The War of Blu-Ray and HD-DVD - Case Study Example

Topic: Standard War:Blu-Ray vs HD-DVD Executive Summary The resources that were available in terms of time and money that was needed in the development of the current generation of media storage technology before it became outdated were significantly decreased when there was no agreement that was reached. By the time the war ended, Sony, Toshiba and all other stakeholders had greatly lost. In Toshiba’s point of view there were a series of analysis that are meant to discover the factors that influenced the failure of HD-DVD in the 2005-2008 standard war. These included flaws in the technology used, allies that were not loyal, consoles that failed and reduction in prices to points that were not sustainable(Grant, 2010). The cost-benefit assessment shows evidence that precious time and funds were lost in consequence of the war that was avoidable. Had the standard war been circumvented, then the time and finances that were lost would have been put in to better use. This means that Toshiba is in a better position if it develops a collaborative venture with the companies that have entered the field rather than putting up competition against them. More often than not, the wars are inevitable and the report dwells on this to avail a 3 year action plan for the standard war that Toshiba is poised to take part in sooner rather than later. The plan is mainly directed towards: Making modifications to the technology that will enable the reduction in the cost Developing allies that will be devoted to the company Coming up with consoles that will be attractive and engaging Making sure that the new technology is developed in good time. All things considered, the report recommends that if Toshiba wishes to win the standard war in the days to come it will have to find a point of compromise in the route to a resolution of the market acceptance of the new technology with appropriation of returns. 2. Case Synopsis The standards for the storage of high definition video and audio was the genesis of the war that took place between Blu-ray that is associated with Sony and HD-DVD that is developed by Toshiba. These technologies came up between 2002 and 2002 and got the attention of both the shared and limited backing of the main consumer electronics manufacturers, manufacturers of personal computers, movie and television producers as well as distributors, and software developers(Grant, 2010). As the development of the products that integrated the two standards that were not compatible was going on, efforts that were aimed at avoiding a format that was expensive were in place. Nevertheless, the DVD Forum and the Blu-ray Disk Association made a declaration that the discussions that they had with the aim of merging the standards had flopped. This marked the point where the race to get the discs and hardware in the shortest time possible in order develop control in the market share. In the beginning of 2006, players that had been developed by both HD-DVD and Blu-ray become commercially available. When the players were being introduced into the market, none of them had a lead over the other. Both had been successful in getting a number of key studios and device manufacturers to back them through the making them aware of the benefits that they stood to get if they chose their products. The severity of the battle between these two formats intensified and reached its peak in 2007. Even so, a clear winner of the war was identified when a number of studios and distributors moved to Blu-ray from HD-DVD in late 2007 and the beginning of 2008(Grant, 2010). At last, in February 2008, Toshiba had no other choice than to declare that it would stop the development of the HD-DVD players and therefore conceded the standard war to the Blu-ray disk format. 3. Strategic Issues Toshiba always had a chance of winning the war since there was no way that the outcome of the war could have been determined from the beginning. The manufacturing costs that were associated with the DVD format that it was creating were lower when compared to the costs of creating the Blu-ray disk that was being developed by the competitor (Grant, 2010). This meant that the products that they came up with that included the discs and the players that were compatible with them were cheaper. The discs that were being developed by Toshiba were flexible in that they could easily have HD and the conventional version on the same disc. All this factors gave Toshiba a sort of advantage as far as this battle was concerned. 4. Issue Analysis Factors for Toshiba’s failure Technology defects compared with Blu-ray It was possible to develop the HD-DVD by directly adjusting the conventional production line that manufactures the DVD. This adjustments and modifications which entailed simple and inexpensive steps amounted to less than USD150, 000. The production costs in relation to the HD-DVD were relatively lower than those of the Blu-ray and the technological flaws that were associated with the HD-DVD were also obvious: Thin layer of plastic for protection The traditional DVDs have a thickness of 0.6mm and the HD-DVD maintained this thickness, Blu-ray on the other hand developed a coating that was only 0.1mm thick and at same time included an extra layer that was not on the HD-DVD which was supposed to provide protection. Weak capacity to carry data The capacity of the dual-layer Blu-ray disc was 50GB which was greater than that of the HD-DVD that was only 30GB. Studio, distributor alliances shifts The main source of the rivalry was the backing of the movie studios since in appreciating the function of feedback that is positive; the choice of the studio will have an effect on the preferences of other network externalities. This means that both Sony and Toshiba struggled to acquire the studio backing through a variety of inducements in the time that the battle went on which resulted in the shift in the alliances over time. Prior to October 2005, each of the two sides in the war had the backing of three of the Big Six while the major distributors and rental companies released both Blu-ray and HD-DVD in their stores. In the beginning of 2006, Warner Bros and Paramount who had been supporters and allies of the HD-DVD switched their allegiance to Blu-ray. The following year, in 2007, Paramount that had supported Blu-ray for more than a year made the declaration that it was to release all the high definition wholly on HD-DVD. Simultaneously, DreamWorks Animation SKG which had not yet ventured in the field of high definition discs declared that it would enter the field with releases that would be exclusively HD-DVD (Grant, 2010). This was necessitated by the USD150 million in cash and promotional guarantees that they had received from Toshiba for their loyalty. By mid-2007, it was perceived that HD-DVD was headed for a bright future since it was experiencing its highest sales even though they were relatively lower than those that were being experienced by Blu-ray. It also had the backing of the chief big-box retailers that included Wal-Mart since the prices of their products were lower and it also had the support of studio such as Paramount Pictures, Universal Studios and other studios. Blockbuster came about as a result of the frustration that was escalating about the dual formats which became the biggest movie rental company in the United States. It moved to Blu-ray completely in 2007 after it had tried test marketing and coming up with a conclusion that 70% of the high definition rentals were in the Blu-ray format. Consequently, Target Corporation started carrying Blu-ray standalone players exclusively in the stores it operated and promoting them with end cap displays that featured Blu-ray movies from Sony and Disney. At the beginning of 2008.Warner Bros which was controlling the largest market share of DVDs at that time declared that it had plans to drop HD_DVD backing completely at the beginning of June 2008. This move had an effect on other DVD distributors such as Wal-Mart who also made the decision to phase out HD-DVD completely by mid-2008. Wal-Mart is the biggest DVD retailer in the United States and the action that it took made Best Buy and Netflix to get rid of their HD-DVD inventory. Universal studios which was the only studio that had supported HD-DVD from the beginning also moved to Blu-ray in the beginning of 2008 and this made Toshiba to announce that it would not be developing, manufacturing and marketing HD-DVD on the same day. This prompted Paramount Pictures that was the lone supporter of HD-DVD to announce its move to Blu-ray which the final nail in the coffin for Toshiba in the war. Video Game Consoles (Added Value Analysis) The decision that Sony took to integrate a Blu-ray disc player as a feature in the PlayStation 3 video game console also assisted in the success of the format. By the time Toshiba conceded the defeat, more than 10 million Sony consoles had been sold globally while only 1 million HD-DVD players had been sold which included both standalone units and the add-on player for the Xbos 360 console that had been developed by Microsoft which did not include a HD-DVD add-on for gaming as compared to the PS3 which had games that used Blu-rays added storage capacity (Grant, 2010). Although the strategy that sony had was developed at a cost, it sold at an estimated los that amounted to USD200 for each unit which consequently resulted in losses that were in the region of USD3 billion . a gap in equipment was also an attribute in Blu-ray titles outselling their HD-DVD rivals by two to one in the US and three or four to one in Europe. Role of price in the battle (Price Analysis) As the war continued, price played an important part in the determination of who will come out winner and Toshiba appreciated the importance of penetration pricing in the war of standards. HD-DVD players sold at half the price of the Blu-ray players upon entry into the market and they maintained this low pricing. When only this is considered, the market would have favored HD-DVD since Sony was disadvantaged in terms of costs since its players cost more to produce. So that it could be able to counter this cost advantage, Sony: Greatly reduced its profit margin, in that the original price of the standalone Blu-ray player from Samsung was USD999 and three months later the PlayStation 3 with Blu-ray was USD499 Sony greatly discounted its Blu-ray players that were in the PS3 console and successfully improved the value of most of the basic Blu-ray players over HD-DVD by presenting them as gaming consoles. The results of these were better tradeoffs in perceived prices to the perceived benefits for majority of the customers that the standalone HD-DVD players that were relatively cheaper. Cost-Benefit Analysis of the battle Financial Cost Fundamentally, the main aspect in a standard war is achieving equilibrium between maximizing market acceptance” and “maximizing appropriation of profits”. Both competitors sought means that would enable them to gain acceptance at the expense of the value of appropriation. In terms of finances, it is obvious that Toshiba lost an estimated USD986 as a result of the termination of the project. This figure did not include the research and development expenditures, payments that were made as incentives, the cost of reduction in prices as well as inventory write-offs. Although Sony won the war, its cost that are related to research and development, alliance support, reduction in prices and PS3 releasing were almost equal to those of Toshiba. Time Cost It is important to appreciate that Sony would experience a possibility the commercial life of Blu-ray would be brief like the VHS. This is because the technology markets are marked by waves of innovation and the life cycle of a product is normally shorter than in other markets. The battle that took place between Sony and Toshiba wasted the time that would have been used in the exploitation of the current generation of media technology and in relation to this, Sony is considered to have lost more. From this cost-benefit analysis, it can be seen that the emergence between Toshiba and Sony towards developing a standard that is universal will be a mutually beneficial choice but unfortunately, HD-DVD and Blu-ray did not reach this agreement. 5. Strategies and Options As the development of media storage continues to improve, it is obvious that there will be another standard war in the future that is near and so that the mutual loses between the parties that take part in the war can be avoided; there are two options that Toshiba is required to consider. Toshiba and Sony develop a cooperating partnership to avoid the standard war If the two parties come together and develop a combination that is strong, then they will be able to benefit and also enjoy all the related extremities: For Sony and Toshiba: They would develop an optimization of the technology that they both have and this cooperation would serve to improve the product offerings quality since corporate effort and investment can be directed at advancing the technology and developing a competition on quality instead of their own proprietary and incompatible technology. The endeavor will save costs that are associated with manufacture, promotion and alliance building. It will also avoid stiff competition in terms of prices For studios, distributors and other related companies: It will alleviate the stress that comes with dual distribution It will reduce the risk of having to run two inventories dedicated to different things in the same store For final Consumers: Decrease the risk that is associated with making an investment in a technology that might not be adopted by the population It presents an increase in the amount of the offerings that are available in that there are particular movies and games that are tied exclusively to only a single format and this restricts the number of titles and options that are there for the consumers. It escalates the quality of the product offerings since corporate effort and investment can be focused on the development of technology and a quality that is competitive Carrying a standard war and becoming the winner Toshiba can decide to continue with the standard war and to do this the major step is determining if the market that the war takes place in will eventually adopt a single format standard. Following a thorough evaluation of the sources of network externalities, each party has the will to have a universal format for high definition images if the developers avail dual formats which are incompatible with each other. The other step is acquiring a market acceptance that is higher and from the evaluation of HD-DVD and Blu-ray, it is relatively simple to make a summary of the main points to consider in the market: Coming up with technology Retaining allies that are dedicated looking for consoles that are likeable decreasing the prices creation of a brand image that is strong The third step is achieving a value appropriation that is higher in terms of maintaining market acceptance. Toshiba should maintain the desired price bottom line and regulate the financial costs at the same time have talks with the competitors that are aimed at settling at a bottom price that is reasonable by: looking for consoles that are high end developing good rapport with low-charge suppliers coming up with production costs that are lower coming up with marketing tools that are affordable It also has the obligation to control costs in terms of time which is a vital attribute that is needed in winning a standard war. If the wars last for long, even the winner will be affected by lose and this means that in the next standard war, Toshiba will have to: Speed up the life cycle of the product Start the development of the next generation research and development earlier 6. Recommendation Had Toshiba and Sony reached a consensus that would enable them to develop a universal standard, then it would have been possible for them to converge around a technique that is common to both of them. The cooperating partnership would mean that: The two companies combine the research and development departments and makes sure that they have put value on fusing the technologies to create a standard that is optimized. Incorporate management of production to maintain a steady high quality. Seek a joint market to unify sales channels while unifying the price setting. Developing a promotion plan together to get rid of cutthroat price competition Sony and Toshiba will then have to distribute the profits that are realized as a result of this venture according to the input from each of the segments. The production and development will be entitled to 40%, the product manufacturing will be given 30% and Marketing will receive 30% of the total profit. References Grant, R. M. (2010). Contemporary strategy analysis. Hoboken, N.J.: Wiley. Read More