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1/14/2008
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Toshiba Refuses To Wave The White Flag In HD DVD-Blu-Ray War

It's likely that Sony over time would be willing to pay Toshiba to drop HD DVD, so the industry could focus on the one format and end consumer jitters, one analyst suggests.

Toshiba, which recently suffered a major setback in its fight to dominate the high-definition movie format for DVDs, on Monday dropped the prices of its HD DVD players and said it would beef up its marketing campaign against the Sony-backed Blu-ray format.

At least one analyst, however, said Toshiba had little chance of winning, and its bravado was more likely an attempt to save face and create a better negotiating position against Blu-ray supporters who would like to see HD DVD go away as quickly as possible.

In the meantime, however, Toshiba was defiant, unveiling lower prices for its HD DVD players. The entry-model HD-A3 is now selling for a manufacturer suggested retail price of $150, the HD-A30 with true HD output of 1080p had a MSRP of $200, and the high-end HD-A35 $300.

In addition, Toshiba said in a statement that it would embark on an "extended advertising campaign" to highlight the benefits of HD DVD over its competitor. The campaign would consist of television, print and online advertising, and would include a mail-in offer in which buyers of a Toshiba player could choose five movie titles at no charge from a list of 15.

Toshiba and other supporters of the HD DVD format suffered a major blow Jan. 4 when Hollywood studio Warner Bros. Entertainment said it would release titles exclusively in Blu-ray starting in June. Warner Bros., which accounts for 20% of the DVD market, had been supporting both formats.

Warner Bros.' defection leaves Universal Studios and Paramount Pictures as the only movie studios releasing HD DVD movies. With so much more content available on Blu-ray starting in the middle of the year, it was unlikely people would buy HD DVD players, analysts said.

Toshiba's latest announcement appeared to be aimed at saving face and building a better future bargaining position with Sony, Michael Greeson, president and principal analyst for The Diffusion Group, told InformationWeek.

"You have more negotiating clout if you continue to actively support the HD DVD format," he said. "If you rollover and play dead, then you have no clout."

It's likely that Sony over time would be willing to pay Toshiba to drop HD DVD, so the industry could focus on the one format and end consumer jitters over buying high-definition DVDs and players. The format wars have kept consumers on the sidelines, preferring to wait to see which format wins before investing money in hardware.

In addition, Toshiba could also negotiate to get some revenue from future Blu-ray-related sales by getting some of its intellectual property into future versions of the technology, Greeson said.

"In the end, you're going to see a pretty big check from Sony to drop the (HD DVD) format," the analyst said. "It's in Sony's interest to get this over with as quickly as possible."

In the meantime, Toshiba is unlikely to get much more than lukewarm support from retailers, since it would be unfair to tell a customer to buy a player that has less content available than its competitor. "It's difficult to rationalize that you're being fair to the customer, if you don't tell them that the content advantage is clearly with Blu-ray," Greeson said.

While continuing its battle, Toshiba could see an increase in sales of its entry-level HD DVD player. That's because the lower price puts it in position to compete against standard DVD players. Greeson said that while Blu-ray and HD DVD players can convert regular DVDs to produce high-definition-like images, Toshiba is trying to use this feature to differentiate its new lower-priced players and thus help spur sales. "That was clever on their part," Greeson said of Toshiba.

The battle between Blu-ray and HD DVD has often been compared to the VHS-Betamax battle that ushered in the VCR era. Sony lost with Betamax, but hoped to avoid the same fate with Blu-ray by leveraging partnerships and the popularity of its PlayStation 3 videogame console, which it released in late 2006 with an integrated Blu-ray disc drive.

Many Hollywood and consumer electronics manufacturers took sides in support of either Blu-ray or HD DVD. MGM, 20th Century Fox, Walt Disney Pictures, and Sony are exclusively releasing DVDs in Blu-ray, while Universal and Paramount distributed only in HD DVD. Warner was the only major studio left supporting both formats, after Paramount chose HD DVD last year.

Among player manufacturers, Sony, Hitachi and Philips favor Blu-ray, while Toshiba and NEC support HD DVD. Toshiba led the effort in the creation of HD DVD.

This article was edited on January 14 to modify an error in the analyst's comments.

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