US retail giant Wal-Mart's decision last Friday to stop offering HD DVD movies was the last straw that led Toshiba to stop production of HD DVD equipment, effectively throwing the towel on the high-definition disc format it developed under the aegis of the DVD Forum and in so doing conceding defeat to Sony’s competing Blu-ray format.

In a statement issued today, Toshiba says "it has undertaken a thorough review of its overall strategy for HD DVD and has decided it will no longer develop, manufacture and market HD DVD players and recorders. This decision has been made following recent major changes in the market. Toshiba will continue, however, to provide full product support and after-sales service for all owners of Toshiba HD DVD products."

HD DVD was developed" to offer consumers access at an affordable price to high-quality, high definition content and prepare them for the digital convergence of tomorrow where the fusion of consumer electronics and IT will continue to progress."

“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,” said Atsutoshi Nishida, President and CEO of Toshiba Corporation. “While we are disappointed for the company and more importantly, for the consumer, the real mass market opportunity for high definition content remains untapped and Toshiba is both able and determined to use our talent, technology and intellectual property to make digital convergence a reality.”

Toshiba will continue "to lead innovation, in a wide range of technologies that will drive mass market access to high definition content. These include high capacity NAND flash memory, small form factor hard disk drives, next generation CPUs, visual processing, and wireless and encryption technologies." The company expects to make forthcoming announcements around strategic progress in these convergence technologies.

Toshiba will begin to reduce shipments of HD DVD players and recorders to retail channels, aiming for cessation of these businesses by the end of March 2008. The company also plans to end volume production of HD DVD disk drives for such applications as PCs and games in the same timeframe. The company says "it will continue to assess the position of notebook PCs with integrated HD DVD drives within the overall PC business relative to future market demand."

Toshiba says it intends to maintain collaborative relations with the companies who joined with it in working to build up the HD DVD market, including Universal Studios, Paramount Pictures, and DreamWorks Animation and major Japanese and European content providers on the entertainment side, as well as leading IT industry firm, including Microsoft, Intel, and HP. "Toshiba will study possible collaboration with these companies for future business opportunities, utilizing the many assets generated through the development of HD DVD."

This decision will not impact on Toshiba’s commitment to standard DVD, and it will continue to market conventional DVD players and recorders.

The market reacted positively to the news of the pullout. Toshiba had revealed in a December earnings call that it forecast losses of $370 million on its HD DVD equipment in the fiscal year to the end of March. Anticipating the announcement yesterday, on the Tokyo market the company's stock shooting up 6.4% (Sony stock went up 2.5%). Brokerages Goldman Sachs and Nikko Citigroup lifted their recommendations on Toshiba shares to "buy" from "neutral." "The firm's apparent decision to revise its HD DVD strategy would boost earnings by ¥40 billion to ¥50 billion annually," wrote Goldman Sachs in a research note.

Toshiba's cause has suffered several setbacks in recent weeks including Friday's announcement by US retailing giant 4,000-outlet Wal-Mart that it would abandon the HD DVD format and only stock its shelves with Blu-ray movies. Blockbuster, Best Buy, Netflix and Target had made similar announcements earlier. Tesco, Britain’s top retailer, is reported to be considering a similar move, following in the foot steps of Woolworths. These moves were themselves a response to Warner Bros’ decision to stop releasing titles in the HD DVD format, going Blu-ray only.

Sony has spent large sums of money to promote Blu-ray in tandem with its flat screen TVs and its PlayStation 3 game consoles and, more importantly, to provide disc authoring and production cost incentives for securing Hollywood studios' BD format commitment.

“Samsung Electronics is expected to accelerate its ongoing efforts to strengthen Blu-ray products over rival HD DVD,’’ according to a Samsung executive quoted by The Korea Times on Sunday. Samsung launched dual-format players. “Samsung, which has been adopting a dual-format strategy for both Blu-ray and HD DVD products, is likely to cut the HD DVD portion because of aggressive marketing and closer industry connections over the technology,’’ said a market expert.

Basic economics tenets are already at work. “With format competition disappearing, prices will stop falling, they may even go up,” suggests an industry analyst. Indeed, a [Blu-ray user] blogger already noticed that “prices of Blu-ray DVDs have gotten ridiculously out of hand, you can no longer walk into a Best Buy, Target, Borders, etc. and expect to see a new release Blu-ray flick for $19.99. No, these retailers have the gall to try and charge full retail prices. Resident Evil: Extinction over $30. Really??? Harry Potter and the Order of the Phoenix over $30. Really??? The only place you can still get Blu-ray for a reasonable price is Amazon and other online retailers. Not to mention the damn machines are still over $350! So yes, consumers, the color of Greed is Blu and we lose out again.”

Story filed 19.02.08