TOKYO--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.
Courting Chinese makers has been largely taboo in Japan, where manufacturers like Sony and Panasonic have long tried to delay the transition of their technologies into cheap commodities. Toshiba's decision could have major ramifications in the race for the billions of dollars that are likely to flow from the next generation of DVD technology, which promises enhanced pictures and audio and more disc space.
Toshiba and Sony have been fighting an increasingly bitter war over which technology will become the industry standard. It is a fight that carries particular significance for Sony, which once championed the higher-quality Betamax but 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 giants like Dell and software moguls like Microsoft, as well as retailers like Best Buy.
Sony and others using a technology known as Blu-ray have recently won victories by persuading more studios to agree to put movies into their format. Sony also plans to include Blu-ray technology in its PlayStation 3 game consoles when they are released next spring, effectively turning them into Blu-ray DVD players.
To thwart Sony, Toshiba has reached a bargain with Chinese manufacturers. By making its technology available to them, Toshiba hopes to get cheaper HD DVD players in the stores months ahead of Sony, Panasonic and other Blu-ray companies.
This would help Toshiba outmaneuver Sony much as Panasonic outfoxed Sony over the Betamax machines. Toshiba, industry 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 also makes DVD players, so the Chinese machines could undersell Toshiba players.
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 go on sale next year. Many manufacturers are also wary of licensing their technology to the Chinese because of some past difficulties in collecting licensing and royalty fees.
"Toshiba can't back out of this format war for face-saving reasons," said Richard Doherty, research director at the Envisioneering Group, a market research group in Seaford, N.Y. "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 Japanese electronics makers must make as China's manufacturing might grows. Japanese companies either keep their technology away from the Chinese, or they license technology to the Chinese and make money off the royalties.
"Japanese companies basically follow one of two models: They're open or they're closed," said Koya Tabata, an analyst for Credit Suisse First Boston. "Japanese makers didn't have to make these sorts of decisions when they used to have unquestioned market dominance."
Though most big Japanese companies have factories in China, their attempts to shield their products from low-cost competitors prompt frequent charges by Chinese companies and government officials of technological miserliness.
It is often a delicate dance. Sharp assembles its flat-panel TVs at factories in China, the United States and Spain. But the liquid-crystal screens at the heart of the 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. Matsushita 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 is not unwarranted. Many Japanese manufacturers have waged legal battles against Asian rivals torecoup unpaid royalties and settle patent-infringement allegations.
Toshiba, though, bucked Japanese convention when, in the mid-1990s, it licensed technology for making its powerful new flash memory chips to Samsung. As a result, the fledgling chips became cheap and plentiful. Toshiba-made chips now sit at the heart of digital music players like the iPod, too, even though Samsung has won a big portion of the market.
Toshiba says it is following a similar strategy with HD DVD. "When a technology is established, it's wise to keep technology that will help you stand out" from competitors, said Keisuke Ohmori, a Toshiba spokesman. "When you want to establish a new market, you need a different approach to gain sales volume."
In September, two of China's largest made-to-order DVD makers, Amoi and JiangKui, said they would start using Toshiba's HD DVD format to produce high-definition disc players for other companies as early as next year. The companies cited Toshiba's greater willingness to share its technology.
"Compared to the Blu-ray standard, the DVD Forum has been more friendly and open to the Chinese consumer electronics manufacturers," JiangKui , located in eastern city of Zhenjiang, said in a statement, referring to the industry body that has backed Toshiba's HD DVD format.
Appealing to the Chinese this early in a product's life cycle could backfire, of course. But with Sony and its powerful allies gaining momentum in the standards battle, Toshiba may be desperate to fight back, industry analysts said.
Blu-ray's gated community
By contrast, Sony has long tried to present its brand as exclusive and been more tight-lipped about its technology. While Sony says Blu-ray technology is available to those willing to pay, it admits to heavily screening newcomers. This is partly to prevent the technology from flowing to companies that could defeat the extensive anti-pirating controls that will be built into Blu-ray recorders to restrict disc copying.
"Content providers want to know their content will be secure," said Taro Takamine, a Sony spokesman. "HD DVD is sending the opposite message."
Warren Lieberfarb, a Toshiba adviser in Hollywood, says the HD-DVD standard is just as secure as the Blu-ray format. He added that if the Blu-ray group tried to keep its technology out of Chinese hands, consumers would ultimately end up paying more for Blu-ray players.
"Denying technological licenses to Chinese manufacturers is tantamount to an embargo on trade with China and it has the effect of forcing consumers in the rest of the world to pay more for machines," said Lieberfarb.
Takamine also said Sony could produce cheap machines without China's help. Sony, he said, plans to sell Blu-ray disc players for less than $1,000 next year. Toshiba made the same claim earlier this year.
JiangKui, which will start selling HD DVD players in the United States and Europe next year, has not yet said what it will charge, though most analysts say it will be far less than Toshiba's brand-name machines.
Whatever the price, China's entry into the next-generation DVD market is likely to pressure the Blu-ray companies to cut prices.
"There's no ignoring the Chinese," Doherty of Envisioneering said. "You can't be competitive on consumer scales if you don't take advantage of Chinese manufacturing."
http://news.com.com/Toshibas+risky+push+on+HD+DVD/2100-1041_3-5928133.html?tag=nefd.top
Courting Chinese makers has been largely taboo in Japan, where manufacturers like Sony and Panasonic have long tried to delay the transition of their technologies into cheap commodities. Toshiba's decision could have major ramifications in the race for the billions of dollars that are likely to flow from the next generation of DVD technology, which promises enhanced pictures and audio and more disc space.
Toshiba and Sony have been fighting an increasingly bitter war over which technology will become the industry standard. It is a fight that carries particular significance for Sony, which once championed the higher-quality Betamax but 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 giants like Dell and software moguls like Microsoft, as well as retailers like Best Buy.
Sony and others using a technology known as Blu-ray have recently won victories by persuading more studios to agree to put movies into their format. Sony also plans to include Blu-ray technology in its PlayStation 3 game consoles when they are released next spring, effectively turning them into Blu-ray DVD players.
To thwart Sony, Toshiba has reached a bargain with Chinese manufacturers. By making its technology available to them, Toshiba hopes to get cheaper HD DVD players in the stores months ahead of Sony, Panasonic and other Blu-ray companies.
This would help Toshiba outmaneuver Sony much as Panasonic outfoxed Sony over the Betamax machines. Toshiba, industry 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 also makes DVD players, so the Chinese machines could undersell Toshiba players.
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 go on sale next year. Many manufacturers are also wary of licensing their technology to the Chinese because of some past difficulties in collecting licensing and royalty fees.
"Toshiba can't back out of this format war for face-saving reasons," said Richard Doherty, research director at the Envisioneering Group, a market research group in Seaford, N.Y. "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 Japanese electronics makers must make as China's manufacturing might grows. Japanese companies either keep their technology away from the Chinese, or they license technology to the Chinese and make money off the royalties.
"Japanese companies basically follow one of two models: They're open or they're closed," said Koya Tabata, an analyst for Credit Suisse First Boston. "Japanese makers didn't have to make these sorts of decisions when they used to have unquestioned market dominance."
Though most big Japanese companies have factories in China, their attempts to shield their products from low-cost competitors prompt frequent charges by Chinese companies and government officials of technological miserliness.
It is often a delicate dance. Sharp assembles its flat-panel TVs at factories in China, the United States and Spain. But the liquid-crystal screens at the heart of the 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. Matsushita 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 is not unwarranted. Many Japanese manufacturers have waged legal battles against Asian rivals torecoup unpaid royalties and settle patent-infringement allegations.
Toshiba, though, bucked Japanese convention when, in the mid-1990s, it licensed technology for making its powerful new flash memory chips to Samsung. As a result, the fledgling chips became cheap and plentiful. Toshiba-made chips now sit at the heart of digital music players like the iPod, too, even though Samsung has won a big portion of the market.
Toshiba says it is following a similar strategy with HD DVD. "When a technology is established, it's wise to keep technology that will help you stand out" from competitors, said Keisuke Ohmori, a Toshiba spokesman. "When you want to establish a new market, you need a different approach to gain sales volume."
In September, two of China's largest made-to-order DVD makers, Amoi and JiangKui, said they would start using Toshiba's HD DVD format to produce high-definition disc players for other companies as early as next year. The companies cited Toshiba's greater willingness to share its technology.
"Compared to the Blu-ray standard, the DVD Forum has been more friendly and open to the Chinese consumer electronics manufacturers," JiangKui , located in eastern city of Zhenjiang, said in a statement, referring to the industry body that has backed Toshiba's HD DVD format.
Appealing to the Chinese this early in a product's life cycle could backfire, of course. But with Sony and its powerful allies gaining momentum in the standards battle, Toshiba may be desperate to fight back, industry analysts said.
Blu-ray's gated community
By contrast, Sony has long tried to present its brand as exclusive and been more tight-lipped about its technology. While Sony says Blu-ray technology is available to those willing to pay, it admits to heavily screening newcomers. This is partly to prevent the technology from flowing to companies that could defeat the extensive anti-pirating controls that will be built into Blu-ray recorders to restrict disc copying.
"Content providers want to know their content will be secure," said Taro Takamine, a Sony spokesman. "HD DVD is sending the opposite message."
Warren Lieberfarb, a Toshiba adviser in Hollywood, says the HD-DVD standard is just as secure as the Blu-ray format. He added that if the Blu-ray group tried to keep its technology out of Chinese hands, consumers would ultimately end up paying more for Blu-ray players.
"Denying technological licenses to Chinese manufacturers is tantamount to an embargo on trade with China and it has the effect of forcing consumers in the rest of the world to pay more for machines," said Lieberfarb.
Takamine also said Sony could produce cheap machines without China's help. Sony, he said, plans to sell Blu-ray disc players for less than $1,000 next year. Toshiba made the same claim earlier this year.
JiangKui, which will start selling HD DVD players in the United States and Europe next year, has not yet said what it will charge, though most analysts say it will be far less than Toshiba's brand-name machines.
Whatever the price, China's entry into the next-generation DVD market is likely to pressure the Blu-ray companies to cut prices.
"There's no ignoring the Chinese," Doherty of Envisioneering said. "You can't be competitive on consumer scales if you don't take advantage of Chinese manufacturing."
http://news.com.com/Toshibas+risky+push+on+HD+DVD/2100-1041_3-5928133.html?tag=nefd.top
