Monday, February 18, 2008

Looming end to DVD war cheers consumers


By Nathan Layne


TOKYO (Reuters) -
An impending end to a format war over
next-generation DVDs boosted shares in both victorious Sony, in
the Blu-ray corner, and Toshiba, in the losing HD DVD camp, on
Monday as consumers cheered an end to confusion over which
discs will carry high-definition movies.

Shares in Toshiba Corp, which a company source said was
planning to axe its HD DVD format, jumped nearly 6 percent as
analysts praised a move to cut its losses, while Sony Corp
shares rose 1 percent.

Having one format should also help accelerate the shift to
the new technology in the $24 billion home DVD market.

"It doesn't make sense for Toshiba to continue putting
effort into this," said Koichi Ogawa, a chief portfolio manager
at Daiwa SB Investments. "It needs to cut its losses and focus
its resources on promising businesses."

Both DVDs can carry high-definition movies, but growing
support from Hollywood and big U.S. retailers such as Wal-Mart
Stores
has given Blu-ray a crushing lead in the war.

Overall sales have so far been small as shoppers, faced
with rival machines that played only one type of disc or the
other, have held back.

"I was expecting Blu-ray to win but I was kind of waiting
it out," said Masahiro Taniwaki, a 26-year-old systems engineer
shopping for a Blu-ray recorder at electronics retailer Bic
Camera in Tokyo.

Toshiba said on Monday that no decisions had been made on
HD DVD, but widespread media reports said the company that has
led the HD DVD fight was about to surrender.

"The two formats, though both were good, have confused
consumers and prevented them from moving into the high-def
future," said Stephanie Prange, editor in chief of Home Media
Magazine
.

HOLLYWOOD FAVOURS BLU-RAY

The defection from HD DVD in January of Warner Brothers and
its huge film library brought the tally of Hollywood movies in
the Blu-ray camp to a commanding 70 percent.

Recent sales figures show many consumers had already
written off HD DVD, which was also backed by Microsoft Corp.

Blu-ray accounted for 93 percent of next-generation DVD
hardware sales in North America in the week after Warner's
announcement in January, data from the NPD Group showed.

Blu-ray recorders from Sony, Matsushita and Sharp made up
about 96 percent of the Japanese market in the last quarter of
last year, said BCN, another research house.

At the core of both formats are blue lasers, which have a
shorter wavelength than red lasers used in current DVD
equipment, enabling discs to hold up to five times as much
data.

Toshiba had billed its format as less costly for the
industry as it allowed some existing DVD-making equipment to be
reused, but Blu-ray discs had space for more content to be
packed in.

Hopes that ending the battle would boost disc sales sent
shares in CMC Magnetics, a Taiwan firm that makes about a third
of the world's DVDs, up nearly 7 percent on Monday. Other
Taiwanese DVD makers also surged.


LOSSES NOW, PROFITS LATER


Toshiba will likely suffer losses of hundreds of millions
of dollars to scrap production of its equipment and other steps
to withdraw from the business, Japanese public broadcaster NHK
reported.


But analysts gave high marks to Toshiba's move to pull the
plug on HD DVD just two years after launching its first
players. It took Sony more than a decade to quit Betamax.


Nikko Citigroup raised its rating on Toshiba to "buy/high
risk" from "hold/high risk." JP Morgan maintained an
"overweight" rating while predicting the elimination of sales
promotion costs would add 30 billion yen ($280 million) to
Toshiba's operating profit in the next business year from
April.


Shares of Toshiba hit 829 yen, their highest close since
before Warner Brothers defected but still down more than a
quarter since the subprime crisis hit last year.


Sony shares have also fallen heavily over the same period,
amid growing fears of a U.S. slowdown that would slow consumer
spending.


While Toshiba was still officially silent on the fate of
its technology, pundits and consumers were clear the war was
over.


"Blu-ray won. It's fantastic and I trust Sony," said one
customer, William, as he browsed DVD player aisles at the Best
Buy Co Inc
store on New York's Fifth Avenue.


($1=107.83 Yen)


(Additional reporting by Yoko Kubota and Elaine Lies in
Tokyo; Steve James in New York and Lisa Baertlein in Los
Angeles; Editing by Rodney Joyce)

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