DVD War Over: Blu-Ray Wins, Toshiba Exits

Toshiba is accelerating its exit from the HD DVD business, ending the billion-dollar battle between high-def DVD formats that split Hollywood and consumers.

The Japanese electronics concern ceded defeat to Sony’s Blu-ray format, ending a protracted battle over the future of high-def discs. Toshiba had been planning a more gradual pullout before last week’s moves by Wal-Mart, Netflix and Best Buy forced its hand.

The company, which had the backing of tech giants Microsoft and Intel, refused to give up the high-def fight lightly: When Warners endorsed Blu-ray in January, Toshiba responded by cutting prices on its players to drive sales.

It also ran a costly Super Bowl ad promoting its players, hoping to sell off some machines and foster demand for more movies in the format. But the moves weren’t enough to jumpstart sales. Merchants, already coping with returns of HD DVD players, put the final nail in the coffin by supporting Blu-ray.

Wal-Mart delivered the fatal blow Friday when it announced it would begin to phase out HD DVD discs and players over the next months in favor of Blu-ray and standard DVD. The retail giant projected that its Wal-Mart and Sam’s Club stores would not carry HD DVD by June, the same month Warners is said to stop production of discs in that format.

Netflix made a similar endorsement, and consumer electronics giant Best Buy said it would favor Blu-ray more than it already does at its stores. Toshiba’s exit will draw studio holdouts Universal and Paramount to Blu-ray by necessity.

Toshiba’s exit concludes a 6-year battle with Sony, which has been pining for a victory ever since its Betamax format lost the videocassette battle with VHS in the early days of homevid.

The high-def DVD battle has been costly: Sony and Toshiba took a loss on the sale of lower-priced players, with analysts projecting Toshiba will lose 50 billion ($462 million) from the HD DVD in its fiscal year ending in March.

Paramount and DreamWorks animation received $150 million when they exclusively backed HD DVD last summer. Both camps dangled major coin before Warner to entice it into an exclusive endorsement, although the studio said money paled in comparison to the overall amount at stake in the worldwide homevid.

Studios are eager to jumpstart the high-definition business because standard DVD sales are slowing. Last year, according to Adams Media Research, consumers spent $186 million on Blu-ray discs and $90 million on HD DVD discs. That’s a small portion of the $15.38 billion spent on discs Stateside last year, according to Video Business. High-def discs sales are lagging behind standard DVD sales at a comparable period in that format’s evolution.

Some believe consumers will ultimately embrace digital delivery, via downloads or video-on-demand, instead of high-def discs.

Microsoft and Toshiba are expected to focus on technology for digital downloads. On Monday, Microsoft, which supported HD DVD through an add-on device to its Xbox 360 player, said it did not believe Toshiba’s exit would have “any material impact.”

Sony’s PlayStation 3 should see a bump in sales from Blu-ray’s victory. PS3 consoles already comprise the majority of Blu-ray players in the market.