Monday, January 14. 2008
Toshiba's HD DVD Payoff
Consumer Warning
High definition televisions, HDTV, have been available in the United States for nearly a decade. Very few consumers purchased those early units but in the last three years there has been an huge increase in the numbers and percentages of US homes with HDTV. However, many consumers still do not watch high definition programming on their HDTV. Many consumers either do not know that they need HD programming to take advantage of their television's features or do not know how to get HD programming. It is a challenging consumer education problem that many companies are trying to solve and/or use to their advantage.
Consider the current situation for HD programming. Broadcast television is now mostly broadcast in digital and a fair amount of that is high definition but most consumers do not know the difference between SD digital broadcasts and HD digital broadcasts. The FCC has not spent nearly enough money trying to help this situation. Cable companies now offer at least a few HD channels along with their digital packages but the quality and selection tend to be poor. Both DirecTV and Dish Network satellite services offer decent high definition packages that seem to be the best offer to get HD services to watch on a daily basis. What about movies though?
For just under two years there has been a format “war” going on to determine how you will get your HD movies. For years DVD has been the standard movie format and before that there was VHS and now there is Blu-ray. You might ask, “Why do we need a new format?”, and I will tell you. Televisions before HDTV were analog units that were mostly square. These analog units had a rough maximum resolution of about 720x480 pixels. This resolution was not really available to anyone though because everyone watched broadcast television which was transmitted at 440x480 pixels. When VHS tapes came out it was also an analog system but only was capable of presenting a 330x480 pixel image. Later DVD was released and finally we had a format that was capable of displaying the full quality of our analog televisions. The content on a DVD is stored digitally at 720x480 pixels and is converted into an analog signal that analog televisions can view. Having the maximum analog TV resolution is the reason that DVD movies look so much better than VHS movies.
Now we have high definition televisions and both the size and maximum resolution have changed. These televisions are no longer square but are wide screen and have a maximum resolution of 1920x1080. Compared to standard definition televisions, HD televisions are capable of showing 6 times as many pixels on the screen. Most people are amazed by how much better a full high definition image is when compared to standard definition. But to get all of this information to these televisions requires a new disk format that can hold at least 6 times as much information as a DVD. This is why we need Blu-ray. Blu-ray disks can hold up to 50 gigabytes of information compared to the 9 gigabytes of information that a DVD can hold: roughly 6 times more on the Blu-ray. Perfect fit right?
Well you would think but it is not that simple. See there were two competing formats, Blu-ray and HD DVD, that wanted to replace DVD and both had a pretty good shot right up until last week. On January 4, 2007 Warner Brothers Entertainment released a statement that they would become a Blu-ray exclusive studio. This move took with it New Line Cinema and HBO which are both part of the Time-Warner corporation. This leaves HD DVD with only Universal and Paramount as backers that are making movies in that format. Now approximately 75% of all Hollywood movie studios are releasing high definition movies exclusively on the Blu-ray format. Also it is being reported that both Universal and Paramount are working to end their contracts with HD DVD and it is expected that those announcements will come as early as February. Effectively the format war has ended and Blu-ray has become the HD Movie standard. All of Hollywood and the consumer electronics industry are ready to move forward with the Blu-ray HD movie standard.
However, we should never under estimate the power of greed in big corporations.
There are only two real backers of HD DVD. These companies are Toshiba and Microsoft and these two companies have spent the last two years battling a PR war against the Blu-ray disk association (BDA). For its part, Microsoft does not care about physical media. Microsoft was using HD DVD to weaken its competitors and nothing more. Microsoft promoted HD DVD in an attempt to weaken the appeal of the Playstation 3 which includes a Blu-ray player and competes directly with Microsoft's Xbox system. Microsoft also promoted HD DVD in order to weaken physical media in general because it competes with download services that are much more lucrative for Microsoft. For its part, Toshiba holds the majority of the hardware patents on HD DVD and had the format become the DVD replacement then Toshiba would have earned billions in patent royalties.
So what should Toshiba do now? The right thing to do would be to release Universal and Paramount from any contract and begin making dual format players to transition the 750,000 HD DVD owners to Blu-ray. But that is not what they are doing now. Toshiba has announced plans to run an advertising campaign and to slash prices on their players. Consumers can now get an entry level HD DVD player for as little as $130 with 7 free movies. That makes an HD DVD player very attractive to unsuspecting consumers that do not know about the studio situation I have described here. This means that Toshiba will probably sell tens of thousands of these players over the next few weeks.
By some estimates these low prices mean that Toshiba will be losing as much as $100 per player! So why would Toshiba do this? Why would Toshiba continue to lose money trying to sell players for a format war that they have already lost? To earn one big payday!
Toshiba knows that it can never win but that does not mean they cannot make a huge amount of money. The longer Toshiba can afford to extend this format war the more bargaining power they have with the Blu-ray Disk Association (BDA). At some point Toshiba will have a discussion with the BDA and Toshiba will agree to sell Blu-ray players. In exchange Toshiba will expect the BDA to give them some cash. The more HD DVD customers that Toshiba has, the larger that payoff will be.
Toshiba does not care about those thousands of users that purchase HD DVD between now and the “HD DVD D-day”. Toshiba's opinion is that those people can still use the players up conversion features for regular DVDs and to watch the existing HD DVD movies that are out there. Furthermore, when those consumers are ready to get a Blu-ray player Toshiba will offer them a combo player that will play those old HD DVD movies and therefore double dip those consumers for a little extra cash.
That is it. Everything that Toshiba does between now and the announced cancellation of HD DVD will be anti-consumer. Toshiba is attempting to build a bargaining chip that will pay off in the next few months from the BDA and in a year or two from their loyal customers. So take our advice and DO NOT buy one of those cheap HD DVD players. If you want a next generation DVD player get yourself a Blu-ray player. Here at DRM Blog we recommend getting the Playstation 3 if you are getting a player now but if you can wait a few months then the Panasonic BD50 looks like a really good machine.
Toshiba, we ask you to do the right thing for consumers and drop this silly format war.
High definition televisions, HDTV, have been available in the United States for nearly a decade. Very few consumers purchased those early units but in the last three years there has been an huge increase in the numbers and percentages of US homes with HDTV. However, many consumers still do not watch high definition programming on their HDTV. Many consumers either do not know that they need HD programming to take advantage of their television's features or do not know how to get HD programming. It is a challenging consumer education problem that many companies are trying to solve and/or use to their advantage.
Consider the current situation for HD programming. Broadcast television is now mostly broadcast in digital and a fair amount of that is high definition but most consumers do not know the difference between SD digital broadcasts and HD digital broadcasts. The FCC has not spent nearly enough money trying to help this situation. Cable companies now offer at least a few HD channels along with their digital packages but the quality and selection tend to be poor. Both DirecTV and Dish Network satellite services offer decent high definition packages that seem to be the best offer to get HD services to watch on a daily basis. What about movies though?
For just under two years there has been a format “war” going on to determine how you will get your HD movies. For years DVD has been the standard movie format and before that there was VHS and now there is Blu-ray. You might ask, “Why do we need a new format?”, and I will tell you. Televisions before HDTV were analog units that were mostly square. These analog units had a rough maximum resolution of about 720x480 pixels. This resolution was not really available to anyone though because everyone watched broadcast television which was transmitted at 440x480 pixels. When VHS tapes came out it was also an analog system but only was capable of presenting a 330x480 pixel image. Later DVD was released and finally we had a format that was capable of displaying the full quality of our analog televisions. The content on a DVD is stored digitally at 720x480 pixels and is converted into an analog signal that analog televisions can view. Having the maximum analog TV resolution is the reason that DVD movies look so much better than VHS movies.
Now we have high definition televisions and both the size and maximum resolution have changed. These televisions are no longer square but are wide screen and have a maximum resolution of 1920x1080. Compared to standard definition televisions, HD televisions are capable of showing 6 times as many pixels on the screen. Most people are amazed by how much better a full high definition image is when compared to standard definition. But to get all of this information to these televisions requires a new disk format that can hold at least 6 times as much information as a DVD. This is why we need Blu-ray. Blu-ray disks can hold up to 50 gigabytes of information compared to the 9 gigabytes of information that a DVD can hold: roughly 6 times more on the Blu-ray. Perfect fit right?
Well you would think but it is not that simple. See there were two competing formats, Blu-ray and HD DVD, that wanted to replace DVD and both had a pretty good shot right up until last week. On January 4, 2007 Warner Brothers Entertainment released a statement that they would become a Blu-ray exclusive studio. This move took with it New Line Cinema and HBO which are both part of the Time-Warner corporation. This leaves HD DVD with only Universal and Paramount as backers that are making movies in that format. Now approximately 75% of all Hollywood movie studios are releasing high definition movies exclusively on the Blu-ray format. Also it is being reported that both Universal and Paramount are working to end their contracts with HD DVD and it is expected that those announcements will come as early as February. Effectively the format war has ended and Blu-ray has become the HD Movie standard. All of Hollywood and the consumer electronics industry are ready to move forward with the Blu-ray HD movie standard.
However, we should never under estimate the power of greed in big corporations.
There are only two real backers of HD DVD. These companies are Toshiba and Microsoft and these two companies have spent the last two years battling a PR war against the Blu-ray disk association (BDA). For its part, Microsoft does not care about physical media. Microsoft was using HD DVD to weaken its competitors and nothing more. Microsoft promoted HD DVD in an attempt to weaken the appeal of the Playstation 3 which includes a Blu-ray player and competes directly with Microsoft's Xbox system. Microsoft also promoted HD DVD in order to weaken physical media in general because it competes with download services that are much more lucrative for Microsoft. For its part, Toshiba holds the majority of the hardware patents on HD DVD and had the format become the DVD replacement then Toshiba would have earned billions in patent royalties.
So what should Toshiba do now? The right thing to do would be to release Universal and Paramount from any contract and begin making dual format players to transition the 750,000 HD DVD owners to Blu-ray. But that is not what they are doing now. Toshiba has announced plans to run an advertising campaign and to slash prices on their players. Consumers can now get an entry level HD DVD player for as little as $130 with 7 free movies. That makes an HD DVD player very attractive to unsuspecting consumers that do not know about the studio situation I have described here. This means that Toshiba will probably sell tens of thousands of these players over the next few weeks.
By some estimates these low prices mean that Toshiba will be losing as much as $100 per player! So why would Toshiba do this? Why would Toshiba continue to lose money trying to sell players for a format war that they have already lost? To earn one big payday!
Toshiba knows that it can never win but that does not mean they cannot make a huge amount of money. The longer Toshiba can afford to extend this format war the more bargaining power they have with the Blu-ray Disk Association (BDA). At some point Toshiba will have a discussion with the BDA and Toshiba will agree to sell Blu-ray players. In exchange Toshiba will expect the BDA to give them some cash. The more HD DVD customers that Toshiba has, the larger that payoff will be.
Toshiba does not care about those thousands of users that purchase HD DVD between now and the “HD DVD D-day”. Toshiba's opinion is that those people can still use the players up conversion features for regular DVDs and to watch the existing HD DVD movies that are out there. Furthermore, when those consumers are ready to get a Blu-ray player Toshiba will offer them a combo player that will play those old HD DVD movies and therefore double dip those consumers for a little extra cash.
That is it. Everything that Toshiba does between now and the announced cancellation of HD DVD will be anti-consumer. Toshiba is attempting to build a bargaining chip that will pay off in the next few months from the BDA and in a year or two from their loyal customers. So take our advice and DO NOT buy one of those cheap HD DVD players. If you want a next generation DVD player get yourself a Blu-ray player. Here at DRM Blog we recommend getting the Playstation 3 if you are getting a player now but if you can wait a few months then the Panasonic BD50 looks like a really good machine.
Toshiba, we ask you to do the right thing for consumers and drop this silly format war.
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