Blu-Ray Part 2: Why Decisions Should Follow, Not Lead, Analysis

Rob Enderle

Last week I wrote a piece on why Sony should have never brought out Blu-Ray in the first place. Many people at Sony, some of them very powerful, have lost their jobs over this, and Sony appears to be getting ready to move to the technology that may take the place of all DVDs.


If I'm correct, there are really only two likely outcomes: HD-DVD wins or both lose. If this had been determined at the start, Sony could have likely saved a lot of red ink. Now the problem for them is, I don't see how they get out of this.


Time is clearly not unlimited; yet another format came to market this week that actually looks rather good.


Three Possible Outcomes:


For some reason this reminds me of the second Star Trek movie, The Wrath of Khan, where Kirk, when faced with an unwinnable situation, cheats. Sony needs to find its Captain Kirk, but until then here is how I see the outcomes:


Continue to Fight: HD-DVD has a price advantage and has eliminated much of the content disadvantage it had a few weeks ago. Toshiba remains financially strong (arguably stronger than Sony), and is showing no inclination to give up. Cost to Sony continues in the billions, risk to its CEO is probably close to 80 percent, HD-DVD doesn't win but neither does Blu-Ray.


Give up and Walk Away: PlayStation3 is effectively dead; it would have to carry too much cost and conversion back to DVD or HD-DVD would be painful at best. They'd need to cycle fast to PS4, run the risk of alienating their installed game base -- pissed off wouldn't begin to describe the folks who supported them in this fight. While it is possible this could be done elegantly, I don't see that path and put the risk to their CEO at 90 percent.


Quietly Stop Funding Blu-Ray: This may be the path Sony is actually on, as it doesn't seem to be matching the money Toshiba has put on the table. However, the fact that Toshiba is, reportedly, willing to fund their effort may result in a similar outcome to path #2 in that shortly, unless someone moves the other way, people should start taking about Sony basically abandoning the platform. As I write this, there is heavy speculation that Warner is going to follow Paramount and DreamWorks. If it weren't for Toshiba, this would be the safest path for the CEO, but with Toshiba aggressive, I wouldn't bet on it.


Do the Analysis First


This is not a happy place to be for Sony, and its choices are all ugly. My point isn't to get you to buy one format over the other, but to avoid putting yourself in the same position with either a technology you build or one you buy.


The best advice is to follow the analysis into a decision, not force the analysis to fit a decision that has already been made. I think, had Sony actually looked at how much risk it was taking, took that against its horrid history at establishing standards (yet another failed last month), and done a financial analysis as to whether Toshiba was likely to fold, it would have concluded that the possible benefits did not overcome the probable costs of doing Blu-Ray.


A good competitive analyst would likely have concluded and been able to argue both what was needed to succeed in this space and the cost of failure which, in hindsight, was unacceptable. To succeed, it needed a $200 product with sufficient volume in time for the scheduled PS3 launch, even if they had to subsidize it. That would have assured the PS3's success. Sony couldn't afford the subsidy and it couldn't get the product ready in time. Putting the PS3 business at major risk should have never even been an option.


What I think happened, and Sony is hardly alone in this, is it got too excited about its own technology and didn't step back and honestly assess the decision before it made it. Now it's in a world of hurt.


So, when faced with a major technology decision, make sure the analysis has been done before the decision is reached. Avoid like the plague the tendency to go with your gut and then ask for after-the-fact analysis to support a decision already made because, in that instance, the analysis will actually lock you into the poorly reached decision.


Wrapping Up


If you look at the incredibly personal and negative comments from my first piece, imagine people saying or thinking similar things about executives or fellow employees in your place of business. If you've been around awhile, you've seen what similar behavior can do to an organization or working group and why it should be discouraged.


Passion for one's job, company, and products is both important and powerful, but letting that passion get in the way of good decisions and good working relationships is not. If you do detailed analysis before a decision is made, you'll be vastly less likely to be in the position Sony is in. The number of failed projects I've seen because the firm simply did not properly assess either the cost of success or failure is huge. If you don't understand both, you can't make a good decision.


The lesson here isn't that Sony shouldn't have done Blu-Ray; it is that it mistakenly chose to do it at a funding and staffing level that wasn't adequate for success. Whether we are talking a military action like Iraq or business, approaching a decision this way can clearly be catastrophic.


Before you make a decision, ask yourself whether you truly know what it will take to assure success and whether you can afford that cost. The cost of failure should almost always be unacceptable.

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Add Comment      Leave a comment on this blog post
Sep 11, 2007 6:22 PM jojo jojo  says:
rob no disrispect, and this is comming from an hd dvd fan (yeah i admit it) but you make no scence whatsoever. Not now nor with your previos article on why blu ray should not be. its like realising that book on why the ps3 is a failure when its has been out shorter on japan and it has being more succesful than the xbox 360, and not call the 360 a failure even tho it doesnt exist pretty much in charts...get my point. I mean if by this your trying to create a feeling that ur readers should go hd dvd well fine, but please be a responsible un-biased journalist. Sony supports blu- ray, their evil. Even tho they didnt develop it on their own as with many people think. Toshiba supports hd dvd their good. I dont get it, and besides scince they both basically use the same diodes eccept for some minore changes, they cost about the same to manufacture, they are subsidizing theyr players, they lowered theyr projections for this year, sony and all this other companies increased theirs, yet where do you get that they are more financially stable or richer than sony? and please dont tell me that its becausae they dont have somthing like a ps3 which is not profitable as of right now... seriously rob. Reply
Sep 11, 2007 6:26 PM jojo jojo  says:
by the way rob. i noticed in part 2 you said the ps3 had to be subsidized. I ask you scince ur so good with electronics, is the ps3 not subsidized??? Reply
Sep 11, 2007 7:13 PM MacManic MacManic  says:
You are so one sided it is ridiculous. Your claims are unsubstantiated, opinionated and un-referenced. You give me more confidence in Blu-Ray if this is the best HDDVD argument you can come up with. Reply
Sep 11, 2007 7:35 PM Redsand7 Redsand7  says:
It's interesting to note in both of your articles that you substantiate your claims by grossly exaggerating supporting statistics and industry trends.There is no question that HD-DVD has the name going for it and a substantial initial lead in the industry, but in recent months, Blu-Ray seems to not only have caught up and surpassed it from a Media perspecitve (interesting that Warner chose to only attend the IFA Blu-Ray Press Conference and not the HD-DVD PC) - note the release schedule for Blu-Ray in Q4 alone.In addition, in spite of all of the heresay, at the end of the day, Toshiba is manufacturing drives (yes, there are a few combos, but they don't add that much to the totals) and Sony, Samsung, Panasonic, Pioneer, Philips, Sharp, LG, JVC, Hitachi, Denon, Loewe, Daewoo, and Funai (ALL Blu-Ray manufacturers) were just joined by ACER and China Hualu. This no means that the TOP 4 PC Manufacturers have joined the BDA...In addition, Blu-ray software so far this year has outsold HD DVD in the US (67%), Europe (70%), as well as Japan (90%+). Explain again how this is a losing format??? Reply
Sep 11, 2007 7:50 PM Joe Mama Joe Mama  says:
jojo, wow. Your writing skills are incredible.Redsand7, funny how you talk of bias, but the way you present your breakdown of electronics and PC manufacturer support is totally biased towards BR. I can answer your question about why BR is the losing format. You actually mentioned a key part of it. The software sales at one point were 7:3 in favor of BR. Recently it was 2:1. Now it's less than that. Go to Amazon and look at the standalone player sales. A video game console alone cannot choose the successor to DVD. No doubt you've seen the articles about the Chinese reducing the cost of HD-DVD even further soon. You think Paramount DIDN'T know about all of this when they made their decision? Do you really think a mere $150M alone would be enough for them to change their whole strategic direction? They make more than that on a couple of decent DVD releases. Reply
Sep 12, 2007 8:56 AM maryann maryann  says:
Not Blu Ray rob. Because of BD+ technology it is theoreticaly impossible to hack Blu Ray. And where do you get your sources? You're an embarassment to the male specie. I'm glad I'm not one. Reply
Sep 12, 2007 8:59 AM Home Theater guy Home Theater guy  says:
OMG, Brilliant piece. Whether it's an accurate analysis/prognostication or not, I bet this series gets more readers (and more inflamed comments) than any of the staid discussions of "traditional" IT issues. And we all know... it's all about the ratings... Reply
Sep 12, 2007 9:01 AM maryann maryann  says:
After they implemented BD+ more than a month ago that is. Reply
Sep 12, 2007 9:39 AM Dario Dario  says:
You can feel the "FEAR" in the comments from BlueRay owners here, ohh yes, Sony will screw you. Great Article! Reply
Sep 12, 2007 9:43 AM Greg Greg  says:
"I think the HD-DVD guys would disagree. "With what? The facts?"But the core point is with upscaled DVD getting better, another good HD technology coming to market and Apple, Microsoft, Google and most of the studios focused now on downloads that one or the other needs to scale to high volume by year end"upscaled DVD: old tech dying trying to look better. It already existed with Laserdiscs, we all know where it went.Downloads: Notice chow Apple and MS both also support a HArdware format. This is because downloaindg will -not in the foreseeable future- replace a physical format alltogether. Wnat to know why? BEcause this is simply a new and more sophisticated Pay-Per-View waiting to happen. Video On Demand is nothing new, and having your Downloads go to a box attached to your TV already exisits thanks to Amazon Unbox. Downloads will co-exist with physical formats, because they touch tow different part of consumers psyche. 1) Practicality for DL, 2) posession for the physical format.This is why Studios (the ones who would have the most interest in switching alltogether to DL, maximizing their profits) have massively backed up one format or another." and Blu-Ray cant hit the price point to make that happen. HD-DVD already has but is effectively blocked by Blu-Ray. "You know that .. .how? CAn you see in the future, say in the next 3 months? BEcause everyone agrees that with chinese and Koreans players, as well as with the new models arriving soon for BD prices will massively drop."The win isnt against HD-DVD it is to become the replacement for DVD and right now that replacement is either better DVD upscalars or download."Already adressed, upscalars or DL will not replace a physical format, at least in the near foreseeable future.Now Rob, let me ask you this.Do you have or not a board/advisory position at :Member, Industry Advisory Council Toshiba USIrvine, CAhttp://www.promar.com/RobEnderle.htmlJust making sure... Reply
Sep 12, 2007 9:56 AM Rob Enderle Rob Enderle  says:
The Toshiba board, which was the US PC company, last met two years ago. I don't recall a question on HD-DVD at that meeting. HD-DVD is in a different division of Toshiba, one I'm not connected to (and I'm not doing any work for Toshiba right now anyway). The Promar thing is around 3 years old. Currently I'm not aware of any personal connection to either HD or Blu, and don't think there ever has been one. You do know that Toshiba is a complex company and that not everything on the web is current right?On Laser, good example but it works better for me. It was to be the replacement for VHS, conflicting standards kept it from reaching saturation, DVD replaced it before it ever became what its supporters believed was possible. Same thing is happening here, the market is focused on retrenching on DVD or moving to download (whith a third HD technology a remote possibility). As I said a number of very large supporters for both sides appear to be moving to download and many in my community have concluded that upscalars are good enough. Now as far as HD-DVD meeting the price point, in the market now we have a $238 product at Amazon from Toshiba. That is my proof point, there is only rumors of a Sony offering that is competitive and industy information indicates component costs are preventing a competitive drop. But even if it does, all that will do is prolong the fight and in a prolonged fight both lose, Toshiba is actually stronger now (Paramount/Dreamworks) than they were last quarter.Let's see what Warner does. Reply
Sep 12, 2007 2:34 PM Steve Burke Steve Burke  says:
So Blu-ray players are now outselling HD DVD players, Blu-ray discs are outselling HD DVD discs as they have been all year, JVC, Denon, Daewoo, Sharp, JVC and Loewe have announced their first Blu-ray players to join Panasonic, Sony, Pioneer, Philips and Panasonic, Hitachi are making camcorders, Sony, Samsung and Sharp are making all in one Blu-ray home theatre systems and Rob Enderle, superdunce, still thinks that the only two outcomes are HD DVD winning or both losing?Can anyone explain how this guy's brain works? Is it 10cc? Possible neanderthal man? Reply
Sep 12, 2007 2:47 PM Rob Enderle Rob Enderle  says:
I think the HD-DVD guys would disagree. But the core point is with upscaled DVD getting better, another good HD technology coming to market and Apple, Microsoft, Google and most of the studios focused now on downloads that one or the other needs to scale to high volume by year end and Blu-Ray can't hit the price point to make that happen. HD-DVD already has but is effectively blocked by Blu-Ray. The win isn't against HD-DVD it is to become the replacement for DVD and right now that replacement is either better DVD upscalars or download. Reply
Sep 12, 2007 4:33 PM Not a Nerd Not a Nerd  says:
You guys need to stop being so pussy hurt by one guys opinion. Grow up and get some sun already... Reply
Sep 12, 2007 7:33 PM Duke Duke  says:
This guy is an analyst who placed all of his money on microsoft. This is the reason why he is biased. He is so afraid of Microsoft losing out to the ps3 in the video game market. His quote that ps3 is effectively dead is incredulous. Believe me folks, ps3 will be around for the next ten years. You will not see a ps4 until there is a better technology architecture. Right now, the cell processor is the best out there and in fact, too advanced for many software programmers today. Reply
Sep 13, 2007 9:01 AM AV_Integrated AV_Integrated  says:
Rob - Once again you post drivel without any accurate facts to back up your statements. Instead of constantly trying to tell us what Sony should have done, why not, instead, focus on why HD DVD might actually win. The fact that mistakes were made by the BDA, and Sony, is undeniable, but saying a $200 player would solve everything, is speculation, at best, and much more realistically, it is just plain wrong.Sony is not the BDA, Sony is Sony. They have a lot of money in Blu-ray, but the most patents are held in the Blu-ray technology by Panasonic. You have NEVER written a single article where you have focussed on this item at all.You also don't open every piece of toilet paper article you write disclosing from the start that you are paid by M$ and/or Toshiba, which clearly is going to slant your opinion. The fact that you are paid by HD DVD supporting companies should really help you focus on the positives of their products, and not the negatives of the competition.Your smear campaign is ridiculous, and the number of HD DVD supporters that fine your articles pure drivel and BS is astounding.Bill Hunt could learn how to ignore facts and be a totle fanboy from you. Reply
Sep 13, 2007 10:07 AM Rob Enderle Rob Enderle  says:
I didn't because that doesn't matter. Sony drives BD just as Toshiba drives HD. But this is an IT site I'm just using BD as an example of a problem. I am not currently conneted to Toshiba at all (and when I was it was the US PC group) and with Microsoft they don't even seem to care about HD-DVD anymore (I'm actually not even sure which Microsoft group owns this). Of course this would make more sense if I was saying HD-DVD will win. Right now I'm saying both will lose and only HD-DVD has a slim chance and my advice to clients is to support both. (Which most seem to be following). To buyers I point out that I found the Toshiba $238 product attractive enough to buy but, given the choice, would probably still go with the $180 Oppo with an up-converter. So I don't know how that makes me an HD-DVD fanboy but you believe what you want. Reply
Sep 14, 2007 1:28 PM Drew Drew  says:
Rob,I really have appreciate your articles this subject. They have provided some of most clear and relatively unbiased analysis of the subject I have read. I have been saying a lot of things to many of my colleagues and friends for a while now. Clearly your experience with technology and products has given you a perspective on this that some must be missing.I think Sony based their decisions on what would be best for them rather than consumers. They want ownership in all aspects of the entertainment business and felt that since they own the studios, players and TVs they could muscle the format into our homes. Hubris.HD-DVD are 2-4 cents and BDs are 50 if Im a studio and I am asked You can pay this to store your 15gb HD movie on this disc or pay 10 times more to have 20gb more of empty space How would you logically respond? Apparently nobody asked this question.Here is a question would Toshiba lower the price so aggressively without BluRay?PSI know I will probably get mocked for being a complete idiot by others on this site but to them I would ask them write n-tiered applications that scale linearly to 5000 concurrent users on a single machine and will talk. Reply
Sep 15, 2007 11:18 AM CochiseGuy CochiseGuy  says:
Great article, Rob. Yes, Sony has just about bet the company on Blu-ray, and not a smart thing to do for a multi-national conglomerate. They delayed the launch of the PS3 until Blu-ray was ready, losing the next-gen game console market to Nintendo and Microsoft. They spent 200 Billion Yen building a plant to produce the Cell Processor, and are now selling it to Toshiba at half price. They spent hundreds of million of dollars for blu-ray disc replicating facilities that will have no use when BD fails. They are having to IPO their Insurance business to raise additional capital for their money losing gaming division.All because of a corporate climate of arrogance - they were determined to have an industry standard format. What they failed to grasp is that High-Def DVD is an evolution, well suited for HD DVD. They thought it was a revolution. When this is all over, Sony will be a shell of a company, selling TV's and camcorders. Reply
Sep 15, 2007 7:41 PM Rob Enderle Rob Enderle  says:
Thanks for the nice post! Reply
Sep 18, 2007 12:08 PM Jim Jim  says:
Look at betamax, the PSP's UMD video disk, SOny's stupid camera chips that are about the size of SD, but are not SD...The blue ray was a great idea, but with Sony owning movie studio's I think the other studios are worried that useing BR funds a competitor...I think the DRM of both HD-DVD and BR are hurting them both.Sony said the SP3 needs BR for the huge disk for huge games, yet Sony and Xbox are releasing more and more download games... games designed to be small for fast download.DVD is "good enough" for many people... and download is great for the rest I suppose. Fan-Boys are pretty funny... Don't pick on Sony... or feel the wrath... Reply
Oct 6, 2007 6:25 PM Sorrybutyouarewrong Sorrybutyouarewrong  says:
The installed base of the PS3 will make your arguments moot... since the day will come when a PS3 will be $100 and everybody will own one.What is Toshiba selling? A player... Sony is selling a game machine everybody wants and will eventually own. There will also be dual players... but I think Blu Ray will have a much, much, much larger installed base. Reply
Oct 8, 2007 6:34 PM Rob Enderle Rob Enderle  says:
And there, boys and girls, is why you should stay in High School and study math. The current estimated COST for the PS3 is in excess of $600, the COST for the BD player alone is in excess of $300, every component has been through massive cost reduction (Initial cost estimates at launch were in excessl o $800). It is possible that they eventually, in say 3 years, could approach a sub $300 price point without an excessive subsidy (they may accept a larger subsidy to get penetration up as the product is being killed by the Wii in volume) but sub-$200 is only remotely likely after the PS4 launches in 2011 or 2012. By then the market probably will have moved on to something else.The only way to get to $100 with a low subsidy is to pull out the BD player. For most games they really don't need it and there is a possiblity that in the PS4 timeframe they may do exactly that. Be interesting to see what they do with the PS4. Reply
Oct 9, 2007 10:16 AM Rob Enderle Rob Enderle  says:
Thanks for the nice comment! Reply
Oct 9, 2007 11:38 AM Dario Dario  says:
Great article, Rob. The truth really hurts, alot of Sony employees getting very upset here in the comments.I think your right on the mark and it will make interesting reading in a year from now, time WILL tell.Cant understand people defending one format over the other ( unless they are employees ). DRM is evil and I will not do DRM. Funny that the pirates dont have any problems with playback, or FBI warnings, or advertising you cant skip..... time for me to break the law..... Reply

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