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Toshiba to Quit HD DVDs, Ends Format War

Toshiba surrendered in the high-definition home movie war on Tuesday, giving up on its HD DVD format after losing the support of key studios and retailers to the Blu-ray technology backed by Sony.

The decision by the electronics maker ends the battle with a consortium led by Sony over who would set the standard for the next generation of discs, a fight that confused shoppers and stalled a move to the new technology in the $24 billion home DVD market.

The Blu-ray win means consumers no longer have to choose between rival incompatible formats and run the risk of being stuck with a 21st-century equivalent of Betamax, Sony's videotape format that lost out to VHS in the 1980s.

Toshiba, which had hoped HD DVD would drive growth in its consumer electronics business, said it would aim to end its HD DVD business by the end of next month.

"This was a very difficult decision to make ... but when we thought about the trouble we would cause to consumers and our partners, we decided it was not right for us to keep going with such a small presence," Toshiba CEO Atsutoshi Nishida told a news conference.

The company said it would continue to service existing HD DVD products and added it expected bigger profits over the next year as it will cut spending earmarked to promote HD DVD.

The tide turned against HD DVD after the defection to Blu-ray by Time Warner's Warner Bros. studio last month.

[cob:Related_Articles]The following week, Blu-ray took 93 percent of next-generation DVD hardware sales in North America, according to the NPD Group.

Big U.S. retailers took their cue -- including Wal-Mart, Best Buy and online video-rental company Netflix -- and pundits began writing obituaries for HD DVD.

Blu-ray made up 81 percent of all high-definition disc sales in the week ending Feb. 10, according to Nielsen VideoScan First Alert.

But the Blu-ray win comes just as digital movie downloads appear on the market, rolling out movies and TV shows on high-speed Internet connections and bypassing the disc altogether. That could limit growth for Blu-ray, analysts said.

"(DVDs) will not disappear, but downloading to hard drives and NAND flash memory may grow faster," JP Morgan analyst Yoshiharu Izumi wrote in an e-mail.

Cutting losses

While Toshiba has lost the chance to be the leader in the next-generation of movie discs, investors welcomed its decision to cut its losses on HD DVD early and invest in more promising businesses.

Toshiba's shares leapt nearly 6 percent on Monday, although they pulled back 0.6 percent on Tuesday compared with a 0.9 percent rise in the benchmark Nikkei average.

Toshiba combined the HD DVD exit with an announcement that it and partner SanDisk would spend about 1.7 trillion yen ($15.7 billion) on two new flash memory plants in a bid to catch up with industry leader Samsung Electronics in the fast-growing market.

Investors are now waiting to see if and how Toshiba will get access to Blu-ray technology for its home electronics business.

"It's going to have to buy the technology from elsewhere or pay Sony or Matsushita for the licenses," said Tetsuro Miyachi, senior portfolio manager at Franklin Templeton Investments Japan. "But the company saw that this is still better than just continuing on with losses of tens of billions of yen each year."

Nishida said Toshiba had "absolutely no plans" to make or sell Blu-ray players.

Toshiba has HD DVD agreements with studios including NBC Universal's Universal Pictures, Viacom's Paramount Pictures and DreamWorks Animation SKG, which will now likely switch to Blu-ray.

Existing Blu-ray supporters include News Corp.'s 20th Century Fox, Walt Disney Co. and Lions Gate Entertainment. Sony's PlayStation 3 game console also plays Blu-ray films.

Toshiba, which began sales of HD DVD players in March 2006, has sold 1 million players and recorders, including sales of drives for another supporter, Microsoft, for its Xbox 360 game console. Another roughly 700,000 HD DVD drives have been sold for PCs.

But Blu-ray discs could face increasing competition from Internet movie download services from the likes of Apple, Amazon.com and Netflix.

"We are going to have to work extra hard to make up for these two years," said a Matsushita official who declined to be named.