Toshiba quits HD DVD business, handing victory in format battle to Blu-ray

Yuri Kageyama, THE ASSOCIATED PRESS
TOKYO - 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 20th 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.

He 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 (US$370 million; ?253 million) and 50 billion yen (US$463 million; ?316 million) a year.

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

Also adding to Blu-ray's momentum was the gradual increase in sales of Sony's PlayStation 3 home video-game console, which also works as a Blu-ray player. Sony has sold 10.5 million PS3 machines worldwide since the machine went on sale late 2006.

Recently, the Blu-ray disc format has been gaining market share, especially in Japan. A study on fourth quarter sales last year by market researcher BCN Inc. found that by unit volume, Blu-ray made up 96 per cent of Japanese sales.

Sony said it did not have numbers on how many Blu-ray players had been sold globally.

Besides Sony, the Blu-ray camp includes Samsung Electronics Co. of South Korea, while HD DVD supporters included U.S. software maker Microsoft Corp. and Intel Corp. of the U.S. and Japanese electronics maker NEC Corp.

Also Tuesday, Toshiba said it plans to spend more than 1.7 trillion yen (US$15.7 billion; ?10.73 billion) for two plants in Japan to produce sophisticated chips called NAND flash memory, which are used in portable music players and cell phones. Production there will start in 2010, Toshiba said.

The Canadian Press, 2008