save to del.icio.us When Atsutoshi Nishida took over as chief executive of Toshiba two years ago, he had a simple plan: Avoid the commoditization trapping the consumer-electronics industry by creating key products like next-generation TVs and DVD players that break away from the herd and are clearly distinguishable from rivals' products.
Fate has not been kind to Nishida's plans. One of the centerpieces of that plan, Toshiba's HD DVD format, is desperately looking for a lifeline after a series of major disappointments that culminated June 18 with video rental chain Blockbuster (BBI) announcing it would expand next-generation DVD rentals to 1,700 company-owned stores from 250, but only in the rival Blu-ray format. Blu-ray rentals are significantly outpacing HD DVD rentals, Blockbuster said in a statement.
The move clearly is a major blow to HD DVD. Video rentals typically account for a huge chunk of home movie viewing. They tend to be more important in the early days of a new format, before discs get cheap enough to become an impulse buy.
Blockbuster is still your corner DVD store, says Tim Bajarin, president of tech consultancy Creative Strategies. They are a very strong presence and are a very strong influence on the market. Is Blu-ray the winner of the DVD format wars?
At first blush, the Blockbuster announcement appears to highlight the momentum Blu-ray has built up after the introduction late last year of Sony's (SNE) $600 PlayStation 3, which includes that optical disc format and has sold more than 3.5 million units. After getting off to a slow start in which Toshiba's HD DVD format sold only 100,000 units in its first year on the market, Toshiba on June 13 slashed its total North American sales forecast by 44%, to just 1 million units, by the end of the year.
But even with the rival Blu-ray format now apparently looking at HD DVD in its rearview mirror, Toshiba is hardly down for the count. In the rental market alone, HD DVD titles still have a big presence. Blockbuster also said it will continue to rent that format from its fast-growing online site.
And Netflix (NFLX) and other popular online rental sites also continue to rent both formats. HD DVD Promotion Group, a consortium of companies led by Toshiba that pushes the format, in a statement was quick to point out that fact: Read Blockbuster's release. They say themselves that no winner can be declared yet, which makes sense, given that the high-definition rental market is still just a fraction of the high-definition sales to date.
The outcome is even more inconclusive in terms of retail sales. Giant retailers like Wal-Mart Stores (WMT), Best Buy (BBY), and Circuit City (CC) dislike devoting precious shelf space to both the older DVD format and the two competing high-definition formats. But while sales of Blu-ray titles have been outpacing HD DVD by a 2-to-1 margin since January, it's hard to call a clear winner because sales of both format are still relatively tepid.
Complicating matters further, sales of Toshiba's HD DVD player have jumped since May, when the company slashed the price on its entry-level machine to $399. Meanwhile, Blu-ray player sales excluding the PS3 have been sluggish, at less than 100,000 units. The Toshiba move has forced Sony to cut the price of its second-generation standalone player to $499, from $599, before it even could begin selling it this month.
The consumer is very price-sensitive in this time and age, and we're outperforming [Sony] on that front, says Toshiba adviser Warren Lieberfarb, a former Warner Bros. executive who now is chairman of his own consultancy. save to del.
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