Toshiba pushes HD-DVD's to China

[cablekiller]

Good news for HD-DVD fans:

In the high-stakes battle with Sony over whose format will power the next-generation of DVD players, Toshiba has adopted a potentially perilous strategy: encouraging low-cost Chinese competitors to crank out machines using its standard known as HD-DVD.

The tactic of courting Chinese makers has been largely taboo in Japan, where manufacturers like Sony and Panasonic have long tried to delay their technology from turning into cheap commodities. But Toshiba's decision could have significant ramifications in the race for the billions of dollars that will very likely flow from the next generation of DVD technology that promises sharper pictures, enhanced audio and more disc storage.

China, for its part, is developing its own high-definition DVD format, Xinhua, the official state-run news agency, reported this month. Citing Lu Da, deputy director of the National Disc Engineering Center, it said that the format was set to be put on the market before 2008. Xinhua reported that Lu said the format would be based on the prevailing HD-DVD format but would be incompatible with other HD-DVD systems.

Toshiba and Sony have been fighting an increasingly bitter war over which technology will become the industry standard. It is a battle that carries particular significance for Sony, which once championed the higher-quality Betamax but still lost the battle over the standard for videocassettes.

In the latest brawl, negotiations to merge their formats failed, so the two sides have been lobbying Hollywood studios, disc manufacturers, computer companies like Dell and software makers like Microsoft, as well as retailers like Best Buy and Wal-Mart.

Sony and others developing the Blu-ray technology have recently won big victories by persuading more studios to agree to put movies into their format. Sony also plans to put the technology in the PlayStation 3 when the game console is released in the spring, effectively turning them into Blu-ray DVD players.

By making its technology available to Chinese manufacturers, Toshiba hopes to get cheaper HD-DVD players in the stores months ahead of Sony, Panasonic, Samsung and other Blu-ray companies. This would help Toshiba outmaneuver Sony. Toshiba, analysts say, also knows that DVDs became a mass market item in the United States after low-priced models arrived from China and filled big-box retailers like Wal-Mart.

But inviting the Chinese to drive down prices is risky. Toshiba, after all, also makes DVD players, so it could undercut its own machines in stores. By ceding potential sales for its machines to other, cheaper brands, Toshiba may have a harder time recouping the hundreds of millions of dollars it has spent developing its format.

Sony and the Blu-ray group are licensing their technology more selectively. Analysts call this an effort to prevent low-cost manufacturers, including those from China, from quickly driving down the price of Blu-ray machines when they reach stores next year. Many manufacturers are also wary of licensing their technology to the Chinese because of their record of not paying licensing and royalty fees.

"Toshiba can't back out of this format war for face-saving reasons," said Richard Doherty, research director at Envisioneering Group, a market research group in Seaford, New York. "But pushing ahead means dealing with the Chinese sooner rather than later. They'll risk dealing with the Chinese if it means getting the format out quicker."

The contrasting strategies underscore the increasingly uncomfortable choices that Japanese electronics makers must make as China's manufacturing might grows, whether it be in DVDs, televisions, cameras or other products.

Japanese companies are either hoarding their technology from the Chinese and hoping that they catch up slowly, or licensing technology to the Chinese and making money off the royalties.

"Japanese companies basically follow one of two models: They're open or they're closed," said Koya Tabata, an electronics industry analyst for Credit Suisse First Boston.

Though most big Japanese companies have factories in China, their attempts to shield their products from low-cost competitors frequently prompt Chinese companies and government officials to accuse the Japanese of technological miserliness.

It is often a delicate dance. Sharp assembles its flat-panel televisions at factories in China, the United States and Spain. But the liquid-crystal screens at the heart of their products are produced at only two factories in Japan.

Toshiba and Canon have taken a similar tack, vowing to keep at home production of flat screens using a promising new technology called surface-conduction electron-emitter displays. Matsu****a Electric, which owns Panasonic, makes key components like the lasers in its DVD recorders and the lens and chipboards for digital cameras only in Japan.

Japan's wariness toward China, of course, is not unwarranted. Many Japanese manufacturers have waged costly legal battles against Asian rivals to recoup unpaid royalties and settle patent infringements allegations.

Toshiba, though, bucked Japanese convention when, in the mid-1990s, it licensed technology for making its powerful new flash memory chips to a rising South Korean rival, Samsung.

The bid to win acceptance for the fledgling chips by ensuring cheap, plentiful supply worked: Toshiba-made chips now sit at the heart of digital music players like the iPod. Yet in the process Toshiba gave up a big chunk of the global market to Samsung.

Toshiba says it is following a similar strategy with HD-DVD.

A Sony spokesman, Taro Takamine, said his company could produce cheap machines without China's help. Sony, he said, plans to sell Blu-ray disc players for under $1,000 next year.

Toshiba said this year that it would charge less than $1,000 for its first HD-DVD players.



Martin Fackler reported from Tokyo and Ken Belson from New York.

HP move signals a rift

Ken Belson reported from New York:

Hewlett-Packard, part of the Blu-ray Disc Association developing the next-generation DVD, has urged the group to adopt software that has already been included in the rival format.

While still supporting the Blu-ray format, Hewlett took the unusual step of announcing its request Wednesday as the board members of the Blu-ray group met in Los Angeles. The move signaled a potential rift in the Blu-ray camp between consumer electronics giants like Sony, Panasonic and Samsung and computer makers like Hewlett and Dell.

In a pointed ultimatum, Hewlett said that if the additional technology was not added to the Blu-ray format, it would consider switching allegiances and backing the rival standard, Toshiba's HD-DVD.

Hewlett wants the Blu-ray group to incorporate the software because it allows consumers to legally copy DVDs onto their PCs, transfer movies to other devices and watch video in a greater variety of ways. Microsoft's new Vista operating system is expected to work easily with this software. As a result, Hewlett and other computer makers could install Vista in their PCs and avoid having to spend the time and money to install and test the alternative software called BD Java.

Read story here:
http://www.iht.com/articles/2005/10/20/business/dvd.php