[opendtv] Lesson of high-def DVD war: It's the ecosystem, stupid

  • From: "Manfredi, Albert E" <albert.e.manfredi@xxxxxxxxxx>
  • To: <opendtv@xxxxxxxxxxxxx>
  • Date: Tue, 15 Jan 2008 11:05:20 -0500

Proof enough that "sweet deals" do exist, in case anyone still wonders.
When products that one would expect to see don't materialize, this is
the sort of scenario I now take for granted.

If it weren't for the fact that Blu-ray is clearly the better format, in
terms of potential anyway, I'd find this more annoying.


Lesson of high-def DVD war: It's the ecosystem, stupid

Junko Yoshida
(01/14/2008 9:00 AM EST)
URL: http://www.eetimes.com/showArticle.jhtml?articleID=205602861

Las Vegas -- Warner Bros.' defection from the HD-DVD camp to Blu-ray
Disc, a bombshell that burst only days before the opening of the
Consumer Electronics Show (CES), has done irreversible damage to the
market's perception of HD-DVD. The motives behind the studio's forsaking
of Toshiba may never be fully revealed. But understanding how the
high-def DVD format battle has unfolded is critical for those who strive
to make the best technology choices. The drama underscores the dawning
truism that technology alone does not a successful consumer product

Several sources asserted last week that money had turned the tide.
Others cited tensions among rival studios. Personnel moves also shifted
the balance of power, as key players who had worked tirelessly to back
their companies' chosen formats switched jobs or slipped into obscurity.
Chris Cookson last year left the helm of Warner Bros. Technical
Operations to become president of Sony Pictures Technologies. Hisashi
Yamada, who stumped for HD-DVD as chief technology fellow at Toshiba
Digital Media Network Co., is said to be semi-retired.

"In a way, it's a sad day for EEs," said Jeff Bier, president of
Berkeley Design Technology Inc., a benchmarking and consulting firm.
Market success, he said, "often has everything to do with owning the
whole ecosystem"; technologies do not win on their merits alone.

"There is a pattern here," said Jean-Laurent Poitou, managing director
for electronics and high tech at Accenture. Consumer products are "no
longer about bits, features and functions, but about an 'experience.'"

"You can't leave any critical elements in the ecosystem in the hands of
others, hoping they will do the right things," said Toby Farrand, vice
president of engineering and operations at voice-over-IP startup Ooma.
"Look at Apple's iPod and iPhone." Apple controlled digital rights
management, system design and software programming. It struck deals with
record companies for its iTunes Store and formed partnerships with
carriers and service operators.

The ecosystem elements for Blu-ray and HD-DVD include cost, system
design, ease of production and disk replication, and studio support for
content availability. Ben Keen, chief analyst at Screen Digest (London),
said the Toshiba-led HD-DVD effort had been "years ahead" in system
design, cost and software stability. "Toshiba engineers delivered
everything they promised," he said. Every HD-DVD player sold today comes
with an Ethernet port for software upgrades via the Internet; Blu-ray
players aren't there yet.

Several industry sources, including contacts at Panasonic and Philips,
asserted that Microsoft Corp. paid Viacom-owned Paramount $150 million
last summer to get that studio and its DreamWorks subsidiary to support
HD-DVD exclusively. Microsoft has repeatedly denied ever writing such a
check--a denial difficult to disprove because such costs are often
buried in marketing or promotional expenses, said Paul Gluckman, New
York bureau chief for Consumer Electronics Daily.

Gluckman added, however, that it is "hypocritical" of the Blu-ray camp
to criticize the software giant for allegedly muscling its way into the
format battle, since Blu-ray's promoters have essentially "done the same
thing" by talking Warner Bros. into switching sides.

Indeed, the rumors flying at CES last week included speculation that
Sony may have shelled out as much as $400 million to bring Warner Bros.
over to Blu-ray, though a Sony executive denied such a deal had taken
place. Sony had paid only $250 million to acquire a portion of MGM, the
executive noted; $400 million to convince Warner to shift allegiance
"would be too much money."

Still, some industry observers mused that any Sony outlay, whatever the
amount, to bring Warner Bros. into the fold would have been money well

"Every business Sony owns today--Playstation 3, Vaio computers, A/V
entertainment systems, Sony Pictures and its disk replication
business--hinges on the success of Blu-ray," said Frank Simonis, senior
director at Philips Intellectual Property & Standards.

Others said the changing climate in Hollywood had made Warner Bros.'
move inevitable. Universal, which has been quietly feuding with
Paramount ever since the latter's acquisition of DreamWorks, apparently
has expressed misgivings about its support of HD-DVD, they said.

But in the end, the battle has boiled down to "Microsoft vs. the rest,"
said Accenture's Poitou. With every Japanese consumer electronics
company "playing to win," Poitou said, "everyone took sides" instead of
seeking consensus with backers of the opposing format.

'Magic' vs. pragmatism

Picking the right format often creates an early-mover advantage,
especially for chip companies. Sigma Designs (Milpitas, Calif.), for
example, managed to plug its media processor into every Japanese Blu-ray
system sold this past holiday season except for the Playstation 3, noted
Ken Lowe, vice president of strategic marketing at the company. Sigma
capitalized on the tendency among Japanese companies to move in a common
direction as a group; in the case of Blu-ray, the only Japanese
abstainers have been Toshiba and NEC.

In contrast, Samsung and LG developed universal players that supported
both formats. And both South Korean companies went with Broadcom
silicon, as Toshiba did for its first HD-DVD player.

How had Sigma divined Blu-ray's dominance? As it turns out, the
company's direction had less to do with "magic" than pragmatism, said

Sigma realized early on that it didn't have to develop a new chip
specific to either format; instead, it went with a chip it had initially
done for an Internet Protocol TV set-top. When the design win for
Toshiba's first-generation HD-DVD player went to Broadcom, Lowe said,
Sigma went to the Blu-ray contingent and found a sponsor willing to
compensate it for development of Blu-ray software.

By contrast, Broadcom rode the fence and ended up spending huge sums on
software development for both formats.

Universal players have gone nowhere in the market, stymied by their
price tag of nearly $1,000. The OEM bill of materials for a universal
player is $150 higher than for a dedicated player, covering the costs
for two software licenses, two royalty arrangements, two read heads and
twice as much flash storage. What's more, universal players "never
solved consumers' problem," said Sigma's Lowe: Since it was a virtual
certainty that one format would ultimately dominate, and since no
universal player would last forever, consumers would still have to
gamble when stocking their libraries, hoping they picked the format that
would prevail.

Allan Jason, marketing vice president at LG Electronics USA, suggested
the universal player would become a relic of the format war. "Compared
with a year ago," he said, "the balance of power has tipped."

Microsoft has gone with HD-DVD thus far as the high-def option for the
Xbox 360. Asked how Warner's announcement affects that, Pat Griffis,
senior director for media interoperability at Microsoft's entertainment
and devices division, said, "It hurts." But he quickly added, "There
will be a growing opportunity for electronic [movie] delivery and

At a CES press event, executives from Toshiba, which launched its
third-generation players in September, reaffirmed their confidence in
the HD-DVD format but gave no word on subsequent generations. "This is a
difficult morning," said Jodi Sally, vice president of marketing for
Toshiba's digital A/V systems. "It's difficult to hear people say HD-DVD
is dead. But we have been declared dead before."

Sally said Toshiba had sold 1 million units and 49.3 percent of all
high-def DVD players to date, followed by Sony (29.4 percent) and
Samsung (13.7 percent).

-- Additional reporting by Rick Merritt

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