DVD Format Battle Development: Toshiba to License HD-DVD Technology to China (HPQ, MC, SNE, DELL, DIS, NWS, LGF, NIPNY, SANYY, MSFT, INTC)

The International Herald Tribune's Technology section featured an article yesterday that reported potentially huge implications for the ongoing next generation DVD format war. In what's being dubbed a "Faustian deal," Toshiba has decided on strategy of utilizing low-cost high-volume Chinese manufacturers to produce DVD players based on Toshiba's HD-DVD format.

Toshiba's move is the exact opposite of the strategy Blu-ray disc promoters Sony (ticker: SNE) and Matsushita/Panasonic (ticker: MC) are pursuing. Sony and Matsushita in contrast are more protective of their intellectual property and do not want their format to become commoditized.

Toshiba is essentially risking hundreds of millions of dollars in R&D in order to secure cheap manufacturing costs and beat Blu-ray players to market. Toshiba says it's well aware of what happened to original DVD technology how Chinese manufacturers were able to drive down prices by making players a mass market item at big box stores in the U.S. One problem for Toshiba however, is by licensing HD-DVD to China it may in fact be undercutting its own machines.

The authors of the above mentioned article claim that many manufacturers aren't eager to license to China because of a poor record of paying licensing and royalty payments.

Japanese companies are well-known for guarding the key technologies and only producing those domestically while outsourcing the cheaper and less important components. Yet Toshiba is no newcomer in going against the mainstream as it formed an alliance with Samsung in the mid-90s in licensing technology for flash memory chips. Toshiba's chips are now used in a variety of devices sold throughout the world but it also was forced to give up a large share of the market to Samsung.

A Sony spokesman is claiming his company can produce cost-competitive Blu-ray disc players without China's help.

For your reference below is a list of key players from the competing camps:

* Blu-ray supporters: Matsushita/Panasonic (MC), Sony (SNE), HP(HPQ), Dell(DELL), Disney (DIS), Fox (NWS), and Lions Gate(LGF).

* HD-DVD supporters: Toshiba, NEC(NIPNY), Sanyo(SANYY), Microsoft(MSFT), and Intel(INTC)

Also see the following links for related coverage of the DVD format battle:

Matsushita/Panasonic planning to be first to market with Blu-ray disc drives next spring, click here.

China announces its own next generation DVD format to be available from '08, click here.

HP urging Blu-ray to adopt home networking capability and more user-friendliness, click here.

Comments

[Steven Towns:]

Update: Warner Bros. is the second major studio to announce its support of both next -generation DVD formats. It made the announcement yesterday following Paramount Pictures' decision earlier this month to release films in both HD-DVD and Blu-ray disc format. That means NBC Universal is the only studio that will release films solely on HD-DVD format. Warner Bros. is said to have made the decision to support both formats because it doesn't see an end to the format war. (Source: AP) * Warner Bros. is owned by Time Warner Inc. (ticker: TWX), Paramount Pictures is owned by Viacom (ticker: VIA-B), and NBC Universal is owned by GE (ticker: GE).

2005 Oct 21 12:55 PM