Competitive Analysis II: How Toshiba and HD-DVD Could Come Back

Rob Enderle

In the first part of this series, I lamented the lack of competitive analysis organizations in technology companies and suggested that, had Toshiba properly gamed out what Sony was likely to do and applied that to its execution strategy, it likely would be on the winning side rather than the losing side right now.


Toshiba had almost all of the critical advantages, but Sony was in a position where it couldn't allow a loss. By pushing Sony against the wall too early and not ensuring the PS3 failed to ramp, Toshiba is now almost out of the race. But, this market is still young and massively underpenetrated, the consumer is still not that interested in HD Optical from anyone, and Sony has burned through a near legendary amount of resources to get this win and continues to struggle in a number of markets, particularly the gaming segment, which has been generating massive amounts of red ink for the company since the launch of the PS3.


Until the buyer actually buys products at a high rate, this market could yet change. My view is that it is still most likely to move to downloads next, probably connected to a cable or DSL offering, rather than a game system or standalone set-top box (thanks to the related subsidies). Though, Apple in a few days will likely do a reasonably good job in providing an alternative to that scenario and remains one of the few companies that could materially change this outcome.


Toshiba's Remaining Assets and Liabilities


To assess what Toshiba can do, we should inventory its remaining assets. It has more standalone HD-DVD players focused just on movies in the market, its players are connected while many of the Blu-Ray players are not, it has one of the most powerful companies in the world (Microsoft) as a partner, and its player still appears to have a manufacturing cost advantage.


Looking at the liabilities, it is now way behind in content, it has nothing like the PS3 driving sales into seven digits, and the key independent influencers think its platform is now dead. Of the three problems, the last will likely prove the most problematic because, once folks conclude something is dead, it is really hard to convince them otherwise.


Toshiba's Choices


1. The most attractive and apparently least risky path is to sue for peace. This is where the losing side goes to the winning side and says that for some predetermined consideration it will walk away and give up the fight. Sony and its partners might still be willing to pay a large sum of money and/or give Toshiba significant concessions to simply walk away, and while this pool would have been vastly richer had Toshiba done this last quarter, it should still be worth considering against the very real risk that what needs to be done to eliminate Blu-Ray is outside of the reasonable capability of the HD-DVD supporters. This option has always been unique to the HD-DVD side as, once Sony put the Blu-Ray drive into the PS3, the cost of abandoning it would have simply been too great.


2. Assess what it would take to move Time Warner back into the Toshiba HD-DVD camp and execute against this plan. All of the studios, thanks largely to the writers' strike, are looking at what will likely be a massively bad year (here is the cost updated every second for this thing) when it comes to both revenue and profit (it should easily reach over a billion dollars by mid year). Every one of them is likely trying to find out how to mitigate this. There is likely an amazingly affordable price that Time Warner might consider to change sides before it drops HD-DVD production in a few months. Sony likely already paid it a lot to make this move, but if Sony paid the subsidiary Warner Brothers, there is a chance the parent Time Warner could override. Microsoft could play a very big roll here as the two entities have historically been rather close.


3. Go after Disney instead. One of the mysteries in this segment is why Disney jumped from the HD-DVD camp to the Blu-Ray camp, and the back story behind that move might identify a negotiating vector that could open up a major opportunity for HD-DVD. I suspect the move was the result of a unique relationship between key players. Were that relationship exposed or the key Disney player incented to either change companies or retire, coupled with a financial offer to Disney, that company, for the same financial reasons as Time Warner, might be motivated to move. But, before this is attempted, Toshiba would need to know just where to crack Disney wide open and that information is not readily available to me right now.


4. Do an end run and move to blended download and/or dual-mode devices. The market is moving to downloads, but it will take some time to get there. Offering a player that could both play HD-DVDs and gain access to the content already being licensed to Microsoft (which includes most of the Blu-Ray camp) could provide a compelling consumer mix of the present and the future. Were the company to subsidize a combination Blu-Ray, HD-DVD player, given that the existing content is split, it could put the consumer in the position to make the choice. With the players in wide distribution, the content owners could move to the best (read cheapest) format and Toshiba could financially ensure that HD-DVD is that choice with Microsoft's backing for longer than Sony could likely financially afford to hold out.


5. An interesting alternative or addition would be to work with Microsoft to create the same thing, but as a significantly improved and price-reduced HD-DVD enhancement to the Xbox 360, which has a market penetration of over four times the Playstation 3. Alone, I don't think this would be strong enough to change the outcome, but coupled with any one of all but their first plan this could ensure an eventual HD-DVD victory.


Wrapping Up


These are back of the envelope thoughts and a formal analysis would be vastly deeper and provide a much more granular picture of potential options and include what Sony's response to each might be. I don't want anyone to think that taking back this market would be as simple as a one-step plan because Sony clearly wouldn't be standing still through any of this. In fact, were I doing this as a formal assessment, I'd probably recommend seeing if the existing anti-trust action in Europe couldn't be accelerated, or another action in the U.S. initiated, to the point where Sony was afraid to react in any major way first.


In the end, what a good competitive analysis group does is provide executives with thought-through choices and related probabilities, competitive responses, and costs (both real and economic) so they can make better informed decisions.


It amazes me that more companies in the tech segment simply don't know how to do this anymore, even though losses like Toshiba's seem to point to the incredible need for this kind of work.


If you would like to learn more about competitive intelligence, look into the Society of Competitive Intelligence Professionals, SCIP.

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Add Comment      Leave a comment on this blog post
Jan 10, 2008 10:29 AM HdDvdNetq HdDvdNetq  says:
As an owner of players from both HD DVD and Blu-ray I am very dissapointed by the recent news by Warner. I am much happier with the HD DVD player that provides better quality, features, interactivity and even web enabled functionality all that do not come on the more expensive blu-ray players out now. Reply
Jan 10, 2008 10:49 AM Ownbothwant1format Ownbothwant1format  says:
I own both formats. I have a PS3 and a 360 with HD DVD add on. But now that Warner has switched to Blu-ray Toshiba should just give up. Why prolong this war that only confuses consumers and keeps people from purchasing either. Paramount made the mistake of taking money to get a short lived payday and now they are on the losing side. Disney or any of the other exclusive blu-ray supporters will not be stupid that stupid they will make more money in the long run with one format as the winner vs. taking a lump some of cash upfront. Regardless there is no stopping the uptake of the PlayStation 3 whether it be small or large their will always be way more blu-ray playing devices then HD DVD playing devices. Blu-ray now has 70 percent of the movie studios and 2 of which (WB & Disney) have large libraries that cater to children and family's. Once that info hits the maintream consumer and soccer moms when they are ready to jump into high def blu-ray will be the only logical choice. I could care less who wins but i want one winner and now that Blu-ray has the edge HD DVD should just drop their format now and start supporting blu-ray. Blu-ray outsold HD DVD Discs every week for the entire year of 2007 the consumer has spoken and their choice is blu-ray. Blu-ray standalones even beat HD DVD standalones each week after black friday. Why prolong the inevitable? Why promote confusing the consumer more and prolonging the war? Reply
Jan 10, 2008 10:58 AM John Seymore John Seymore  says:
>Blu-ray standalones even beat HD DVD standalones each week after black fridayI've seen this repeated virtually everywhere, so let's get one rather important fact straight--THEY SOLD MORE BECAUSE TOSHIBA RAN OUT OF STOCK-When you see the graph of sales, HD-DVD peaks ever upwards and then collapsing because Toshiba failed to restock shelves after some great sales. Bluray then picked up a small amount of that slack.While I concede that bluray almost certainly won, for consumers _THIS_SUCKS_. From a technical perspective I like the increased per-layer capacity (not necessary more per disc space) of Bluray, but in every single other way it is the losing format. Maybe that drunk mouthpiece Michael Bay will get a bit of perspective when he sees Transformers minus all of the interactive features on Bluray. Reply
Jan 10, 2008 11:02 AM Will Will  says:
As a recent purchaser of a toshiba HD Player, I must admit that my HD experience has been great as far as product and satisfaction. However, I feel very dissapointed of the outcome that has to this point taken place with the movie companies. One of the points that I strongly agree with in this article, is that "Toshiba" should indeed create a high quality combo player (blu ray/hd dvd) at a fair market value for its consumers. This way it will give the public an opportunity to decide which movie format they prefer based on dvd sales, and also give consumers a feeling that their hard earned money was not in vain as they have a high quality player to play both formats. I firmly state that I am not swayed to one format or the other, however, at this time I have done major research and to this date have not seen any blu ray player on the market that I would invest in at this time. Reply
Jan 10, 2008 11:16 AM Ownbothwant1format Ownbothwant1format  says:
@john seymore "Ive seen this repeated virtually everywhere" Your right it has been reported numerous places that blu-ray standalones outsold hd dvd standalones in december so show me where all the reports of the players being out of stock and thats why blu-ray won december are because i surely haven't seen them. Its natural for the fan of the losing side to make up an excuse why their side is losing. -THE FACT IS THAT TOSHIBA CONSTANTLY BOASTS SALES OF HD DVD STANDALONES BEATING BLU-RAY STANDALONES NEVER COUNTING THE PLAYSTATION 3 YET THEY GOT BEAT IN THE MOST IMPORTANT SALES MONTH OF THE YEAR BY JUST STANDALONES!- Reply
Jan 11, 2008 12:25 PM Chris Franklin Chris Franklin  says:
How come all you people always say Toshiba is winning just because it has more stand alone players? People are stupid to say that people who buy Playstation 3 arent using it for movies. If that were the case how come Blu Ray continues to constantly outsell HD DVD? if its only a small fraction then that small faction is pretty damn big. In my opinion anyone who backs Toshiba up is a retard. They say people who buy stand alone players are using it solely for movies. Why arent those 1 million people with stand alone players buying movies to outsell?YOu know rob i've been reading your blogs about the Blu Ray vs HD DVD war. the last one i read is "why Blu Ray should have never existed in the first place" you seem to always bash blu ray for some reason. You should just turn around and join the blu ray camp. The side i'm on (Blu Ray) has won. For anyone who says I probably dont even have a Blu ray player, your wrong. I have the PS3 and guess what, i've bought several movies for it plus games. :-) Ooops could I be the reason why my side continues to outsell? Reply
Jan 11, 2008 1:58 PM ktchong ktchong  says:
Hm. I think Steve Jobs owns significant controlling shares in Disney from the Disney-Pixar deal. Last year when I first heard that Disney was supporting Blu-ray and Microsoft was supporting HD DVD, my immediate reaction was that Steve Jobs was getting his revenge against Microsoft.Steve Jobs is not going to allow Disney to work with HD DVD simply because Microsoft supports it. Reply
Jan 11, 2008 2:14 PM ktchong ktchong  says:
Another way HD DVD can survive is to through dual-format hybrid players. In the long run, if hybrid players become more popular than standalone Blu-ray (or HD DVD) players, then HD DVD will have a chance of staging a comeback.On the manufacturing side, HD DVD still enjoys cost advantages. Now, let say hybrid players become more prevalent than standalone Blu-ray players, then at some time in the near future content producers will have the option of issuing their contents on either Blu-ray or HD DVD. Reasonably, they will go for the format that is cheaper to manufacture and produce.In that scenario, both formats will survive and co-exist, but HD DVD will actually come out ahead because it's cheaper to manufacture and produce, and content producer will choose HD DVD over Blu-ray discs to save costs. And when content producers decide to produce on cheaper HD DVD rather than Blu-ray to save cost, Toshiba will earn the royalty fees and still win.Of course, the prices of hybrid players will have to fall to below $200 A-S-A-P, and Toshiba is now in a race against time. With limited expertise in the Blu-ray manufacturing process, Toshiba will have to work with LG, Samsung and other manufacturers that are already making hybrid players to bring down the prices ASAP. The hybrid player will have to break the $200 barrier this year, within the next eight months. Reply
Jan 11, 2008 3:02 PM Gazbin Gazbin  says:
Its a sad state of affairs - I cant bring my self to trust anything associated with Sony and no matter what is offered, I'll still feel like a cow being herded into the killing yard. No thanks, I'll just sit on my wallet & wait for download services which should be along shortly. Reply
Jan 11, 2008 6:18 PM Jae Jae  says:
Sony and Ken Kutaragi clearly used "competitive analysis" when they decided to put a BluRay drive in the PS3 for movies and games and as we're now seeing it's working out for them. It's not so much as what Toshiba failed to do but what Sony succeeded in doing, they were in it for the larger picture and it paid off. A lot of people (yourself included) were so short sighted for the greater part of last year when it came to this issue, yet they pressed on. The work they've put in, the sales that went to competition, and the ridicule they endured is being redeemed with the success.However, it's still too early to call it a victory and pop the champagne corks until Toshiba calls it quits for HDDVD. Reply
Jan 11, 2008 6:36 PM Chris Chris  says:
As an owner of a PS3, Xbox 360 and 3 Toshiba HD DVD players, I am very disappointed with the events of the past week. I blame Microsoft for not doing more to help HD DVD and therefore I have decided to start purchasing multi-platform game releases on PS3 and not Xbox. I will not support Xbox live downloads any longer either. The day Blu-ray won the format war may also be the day Microsoft lost the console war. Reply
Jan 12, 2008 10:18 AM Russell Russell  says:
Rob Enderle should quit this hopeless gig and go work for Fix News. Oh sorry, I mean Faux News. Damn it, I mean Fox News.All these articles read like desperate propaganda pieces.You have to be clinically insane to think Toshiba can salvage something out of this in the face of a consumer/retailer metltdown that is happening as we speak. So many people are returning their HD-DVD players or ebaying them. Blu-ray movies have outsold HD-DVD movies 53 weeks in a row now, and next week we'll see Nielsen Videoscan numbers that will start to illustrate the effect of Warner taking a side (Make note, Warner has never chosen a failing format). That's why we're in this state now, and guys like Enderle spewing this stuff over and over makes me think he's either certifiably insane, or he's collecting a check for this sideshow. Whatever it is, it is kinda sad. It's over, get over it. Reply
Jan 12, 2008 12:01 PM DJ DJ  says:
I own both formats and I'm glad BRD is winning. HD-DVD was very poorly managed. They should have stuck with a simple strategy of lower priced players, lower priced discs and middle class marketing. Instead their discs were even more expensive than BRD, their marketing was non-existant and yes their players were cheaper but literally, cheaper.In regard to quality if you pay for an inexpensive HD-DVD player then you get no 1080p, slow load times and fairly average quality. With all that said, the things that really killed HD-DVD was the PS3. It's an incredible machine and a great value. It will no begin to threaten the 360 because people will buy it for Blu-ray. While attach rates may never be as high, software/movie sales will be higher an that's the end game. Reply
Jan 12, 2008 1:03 PM Brian Brian  says:
Is this serious? I guess you don't understand that Toshiba is also tied to the PS3 and the Cell processor. Why would they want the PS3 to fail? If Toshiba was smart they would have agreed with Sony at the start on how to make one format. They had more to lose in this. Toshiba wins and loses with each PS3 sold. They're a big part of the Cell processor now though so they don't want it to die either.Are you on Microsoft's payroll? You seem to be. Reply
Jan 12, 2008 2:34 PM James Carroll James Carroll  says:
I think there's something that that could still make HD DVD dominate. It would rely totally on the cooperation of movie companies, but consider 1) HD DVD's don't cost much more that normal DVD's to manufacture, and 2) HD DVD disks can be manufactured that have regular DVD layers for backwards compatibility with regular DVD players. So what if contracts were made with movie companies and they no longer manufactured regular DVD's for their new releases but instead replaced them all with these new "hybrid" disks but the key being that they ** kept the prices the same as a normal DVD would be **? There would probably be less profit margins and less royalty fees, but c'mon, I work in retail, I see where are all the sales are still being made... in standard DVD's. It would only make sense to sneak in HD DVD (or even Bluray) in with what consumers are already buying. Customers will find that eventually their movie collections are already populated with HD formats and will be inclined to go out and spend the money on the HD player and unlock the potential that they already own.I think it has a lot to do with the prices. The prices for HD disks are silly. I believe that if one of the two formats actually had movies that only cost the same as normal DVD's there would be a major shift in popularity. If there's so much competition between the two formats then why are the prices being held so high is if HD is still some kind of commodity? I guess movie companies don't really care about which format everybody chooses. What they're really interested in is excuses for selling movies at $30 and $35 a copy. Reply
Jan 12, 2008 3:22 PM Mike Heer Mike Heer  says:
This Jerk off has been on the HD DVD wagon since day one. Reply
Jan 12, 2008 4:33 PM tk tk  says:
RobYou have become the joke of the industry. Actually..u you are the joke of the industry for many years now.You do realize that every time you write a marketing piece that you call "Analysis" that many just go to read it for a laugh.Maybe you should write a story, or better, an analysis piece, on how the MS Bob user interface is about to take the industry by storm.HD-DVD is dead. It is now too late for a graceful exit. They lost the standalone stat also. The format war is over. Only if MS decide to push a few Billion to the Studios, bundle a free HD-DVD player with every copy of Vista, and add HD-DVD to the XB360 now - can the format be saved.Maybe you should think of retiring. Shame on you Ms for using this geriatric for your marketing purposes. Reply
Jan 12, 2008 8:35 PM Len Len  says:
Dude, are you ok? you know I currently have a PS3 right? I currently have 10 Blu-Ray Discs (Brought Them, I didnt even get a promotion deal for getting them) and 10 games on it. Dont you think this is why Sony Succeeded with Blu-Ray? I think so. are you getting paid by Microsoft to write stuff like this? Heres this so you put it in your mind. HD-DVD would of won IF Microsoft (an HD-DVD supporter) integrated its XBOX360 with HD-DVD in the First place when it was Launched in 2005. HD-DVD specs were ready at the Time. If Microsoft would of took that risk, we would not talk about the PLAYSTATION 3 or BLU-RAY right now. Jeez, This article Fails!!! Reply
Jan 12, 2008 8:50 PM JPGr JPGr  says:
Everybody is so busy gloating about Blu-ray's victory that no one seems to realize how bad this is for us the consumer. If you check out BD prices since WB's switch, you'll see they've gone up. I even read on TVPredictions.com today that the BDA seems to think Blu-ray's prices should stay the same, not go down as many analysts have concluded must happen if HD discs are to ever surpass DVDs, as they were when the competition with HD DVD was fast and furious. Do you really expect lower prices and innovation now that Blu-ray can breathe easier? Or will they try to make up all the money they've lost? Here's hoping both sides go back to the negotiating table and come up with a single format that will work in all HD players.... Reply
Jan 12, 2008 8:51 PM Jobal Jobal  says:
@ Chris, "The day Blu-ray won the format war may also be the day Microsoft lost the console war."To everyone who uses competitive analysis will see that if Microsoft wanted HD-DVD to win, they could have made Toshiba give them half the royalities for the future profit of HD-DVD sales and then pay all the major studios at least half a million dollars to make any deals with Sony out of their league and let Sony rot from the inside until they won. Microsoft knows dang well how much Sony needs this to be a victory and could not give a rats butt about Toshiba or anything HD-DVD; they needed something to prolonge a new disc adoption by the mass market and cause confusion so they could perfect their download distrubtion infrastruction. Now, were they able to keep the market stumbling long enough? No one knows but Microsoft. Believe me, if anyone uses competitive analysis around here, it is Microsoft and they knew EXACTLY how to play the field until they could launch and seize the market, end of story. Reply
Jan 14, 2008 7:33 PM Rajeev Rajeev  says:
How can someone foresee the moves and business acumen and personal interest a competing company takes to upholster another companies position.http://tekno-world.blogspot.com Reply
Feb 20, 2008 2:41 PM Alex Alex  says:
Sony has made a great move with PS3, winning the hi-def format war. Rob E. jump from one side to the other, but there is no doubt he totally miss on this one.HD-DVD is dead, long live the next hi-def format. Reply

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