Convergent Consortia: Format Battles in High Definition

On 31 March 2006 Japanese consumer electronics manufacturer Toshiba Corporation shipped the world's first high-definition disc player to retailers. Backed by NEC Corporation and operating under the jurisdiction and support of the cross-industrial body governing DVD technology, the DVD Forum, Toshiba hoped to establish dominance in next-generation optical disc technology devices by being first to the market. With content support from Universal Studios, Warner Bros., and computer software and hardware giants Intel Corporation and Microsoft Corporation, hopes were high that HD DVD would quickly secure a victory over its chief competitor, Sony's Blu-ray. Some three short months later, after several delays from developers Sony and Panasonic, Samsung shipped the world's first Blu-ray player to retailers. With nine consumer electronics manufacturers supporting the technology, Blu-ray offered consumers a choice in their conversion to high-definition disc player. In the process Sony initiated the first home entertainment format war since Betamax versus VHS. Flash-forward to 19 February 2008, as the Toshiba Corporation announced that it would no longer pursue manufacturing, development, and marketing efforts related to HD DVD. Citing "recent major changes in the market," President and CEO Atsutoshi Nishida ceded the format battle victory for next-generation DVD to Sony's Blu-ray technology ("Toshiba Announces").

The two-year period between HD DVD's launch and its defeat by Sony's Blu-ray was a period of sustained growth in global markets marked by increasing convergence in the filmed entertainment, consumer electronics, gaming, and IT industries. Franchise films returned record revenues at the box office as well as in ancillary markets. In the consumer electronics market high-definition televisions, new video game consoles and software, and laptop computers returned healthy profits for their makers. The format battle over high-definition discs represented an effort by two competing firms to take advantage of this convergence and prosperity, offering consumers high-definition disc players capable of playing content for their new HDTVs, computers, and gaming consoles. The stakes in this battle were high; the winner would control licensing and patent revenues for a hardware market that could return billions in revenues. Sony and Toshiba hoped consumers would replace their existing DVD players with high-definition ones, with the American DVD player market representing more than 133 million potential converters alone (http://www.thedigitalbits.com). Both Sony and Toshiba designed their technologies to offer a relative advantage over DVD; high-definition players could play full 1080p content, were designed to play DVDs as well as HD discs, were capable of offering interactive features and Internet connectivity, and could function on HD computer drives and new gaming consoles. However, the two technologies were not cross-compatible, as Sony's player would not play Toshiba's discs and vice versa. With both technologies offering similar storage capacity, functionality, and relative advantage over DVD, the format battle appeared to be one that could linger for years.

However, the format battle over high-definition disc technology lasted only a short two years after product launch. In that period Toshiba failed to garner content support from all of the major studios and failed to maintain a tight consortium of partners in hardware production, content protection, licensing, distribution, and promotion. Consumers found more Blu-ray titles and players on retail shelves than HD DVDs. Gamers who upgraded to Microsoft's next-generation gaming console, the Xbox 360, found that HD DVD–based games and film content would play on their consoles only after the purchase of additional hardware. It was Toshiba's inability to create and maintain consortium support through the DVD Forum that would lead to HD DVD's failure in the marketplace. Without a strong alliance and content support from the filmed entertainment and gaming industries, HD DVD could not attain market superiority. These factors, combined with Toshiba's inability to capitalize on internal synergies and the company's failure to shift managerial philosophies to reflect changes in the global market in a timely manner, secured its fate in the marketplace.

As influential as optical disc technology has been to the profitability of the entertainment, computing...