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Will Toshiba's $1 Billion "Hit" Inhibit Future Format Wars? Print
Thursday, 13 March 2008

Engadget reports on Toshiba's exit from the HD DVD business and suggests the financial cost should dissuade other companies from entering into this sort of format battle in the future:

There are spicy meatballs, and there are spicy meatballs -- and now there's a figure that will be tossed around for decades to come, one which will instantly represent the caution companies should take when embarking on another format war: a billion dollars. At least that's what Nikkei is reporting that Toshiba's losses on HD DVD totaled in 2007 alone: a 100b, or about $982m USD. It won't drive Toshiba under or anything, but you seriously have to ask yourself, was it really all worth it?

Yes, a billion dollars is a lot of money, but some perspective is necessary here. The actual financial cost of Toshiba's foray into HD DVD is relatively minor in the overall scheme of things. A good illustration of that fact is that even after flushing nearly a billion dollars down the toilet, the company still produced an annual profit of $2.5 billion.

But the bigger point here is that you can't look at the billion dollar hit in isolation -- you have to take into account how much Toshiba might have made over then next decade if HD DVD had been the hit it hoped it would be.

It's ultimately about the risk AND the reward.

And there are "cost" factors other than money to consider. Even though Sony has successfully seen off the HD DVD challenge, it remains to be seen if Blu-ray can eventually attain the same level of consumer acceptance as DVD or VHS previously.

It's probably more important to the ultimate success of Blu-ray that the momentum lost as a result of consumer confusion and disaffection be recovered quickly now that Blu-ray stands alone. If that can't be accomplished, then the cost of the format war is much greater than the short-term health of one company's financial statement.