HD-DVD Failure

Company profile

Toshiba Corporation is a diversified manufacturer of electronic devices and home appliances. Its product portfolio includes information systems and communications equipment, power systems, electronic components and materials, industrial and social infrastructure systems, and household appliances. Toshiba expanded through strategic acquisitions.  Also, they actively participated in R&D so as to maintain competitive advantage. However, it has to face intense competition within the industry in different area like price, quality, product image, technology innovation, reputation, supply chain distribution and product variety.

Introduction of DVD format

In the digital world that Toshiba situated, competition was not as simple as the period of Betamax competed with VHS. After VHS was weeded out, DVD became the next successful commercial format that all the hardware manufacturers were willing to compromise on avoiding another format war by that time. The standard DVD format was first launched in 1995, Hitachi, JVC, Matsushita, Mitsubishi, Philips, Pioneer, Sony, Thomson, Time Warner, and Toshiba participated in the game.  To stand out from the competitors, manufactures tried to diversify the DVD content.  Many DVD videos have   menu with different options for consumers to make their own choices. The user preference of the audio configuration should be compatible and best fit with the existing home system of users. In order to enhance consumers experience, many DVD videos also contain additional features such as extra language options, sound track control, outtakes from the original filming, etc.

In fact, audiences care about video quality the most. Video quality is highly correlated resolution, which is stated by the number of pixels that make up the image on the screen.  Therefore, studios considered improving video quality and creating remarkable visual experience  as their new challenge.

Timeline for emerging of HD-DVD

In 2002, the emerging of DVD did not only gain great success in technological innovation, but also changed the movie industry.  Due to the emerging of DVD, many US audiences changed their habit by collecting movies DVD rather than just hiring videos from Blockbuster or going to theater (Brookey, 2007).  Hence, studios temped to increase profitability by reproducing the same film content into several ways.  Besides, the profit of selling DVD is more attractive than that of video rental.  To enhance picture quality and storage capacity, global studios collaborated into DVD market by seeking compatible format.  Toshiba foresaw the potential business opportunity once it won the battle of second generation of DVD format.  It believed that high-definition (HD) format has the price advantage than others.  Therefore, Toshiba worked on developing HD-DVD.

From 2003 to 2008, Sony and Toshiba started a next generation DVD standard battle with each other, aimed at controlling over the next generation video format. Sony’s Blu-Ray technology was backed by a consortium that included Philips, Matsushita, Hitachi, and others. In contrast, Toshiba HD-DVD was supported by the DVD Forum, making it the “official” successor to the DVD format. Both companies aligned with major movie studios and video game consoles to promote their standards.

How the HD-DVD development influenced by the globalization process in their innovation process

Toshiba is the adaptive follower on DVD development while she is the innovator of HD-DVD technology. After Sony announced Blu-ray technology in 2000, Toshiba unveiled its HD-DVD player at the computer electronics show in the following year. The HD-DVD technology was based on DVD technology but with blue laser, and DVD production facilities could easily and economically convert to HD-DVD disc facilities. However, data encoding differed in two ways and Toshiba could not obtain the first mover advantage in the new disc format war. So in the innovation process, they considered different factors to make HD-DVD sustainable.

On market price and adoption

According to Cozzarin, Lee & Koo (2012), Toshiba launched the HD-DVD player for US$936 in 2006 in response to the Blu-ray player introduced in 2003 for US$3,815. With the help of a lower price strategy, more HD-DVD players were sold than Blu-ray players. But the format war moved to the war between new generation of game consoles globally, Sony has included Blu-ray in PS3 console with video player function to increase the adoption of Blu-ray hardware to battle with HD-DVD. In contrast, HD-DVD supported by Microsoft, launched HD-DVD player on XBOX 360. Comparing to Sony, this HD-DVD player is an optional item for XBOX 360. So, it merely relied on how consumers interested in HD technology and hence to acquire the HD-DVD player. In one sense, Blu-ray player would have an advantage on market share from sale of PS3 gaming console.

On technology side

HD-DVD is not a brand new technology but an enhanced DVD format. As mentioned, DVD production facilities could easily and economically convert to HD-DVD disc facilities. Also in comparing storage size, HD-DVD has disadvantage comparing to Blu-ray on 15GB in single layer disc vs 25 GB in single layer disc. So, HD-DVD would be less attractive to stakeholders who supporting the most advance technology. Toshiba would like to use cost strategy to provide a cheaper entry cost to both manufacturers and consumers to enter the market.

On product market competition

Toshiba faced major challenges on acquiring support from global hardware producers, movie studio and retailers. To let HD-DVD to become major media on HD discs, Toshiba need to gain support from other hardware producers and movie studio in order to have higher bargaining power in the market. At start, Toshiba do a great job while Paramount, Studio Canal, Universal, Warner Bros support HD-DVD and release their title in HD-DVD format. Also famous hardware firms like LG, Samsung, Toshiba release HD-DVD related hardware for home use. Toshiba did a good job on market analysis and good strategy on entering the HD discs battle with Blu-ray disc.

Industry analysis that Toshiba situated by Porter’s Five Forces

Industry Rivalry

The threat of industry rivalry is high.  There were several global home applicant manufacturers like Samsung, LG, Philips, Sony, etc., which produced DVD player.  At that time, Sony was main competitor of Toshiba who only supported Blu-ray format.  Moreover, Sony extended its Blu-ray technology onto its video game market while PS3 used Blu-ray as standard format.  Though Microsoft Xbox 360 agreed to use HD-DVD as HD format, its coverage was comparatively smaller due to its greener history and HD-DVD drive was optional accessories.

Moreover, there were indirect rivalry like Apple and Sun.  According to Dilger (2008), Microsoft was still a magnificent proprietor in the PC industry. The action of Microsoft chose HD-DVD as external drivers of its computing devices actually irritated Apple to fight back by speeding up to increase its market share in small handheld computer industry.

Bargaining power of supplier

As mentioned above, Toshiba collaborated with Microsoft so that Xbox 360 supported HD-DVD as HD video format.  Additionally, Warner Brothers, Universal and Paramount signed the exclusive agreement with Toshiba on releasing HD content.  All these global corporates were huge and maintained influencing power at the industry.  They relied on Toshiba for completing its product cycle in terms of DVD production. On manufacturer side, DVD production facilities could easily and economically convert to HD-DVD disc facilities. The switching cost of existing DVD or its facilities manufactures are relatively low.  Therefore, the bargaining power of suppliers is moderate to high.

Bargaining power of customer

The prerequisite of HD-DVD is having HD TV.  Besides, the first generation of DVD released in 2002 while Toshiba announced and released HD format in 2006.  Consumers might need time to digest for another technology change.  Another feature of HD-DVD is its compatibility for playing lower format, so that consumers need not to throw away first generation DVD when using HD-DVD player.  It has both pros and cons in terms of upgrading DVD player to HD one. Besides, the cost of HD-DVD hardware is relative low comparing with Blu-ray hardware. That is why the bargaining power of customer is moderate.

Threat of substitute

Apart from different format of DVD, there is various kind of substitute such as different entertainment, video games, online video streaming, even iPod.  As substitutes always exist and it might not be the main threat in this case.  Additionally, not all customers were interested in HD formats since some people think lower resolution satisfied their needs already. Besides, for visual and audio lovers or high end consumers, they would prefer the most high-tech technology like Blu-ray but not HD-DVD as they always looked for advanced technology and the best quality. Therefore, the impact of substitutes is low to moderate.

Threat of new entrants

Due to the lack of standardized DVD format, manufacturers put on hold for further invention until the winner of such battle became clear.  Though both HD-DVD and Blu-Ray has supporters, except Toshiba, they won’t put all eggs in the same basket.  Manufactures would either adopt both format into its devices or even pend the production plan.  In fact, it is a huge investment cost to invent a new disc format.  It might be difficult for the third DVD format to stand out.  The threat of new entrants is believed to be low.

Product Curve for HD-DVD

In the Product Curve model, DVD was reached the technological limit as it cannot support HD video in capacity which was the left curve in the figure. HD-DVD and Blu-ray was the new technology which was the right curve in the figure. In fact, HD-DVD was lack innovative as an incumbent technology. Even Toshiba has used a lot of resources to invest, HD-DVD has got some support from studios, producers and consumers in ferment period. But after a period of time of active competition with Blu-ray, it failed to market itself well. So, it get lose in the format war and exit the market. Since Toshiba discontinued HD-DVD product line. HD-DVD faded out from the market in a very short period of time like the red arrow shown.

Technology Forecast done by Toshiba and Why Toshiba failed in developing HD-DVD

One of the main reasons for the fail of HD-DVD was the wrong market strategy set by Toshiba.  HD-DVD was not an innovative product but modified DVD technology with blue laser. At first, Toshiba would like to develop a new format with low price and cost which satisfied high definition requirement  It enhanced current DVD technology in order to achieve lower conversion and development cost.  Since Toshiba wrongly defined such incumbent technology as radical one, it focused on pricing strategy, increase market penetration and reduce consumer resistance to new technology. These are traditional marketing strategies while new market or customer groups have not been created.   In one sense, the marketing and R&D costs could not spend effectively.

Larger capacity and higher resolution requirement are the trend of the market. Therefore, the technology of larger capacity should be more welcomed by the studios. Toshiba adopted the strategy of low price with larger capacity than DVD and high enough definition videos.  However, it put all effort on and focused on consumer market penetration, i.e. it has selected wrong data and made wrong beliefs with bias among the ‘ladder of inference’. Also,  Blu-ray comparatively has smaller size but larger capacity , As a result, HD-DVD provides less room for initiating innovative software and variety contents itself. Without nailing appropriate product development scheme, it could not sustain and technological limitation  eventually affected HD-DVD performance by which could not attract studios and high end consumers.

On the other hand, Toshiba was worse performed on its marketing aspect compared with Sony. Sony included Blu-ray in its PS3 as the main media format which served as the best valued high definition video player for home use. PS3 also helped to boost up the penetration of Blu-ray media player as it included video playback function. However, Toshiba was stuck in its old mind and merely focused on selling traditional HD-DVD video player. Though its alliance with Microsoft Xbox 360 supported its HD-DVD format, yet with optional HD-DVD drive for only HD-DVD video playing but not for game function, the pushing effect is limited. As it is not a necessary item on playing games on XBOX360. The effectiveness was much weaker than Sony as Sony fully utilized Blu-ray disc function on gaming and home video which fit the latest global trend. Moreover, Toshiba has lawsuit in several countries in terms of DVD patent and antitrust issue when binding exclusive agreement with studios. It somehow distracted and confused Toshiba in developing HD format. 

Fairly speaking, the innovation of HD-DVD is not bad. The concept meets HD video requirement and can be economical for most producers and consumers, though it is less high-tech product compared to its competitor Blu-ray. Toshiba failed to satisfy those consumers who look for high-end and high profile media. HD-DVD’s cost competitive advantage helped Toshiba gain certain support from studios and consumers. The main failure for Toshiba is mainly not on technology forecast, but mainly on marketing strategy by falsely classified HD-DVD as disruptive technology. 

Suggestions and Learning lessons

In IT industry, technology was changing rapidly, only breakthrough and innovation can help firms to achieve great success. Price is not always the key factor in competition. To think out of the box, Toshiba should create a storage format not limited to disc but with competitive capacity, cost, copyright security and function which is different from traditional DVD player. Moreover, the new media is suggested not to follow the  classic round shape. With other or smaller shape, it can reduce the size of home media equipment which may lead to new impact the market. It is suggested to have wide range of usage but not be restricted to video playing, but mange to serve all video market, PC file storage, smartphones memory and gaming media, better stands out as a new standard storage to serve all kind of entertainment use. Besides, Toshiba could also consider the benefit of downstream or upstream to achieve win-win situation in its industry value chain. Successful companies doing well in this aspect such as Airbus created the biggest airplane A380 which provides larger space for passengers, especially business and first class passengers, trying to open a new market on giant jets while its competitor Boeing still haven’t get in. A380 as a new model of commercial jet become very popular to the passengers worldwide and achieved great success, which is a good example for Toshiba to learn to find new market with different perspective.

Additionally, current electronic market is changing so fast that too many parties are involved. At the same time, consumers nowadays are exposed to too much information and choices. Even a firm with good innovation at reasonable price, marketing still plays quite an important role for the company to achieve success. Without correct and proper marketing, even a potential good technology cannot become popular.

Toshiba is still a top manufacturer in electronic and IT products in global market.  Toshiba is keeping develop its NAND flash memory clip, the smallest size of which accompanied with larger capacity and faster writing speed. Compared with HD-DVD, NAND flash memory clip is wider range for use, such as PC, smartphones, robotics, medical electronics, etc. Moreover, Toshiba is the leader in the industry of NAND flash memory.  With strategy of product development, flow the trend of demand, i.e. smaller size with larger capacity, any new products introduced will lead a huge demand from customers.  Therefore, try to evaluate the trend of market and demand of customers, keep creation and innovation constantly, it will be not difficult to gain succeed.

Reference

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