcements, as they are planned to be made at the end of Q1 or in Q2. Given the situation, we can say that a handful of smaller movie studios told us that they would be supporting Blu-ray exclusively, but decided to hold back such an announcement as they were sitting on a pile of HD DVDs they still wanted to get rid of. Plus, remember there’s quite some marketing money floating around which no one wants to lose. As reported earlier, industry sources told us that Chicago retailer Grant’s Appliances had no intentions of supporting HD DVD anymore and another source told us that Blockbuster is also focusing on Blu-ray (some stores are still stocking HD DVDs at this time).

    Today may actually have been the most critical day in the high-def battle yet. Netflix dropped HD DVD and Best Buy now sides with Blu-ray as well. It’s clear that there is still support for HD DVD out there, but the walls are crumbling and the HD DVD camp should reveal their last ace soon, if they have one.

    If you look at the past 20 months, the HD DVD camp always has fought this battle highlighting the lower price of HD DVD players. Not really a bad idea considering the fact that Toshiba was out with players months before the first (Samsung) Blu-ray player became available, which was offered for the ridiculous price of $999 initially. However, we have to recognize that even this lower price point was much too high even for the enthusiasts among consumers. So it probably did not really matter whether such a player was priced at $600 or $1000. Turns out that Sony in fact may have won the war with what many of us considered a failure – the Playstation 3.

    Read on the next page: Why video gamers are critical for HD success

    Despite the delay and product shortages initially, Sony was able to pump millions of the console into the market. And surprisingly and in contrast to analyst expectations, buyers of the PS3 not only purchase video games, but also movies. We repeatedly heard in recent weeks that changing strategies of movie studios were based on the fact that Blu-ray has - thanks to the PS3 - a huge installed base out there. Sooner or later, movie publishers realized that those video gamers in fact purchased their movies, and lots of them.

    That of course makes you wonder what happened to Microsoft’s Xbox 360 HD DVD drive. It was the cheapest HD DVD drive initially, but it wasn’t integrated like the Blu-ray drive in the PS3. And an Xbox 360+HD DVD combination was pretty much as expensive as a PS3 anyway.

    In hindsight, it makes you wonder why Microsoft never went all the way, evolved its game console and made the HD DVD drive a standard feature of the Xbox 360. Microsoft always touts the home entertainment and movie playback talents of the Xbox 360, so an integrated HD DVD drive would have been a natural upgrade. Especially if you consider the fact that many high-end gamers have substantial cash at their disposal and are more likely to be interested in new technologies – such as high-def. In that sense, there was no better target market than video gamers to drive high-priced HD into the mass-market and you have to give Sony props for having pursued this strategy relentlessly.

    Microsoft had the same or perhaps an even better opportunity: There was the invaluable advantage that the Xbox 360 had been in the market one year before the PS3, which means that the Xbox production cost was already decreasing when the PS3 came to market. So, should have Microsoft used this advantage to upgrade the Xbox 360? Should have Microsoft, like Sony, taken the bullet and just built the HD DVD drive into the Xbox 360? Well, you are always smarter afterwards. But the answer, in my opinion, is yes.

    As it stands now, the PS3 looks like the decisive advantage that will win the high-def war for Sony. Microsoft may have had the resources to outgun Sony due to the higher production volume of the Xbox. Instead, the external HD DVD drive looks like a half-baked effort that one day may be considered as one of the major reasons why Toshiba lost the HD battle. Granted, HD DVD hasn’t conceded to Blu-ray yet, but we surely live in interesting times, when you think about the fact that video gamers may have decided this format war. And, if we assume for a moment that HD DVD actually is defeated, the effects of this result actually may be much worse for Microsoft than for Toshiba.

    Sure, Toshiba had the development cost, carried much of the promotional cost and had to build those HD DVD players, which wasn’t exactly cheap. But Toshiba covered its bases through a production and development joint-venture with Samsung: TSST, short for Toshiba Samsung Storage Technologies, enables Toshiba to get access to Blu-ray technology immediately. Toshiba holds 51% of the joint venture, Samsung the remaining 49%. Sony, by the way, also covered its bases through a joint venture with NEC, a company that today focuses on HD DVD drives.

    But Microsoft is standing a bit in the rain right now. If HD DVD fails, the company not only loses its investment, but is without a high-definition drive for the Xbox 360, at least for some time. That could translate into a massive advantage for Sony’s PS3. It’s not difficult to imagine that a failure of HD DVD and a late reaction of Microsoft could turn into a disaster for the Xbox 360.

    Microsoft’s options at this time are similar to those of Toshiba: Pull out a great trick or hope for a miracle.

    The developing trend in recent weeks leads me to believe that there isn’t much firepower left in the HD DVD camp. I am not sure, if it’s already time for Toshiba to quit, but one should always know when the time has come to admit defeat. And that time surely looks like it is approaching for HD DVD.