The Digital Bits latest take on the format war

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How in the world does Toshiba think it's ever going to make any money from the HD-DVD format? I mean, seriously.

You may have heard by now that Toshiba has made pre-Black Friday arrangements with Wal-Mart to effectively dump its HD-A2 HD-DVD player starting this Friday (this weekend only) for just $98.87. You may also have heard that Best Buy has followed suit. Supplies are limited, of course, and the offer is apparently not valid in some parts of the country that have state anti-dumping laws.

Wikipedia defines dumping as "the act of a manufacturer in one country exporting a product to another country at a price which is either below the price it charges in its home market or is below its costs of production." Toshiba's move isn't really anti-competitive, because there are no U.S. manufacturers making HD-DVD players. But it's that "below its costs of production" part that applies in this case. The HD-A2 arrived in the States with an original MSRP of $499.99. Now, Toshiba is letting it go for just $99. There's no way the player cost less than $100 to manufacturer. Just. No. Way.

You might wonder: How can Toshiba possibly have enough HD-A2s left to sell at just $99 at large, nationwide retailers? Simple. It's because they didn't sell originally, so plenty of stores still have them sitting on shelves, gathering dust. Toshiba is eager to clear them all out at this point, and Wal-Mart and Best Buy are happy to help.

Clearly, the HD-DVD camp understands that low price is really the only card they have left to play in this format war. Porn hasn't won the war for them as predicted, nor have online bells and whistles, or combo discs/players. The obvious question would be: Why in the world would any other hardware manufacturer want to join Toshiba's foolhardy strategy of driving player prices down to next to nothing? It's no accident that not a single other major manufacturer has released a stand-alone HD-DVD player (and no, the Venturer doesn't count). Given how dramatically Toshiba has slashed prices on HD-DVD players over the last year, you have to wonder how long they can keep losing money.

Forget for a moment that the HD-A2 isn't capable of delivering full 1080p video - that doesn't matter. Why? Because anyone who is so price sensitive that they wait until a high-def player price hits $99 to buy one isn't likely to have an HDTV set yet. Being super bargain shoppers, they aren't likely to want to pay $30 for an HD-DVD movie either. I'd bet many of the people who jump on this sale will either be using them primarily as upconverting DVD players, or they're already diehard HD-DVD supporters and are buying them as second players. For those regular consumers who take the bait, I wonder how they'll feel when they realize they can't play those big Disney titles in the "blu" boxes due next week.

Speaking of which... a couple weeks ago, when Disney and Sony launched the successful strategy of counter-selling their Blu-ray software titles 2 for 1 the same week Paramount and DreamWorks released Transformers on HD-DVD, we got a few e-mails from HD-DVD fans telling us how lame that was. Is it any accident that Toshiba didn't wait for Black Friday to sell their $99 players, instead carefully planning the 3-day sale for the weekend before Disney and Pixar release Cars, Ratatouille and the Pixar Short Films Collection on Blu-ray? Not a chance. So Toshiba is slashing HD-DVD hardware prices to counteract the release of blockbuster Blu-ray software. What does that tell you about the viability of HD-DVD going into a fourth quarter that, by all accounts, is make or break for the format? (Especially with Warner Home Video now hinting that they're looking at the fourth quarter to "reevaluate" their dual format support)

There's no doubt that thousands of eager consumers will get a deal on cheap hardware this weekend. But it still isn't going to be the format war winner for HD-DVD that some would like to believe. On the contrary, it means that Toshiba is getting desperate enough to adopt an all-or-nothing strategy... and is going even more deeply into the red with this format. Meanwhile, given the strength of their rhetoric this week, it's a safe bet that the Blu-ray camp will continue to press their advantage in the fourth quarter, and start turning up the heat on HD-DVD in the weeks and months ahead.

It boggles the mind to think that any reasonable person can still believe at this point that the HD-DVD format represents a viable long-term business. Even if Toshiba's strategy has the desired effect (which seems primarily to be garnering splashy headlines in the press), what do they ultimately win? A tie? The best case for HD-DVD, even if Warner were to be so impressed by this sale that they go HD exclusive, would be to effectively create a 50/50 split in terms of studio support. In other words, a total quagmire. High prices were the number one reason most surveyed consumers cited for staying away from high-def discs in the recent NPD Group survey, but the existence of two competing formats was not far behind. And just as many people who said that price was their chief concern also said that they're happy enough with current DVD to have no interest in upgrading to high-def discs anyway. So all this seems to be more a battle waged for the press and PR spin than the actual hearts and minds of consumers.

Keep in mind, contrary to the opinions of some online, we don't think HD-DVD is a bad format at all. If it were the only HD format around, we'd be all over it here at The Bits. But Toshiba is effectively paying studios to support it, and now they're practically giving the hardware and software away. Do you suppose we'll see free HD-DVD player offers in Cracker Jacks and cereal boxes next? $50 players? $25 players? 2 for 1 players?

Experienced fighter pilots will tell you that when you dive your aircraft at the deck, you very quickly run out of maneuvering room. It seems to me that the ground is coming up awfully fast for HD-DVD. Either way, it's looking more and more as if this fourth quarter could decide the format war... one way or another.