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Number 7585976 Word Count 2020 Rival Technologies: HD-DVD Vs. Blu-Ray Introduction The Blu-Ray disc and HD-DVD optical disc standards for storing high definition video and audio emerged between the years 2000 and 2003 and both attracted support from differing electronics and computer manufacturers, software developers and film and television producers and traders. A 5-year DVD format war between the two standards was initiated, due to a standards unification failure, with the members of the DVD forum failing to reach a consensus on the next generation technology. But what are the main differences between HD-DVD and Blu-Ray? Both Bluray and HD-DVD use the same type of 405nm wavelength blue-violet laser, but their optics differ in two ways. The Blu-ray disc has a tighter track pitch, and so can hold more information on the same size disc as a HD-DVD, even with a laser of the same wavelength. The differing track pitch of the Blu-ray disc makes its pickup apertures differ, with 0.65 for HD DVD vs. 0.85 for Blu-ray. As a result, the two pickups are technically incompatible. Furthermore, HD-DVD discs use a 0.6 mm-thick surface layer, the same as DVD, while Blu-ray uses a much smaller 0.1mm layer, which enables the laser to focus at that 0.85 aperture (1). As Blu-ray discs do not share the same surface layer thickness of DVDs, costly production facilities had to be modified for production. A special hard coating is also applied to each Blu-ray disc to ensure protection of the data 0.1mm beneath the surface, also driving the cost up. However, by keeping the layer of data closer to the surface, there is more room for extra layers and a considerable amount of more data than HD-DVD. In summary:
Figure 1. HD- DVD vs. Blu-Ray specifications. Source: http://www.medi acollege.com/vide o/format/compar e/bluray- hddvd.html 03/11/2012

Student Number 7585976 Word Count 2020 The high definition optical disc format war passed through several stages, in a competition between two opposing standards and companies: Sony with Blu-Ray and Toshiba with HD DVD. Both Blu-Ray and HD-DVD players became commercially available in 2006. Whilst for some time, HD-DVD was winning in sales figures, the Blu-Ray format made alliances with other companies to offer a wider range of products such as games, movies and entertainment videos. In early 2008, a tipping point was passed when several studios and distributors shifted to Blu-ray disc, as shown in figure 1.

Figure 2. HD-DVD vs. Blu-Ray market share. Source: Julian P. Christ and Andr P. Slowak Why Blu-ray vs. HD-DVD is not VHS vs. Betamax: The Co-evolution of Standard-setting Consortia in University of Hohenheim, Stuttgart-Hohenheim, 2009

This tipping point is attributed to the decision of Warner Bros to exclusively support Blu-Ray, closely followed by Wal-Mart. Companies promoting HD-DVD were no longer able to compete and on February 19, 2008, Toshiba officially

announced that it would stop the development of the HD DVD players, conceding the format war to the Blu-ray Disc format (2). Sony, who had lost the 1980s VHS vs. Beta Max format war, had become victorious and established Blu-Ray as the dominant high definition optical disc design.

Student Number 7585976 Standards Wars

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The stakes are high for companies participating in technology standards battles and the loss of a format war can result in high losses, even resulting in expulsion from the market for a company choosing to back the wrong product. The choice of which standard to support is an important one and is characterised by a high level of uncertainty as to which standard will achieve dominance in the long-run. As technology moves forward, uncertainty increases, due to a shortening standards battle time frame. As explored in The Art of Standards Wars (Shapiro and Varian, 1999), the 19th century railroad track width battle lasted multiple decades. On the other hand, the high definition optical disc format war lasted only approximately six years. Furthermore, the number of different stakeholders involved in standards battles has increased, as technologies become more complex. The railroad track battle for example included just one buyer and two supporters. In the high definition optical disc format war, stakeholders included multiple standards supporters and many suppliers and distributers. Factors That Lead to Sonys Victory Networks and Alliances Sony learned from their Betamax fiasco in the 1980s and in the high definition optical disc format war built strong strategic alliances that lead to the victory over Toshiba. This strategic move can be traced back to the VHS vs. BetaMax format war where JVCs more effective campaign to form an alliance behind VHS produced a coalition that matched the Beta family in global market power. JVC and its principal ally (and parent), Matsushita, followed that with strategic commitments that gained a decisive edge in market share for VHS, beginning in 1978. Matsushita exploited its generic skills in mass production and substantial previous experience in VCR manufacture by establishing production capacity for the VHS that exceeded the combined capacities of all other Japanese VCR producers. JVC, meanwhile, moved aggressively to bring leading European consumer electronics firms into the VHS family, almost preempting that market from Beta. Strategic

Student Number 7585976 Word Count 2020 Maneuvering of Mass-Market Dynamics: The Triumph of VHS Over Beta, Cusumano Mylonadis Rosenbloom 1992. As with the VHS-Betamax battle, conquering the distribution chain was a key strategic factor. This time Sony won, in both the distribution of players and rented movies. Toshiba released their first consumer-based HD-DVD player in Japan on March 31, 2006
(3)

, beating Blu-ray to the market by approximately three months. In

December 2006, 120,000 HD DVD players had been sold in the United States, along with 150,000 HD DVD add-on units for the Xbox 360. On August 20th, 2007 both Paramount and DreamWorks announced their exclusive support for HD-DVD instead of Blu-ray (4). At that time most people thought HD-DVD would win the standards battle. By the beginning of 2008 close to one million dedicated HD-DVD players had been sold and hundreds of HD DVD titles had been released. Around that time, however, the Blu-ray disc association paid $500 million to Warner Bros. so that they would switch to Blu-ray (5). This was the turning point in the battle. On January 4, 2008 Warner Bros announced to stop supporting HD DVD by June 2008, and the company would release HD titles only on Blu-ray Disc. This was followed by the news of Netflix DVD rental stores phasing out support for the format, recommending Blu-ray Disc over HD DVD in its retail locations. Soon after the decision of Warner Bros. many companies followed and switched from HD DVD to Blu-ray. Finally, retailer Wal-Mart announced that it would be supporting only Blu-ray by June 2008(6). The shift in alliances can be seen in figures 3 and 4:

Student Number 7585976

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Figure 3. Divide in Blu-Ray and HD-DVD alliances 2003. Source: The Last DVD Format War? Strategic Management of New Technologies. International Business School.

Figure 4. . Divide in Blu-Ray and HD-DVD alliances 2008. Source: The Last DVD Format War? Strategic Management of New Technologies. International Business School.

By concentrating on one major alliance (Warner Bros), Sony managed to take the market lead and persuade other multinational companies to back their brand, a key factor in their success. Arguably strategy is as much about positioning the offering with suppliers as it is positioning offerings with customers. The suppliers in this case were the content providers - the movie studios. Warner Brothers' support for Blu-Ray and Paramount's shift of allegiance from HD-DVD to Blu-Ray were killer blows for Toshiba. Installed Base and Complementary Goods Whilst the first Xboxes didn't incorporate HD-DVD players, Sony's PlayStation 3 did have a built in player. Furthermore, PlayStation 3 offered a additional technology integration, with Wi-Fi and slots for memory cards so that camera images could be imported. The inclusion of a Blu-Ray DVD player in the PS3 was a key strategic factor in Sonys success as every purchaser had access to the Blu-Ray format, they only had to buy or rent the discs and with full backward compatibility, Sony could leverage the customer base of some 190m PS1 and PS2 owners.

Student Number 7585976 Word Count 2020 Complementary goods and an installed base played a key role in the high definition optical disc format war: When an industry is characterised by network externalities, a technology's installed base and the availability of complementary goods will play major roles in user adoptionan insufficient installed base or lack of complementary goods may result in technological lockout Technology, Success and Failure in Winner-Take-All Markets, Schilling 2002. These strategic factors are further explored in The Art of Standards Wars (Shapiro and Varian, 1999), an article written before the first HD-DVD or Blu-Ray players were even released. The authors describe how Control Over an Installed Base of Customers, Strength in Complements and Leveraging Your Installed Base all contribute to victory in a standards war. Sony utilised their installed base of customers, in this case the vast number of owners of PlayStations and made sure their product had strength in complements through compatibility with current machines and various electronic integration methods. Ultimately, Sony's decision to include a Blu-ray player in the PlayStation 3 video game console plays a large part in their success. Increasing Returns The high definition optical disc format war is also an example of how increasing returns in business can further the success of a technology. In Increasing Returns and the New World of Business, Arthur 1996, the principle of increasing returns is described as the tendency for that which is ahead to get further ahead, for that which loses advantage to lose further advantageIf a product or a company or a technology-one of many competing in a market-gets ahead by chance or clever strategy, increasing returns can magnify this advantage, and the product or company or technology can go on to lock in the market. In laymens terms, the more Blu-Ray DVDs there are, the more TV networks and studios produce programmes and films utilising the Blu-Ray format. Once more TV programmes and films are produced for Blu-Ray, the easier and cheaper it is for Sony to produce and sell the product. Blu-Ray players were initially priced at $800, falling to $497 by the end of 2007. When Warner Bros withdrew their support from HD-DVD in 2008, Sony had the $24 billion home high definition market completely

Student Number 7585976 Word Count 2020 to themselves. By the time Samsung emerged to contest for market share in late 2009, prices had sunk as low as $80 for basic models up to $221 for Internet streaming video models using Blu-Ray (7). Conclusion In conclusion, the high definition optical disc standards battle resolution in favor of Blu-ray was primarily decided by two factors: shifting business alliances, including decisions by major film studios and retail distributors, and Sony's decision to include a Blu-ray player in the PlayStation 3 video game console. Could the outcome have been different? Perhaps, if a consensus could have been reached by the DVD forum members regarding establishing standards for next generation discs. However, the outcome of the war was not predictable from the beginning, with HDDVD showing promise thanks to low manufacturing costs, cheaper products and the flexibility to easily have HD and conventional versions on the same DVD. Despite this, Blu-Ray had a competitive advantage, with better product quality, larger storage capacity, added security and higher availability. Blu-Rays victory was inevitable when Time Warner announced they would no longer sell movies in both formats and focus exclusively on Blu-Ray. Best-Buy, Netflix and Wal-Mart followed suit. Sony was the hands down winner in this war, through leveraging Blu-Ray technology through PS3 business, complementary hardware, multi-media content producers, gaining traction through the competitors market share and emerging as a virtual monopoly platform.

Student Number 7585976 References

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1. Blu-Ray vs. HD DVD: State of the Division Ryan Block. http://www.engadget.com/2005/09/19/blu-ray-vs-hd-dvd-state-of-the-s-unions-division/ 03/11/2012 2. "Toshiba Announces Discontinuation of HD DVD Businesses". Toshiba. February 19, 2008. http://www.toshiba.co.jp/about/press/2008_02/pr1903.htm 06/12/2012 3. Toshiba HD-DVD Player: First Release In Japan, 2007. Toshiba. October 31, 2007. http://www.toshiba.co.jp/about/press/2007_10/pr3101.htm 06/12/2012 4. Viacom Incorporated, 2007. Paramount and DreamWorks Animation Each Declare Exclusive Support for HD DVD. http://www.viacom.com/news/pages/newstext.aspx?rid=1042073 03/11/2012 5. Pruitt, T. (2008). Warner Swayed By $500 Million From The BDA. http://formatwarcentral.com/2008/01/04/warner-swayed-by-500-million-fromthe-bda/. 03/11/2012 6. Technology Standards Battles And Networks During The Technology Life Cycle: The Battle Between HD-DVD And Blu-Ray Department of Technology, Strategy & Entrepreneurship, Delft University of Technology, 2009. 7. Managerial Economics, McGuigan Moyer Harris, 12th Ed, 2011