Naturally, most observers, commentators and analysts have swiveled their attention in the direction of Sony and Blu-ray, looking for the next price cut gambit. But so far Sony doesn't appear inclined to play "follow the leader," if it means jumping off the edge of a cliff.
Of course, twice in the past 6 months Sony repeatedly issued denials of rumors and news reports that the company would be lowering the prices of its entry-level PlayStation 3 game console, but in both cases, Sony ended up announcing significant cuts. But this time, I tend to believe Sony is sincere in trying do whatever it can to maintain Blu-ray player prices.
What's happened with HD DVD players since the format's launch in spring 2006 is basically without precedent in consumer electronics. New product categories such as VHS/Beta, DVD and HDTV all started with hardware prices out of the reach of most consumers. But over time prices fell, and somewhere in a 3- to 5-year timeframe, prices for those products reached the point where even the most budget-conscious consumer could afford them.
Recapping our progress to date, HD DVD debuted in April 2006 with Toshiba offering two players, a high-end model at $800 and an entry-level box for $500 -- OK, that's certainly not cheap, but it's a far cry from the first 480p DVD players selling for $2000 back in 1999. And HD DVD prices have progressively fallen over the past 18 months, where last year's model can be had for less than a hundred bucks and the newer model is expected to settle in at around $175 (at least for now).
On the other hand, Blu-ray kicked off its assault on the HD disc market a few months later, in June 2006, with a Samsung player priced right around $1000. Eventually even higher-priced models were made available by Sony and Pioneer, while low-end sales were more or less ignored until the PlayStation 3 game console debuted last November at $499 and $599. Now an entry-level Blu-ray player can be purchased for $499 (soon to be $399, the same price as for the entry-level PS3 coming to stores next week).
In that context, and in view of the fact that Toshiba and the HD DVD group lags behind in disc sales by roughly a 2-to-1 margin against Blu-ray, I view the latest HD DVD pricing move not as a desperate tactic to narrow the market share gap, but rather a signal to Sony and its Blu-ray partners that Toshiba is "suing for peace."
That's right, I think the recent price moves by Toshiba are the first real indication that the company wants to be done with HD DVD and is willing to step out of the picture if Sony and Blu-ray are prepared to accommodate it. How would that work? I'm not at all sure, but I think it starts with Toshiba getting cut in for some ongoing percentage of future Blu-ray licensing revenue.
I'll concede that my theory is contrarian and highly speculative. But I think it is logical, particularly when you consider the future pricing potential for HD DVD versus Blu-ray. There's little chance that consumers are ever going to accept a mainstream $399 HD DVD player -- that ship has sailed out of port and will not be returning. And that means Toshiba has little chance of ever developing long-term third-party manufacturer support for building and selling HD DVD players, because there's so little profit potential. And it's not like Toshiba has a lot of HD DVD hardware partners to work with anyway.
Sony and its Blu-ray partners so far have managed to maintain a high degree of pricing power and there's still a good outlook for Sony earning healthy Blu-ray licensing revenue over the long haul. But it won't be able to hold the pricing line if Toshiba edges ever closer to giving away its product, particularly during the upcoming holiday shopping season.
Video Savant 
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