2012

HIGH-DEFINTION OPTICAL DISC: BLU-RAY DISC vs. HD DVD

PGPEX-VLM (2012-13), 6th Batch IIT Madras-IIT Kanpur-IIM Calcutta Technology Management Course Instructor: LS Ganesh Project:

RAMAKRISHNAN N (MS12V020) Email:[email protected]

Abstract
Through this report effort has been made to describe the key philosophy of social, corporate and institutional custom, convention, or system that has achieved a dominant position by public acceptance or market forces. The study is to access and better understand potential paths for more global sustainable technology management. The analysis indicates format war took place between the Blu-ray Disc and HD DVD optical disc standards for storing high definition video and audio. The report basically pertains to comparison between these two competing technologies. Blu-ray and HD-DVD have both been developed to enable recording, playback and rewriting of high definition video and data. The key to these technologies is the blue-violet laser that is used to write the data to the disc. This blue laser has a much shorter wavelength than the current red laser DVD system, which makes it possible to read and write smaller pits, as a result, these discs can hold up to 15 GB (HDDVD) and 25 GB (Blu-ray) of data on a single sided single layer 12cm disc. This additional storage capacity will be essential when HDTV becomes mainstream, in order to allow storage of HD TV shows or movies on an optical disc in the same high quality. When having a closer look at the two competing formats, we can quickly see that the dimensions of the discs and the use of a blue laser are about the only similarities the two formats share. The three primary dimensions at work in this mediaformat battlefield are (1) memory capacity, (2) support from the media giants, and (3) cost. This report will analyze these three elements, as well as a number of secondary factors in the context of the strengths and weaknesses of each of the two technologies.

lessons to develop the compact disk (CD), which first hit the market in 1979. After industry wide success with the CD, the two companies partnered again to develop a high-density version of the compact disc in the early 1990s called the Multi-Media Compact Disc (MMCD -original name, guys), but their format was more or less abandoned in favor of Toshiba's competing Super Density Disc (SD), which had the vast majority of backers at the time, such as Hitachi, Matsushita (Panasonic), Mitsubishi, Pioneer, Thomson, and Time Warner. However, consumer demand for a universal format was sufficient enough that the two sides ultimately compromised on a shared standard, later named the DVD. As the universal standard came to be, consumers quickly adopted this technology. The DVD format was a great success and quickly diffused into broad markets. Both companies were hard at work together once again in the early 1990s on a new high-density disc. However, Sony, which received a smaller portion of the DVD economics than Toshiba, was quite distraught with this turnout. They immediately began working on a next generation format in an attempt to reclaim the digital media market. Likewise, Toshiba began working on its own more advanced format in order to maintain its newly acquired market leading position. These competing technologies would then come to be known as Blu-ray (Sony) and HD-DVD (Toshiba). The two competing formats were very similar technologically and ultimately resulted in an equivalent picture quality. There were, however, differences between the two formats. These differences will be discussed in detail later in the report and also assessment qualities on which consumers and related industries prioritized to garner the wider market acceptance and critical mass. Page | 2

Keywords: Optical Disk, Blue Laser, Video Format war, Competing Technologies, Market Forces, Cost Structure. 1. Introduction When Philips developed the Laserdisc in 1969, Philips Laserdisc format failed to capture the consumer imagination. The technology never made its way to the early majority consumers as discussed in Moores book Crossing the Chasm. Nonetheless, many technical lessons were learned during the product development cycle. Soon after the Laserdisc, Philips partnered with Sony and leveraged those

2. Technology Management Analysis Each of the two formats and their supporting partners faced unique strengths, weaknesses, opportunities and threats as they prepared to mass market their products. Basically, one faction (HD-DVD) offered its product at a lower price and possessed a first mover advantage, while the other (Blu-ray) offered superior memory capacity and was backed by a larger number of partner companies. In an attempt to forecast how this disruptive technology impacted the marketplace, there is need to examine these facets using key technology management concepts such as market diffusion, s-curves, standards, and installed user bases 2.1 Strengths and Weaknesses Comparison of two technologies with respect to their components, functionality, and distribution. Blu-ray and HD-DVD both use the same 405nm wavelength blue-violet laser and a compact disc which is the same size as todays standard; and the ultimate difference in visual quality was indistinguishable. However, Blu-ray has a distinct advantage over HD-DVD as it stores 1.5 times more data. Blu-rays maximum capacity with dual layer technology was 54 gigabytes, while the equivalent HD-DVD technology holds 30 gigabytes. The additional memory can be used to store higher resolution (high-definition) images, in addition to more content, such as longer movies, more special features, less discs required for a TV series, or more sophisticated video games. The question was whether the market currently needed the additional memory. (1) Neither Bluray nor HD-DVD had primitive technological capabilities. (2) With the additional memory,

both technologies will certainly experience complimentary searches, cluster formation, and wider applications. (3) Finally, both products had at least one use among consumers, being a much higher quality image, whether as a movie or video game. Therefore, the additional memory (and peripheral products) will most likely be used by consumers if it were available at the right price. Comparing the two technologies to one another, Blu-ray objectively wins the memory category. It simply holds more, and there is a use for this additional memory. But there was certainly market for one, as video game manufacturers were constantly looking for ways to make their games more visually stunning, longer and more challenging, and incorporating more options and additional features. Blu-ray technology had a long list of allies with big names including consumer electronics companies such as: Sony, Panasonic, Philips, Samsung, Sharp, Pioneer and LG Electronics; PC makers: Dell, HP and Apple Computer; and entertainment companies such as video game maker Electronic Arts or Twentieth Century Fox, Vivendi Universal and Walt Disney. On the other hand, Toshiba lead the HD-DVD camp, which included consumer electronics manufacturers Sanyo and NEC, entertainment companies HBO, New Line Cinema, Paramount Home Entertainment, Universal Studios Home Entertainment and Warner Home Video. HDDVD was also backed up by computer giants Intel and Microsoft. Looking at the depth and breadth of these lists, Blu-ray wins the game in terms of alliances support, which might very likely be transferred to customers support. After all, customers will prefer to choose from a wider array of machines, brand and content. However, there was enough support in the market place for HD-DVD to coexist. Therefore, Page | 3

if no standard was created, two technologies can have its way into the more distant future. Although Blu-ray came out on top for the first two elements of SWOT analysis, HD-DVD had an earlier debut and, more importantly it had a cost/price advantage: HD-DVD players average initial selling price was 45-65% lower than BluRay (Rs. 25000 vs. R.45000-Rs. 65000) at 2005. Cost certainly impacted the market diffusion game for Blu-Ray. Innovators and some early adopters may have accepted the higher priced Blu-ray technology, however even these customer segments along the diffusion curve would have been price sensitive when choosing between the two technologies. Therefore, unless the media delivered via Blu-ray is perceived superior to that of HD-DVD, Blu-ray experienced diffusion difficulties. For example, according to www.thedvdwars.com, updated as of November 24, 2006, HD-DVD was ahead of Bluray in the DVD Wars Fought on Amazon. The following table summarized the diffusion:
Blu-ray Number of DVDs available today Number of DVDs available today (including pre-sale) Average sales rank among top 10 DVDs Number of DVD with sales rank better than 100 Number of DVD with sales rank better than 1,000 Number of DVD with sales rank better than 10,000 Average 3rd party DVD sales price Average Amazon.com sales price 84 103 2,518 1 35 21.86 23.47 HD-DVD 110 154 745 8 92 22.32 23.10

more apparent. Furthermore, the discs themselves are priced the same (more or less). The pricing differential that we feel subjects Blu-ray to a higher diffusion. The last element considered was the manufacturing advantages of HD-DVD discs with respect to Blu-ray discs. HD-DVD is constructed very similar to existing DVDs, and could be made with relatively minor modifications to existing DVD manufacturing lines. On the other hand, Blu-ray requires completely different equipment and therefore the production cost was much higher. A manufacturing line for HD-DVD discs produced nearly twice as many usable discs as a similar lines pumping out the Blu-ray format, over the same period of time. In order to compete effectively, Blu-ray needed to overcome these problems, which was be portrayed by a much steeper S-curve. To summarize, Blu-ray was beating out HD-DVD on two of the three elements: memory capacity and industry support. These two facets allowed Blu-ray to prevail over significant cost differential of HD-DVD on the manufacturers and to the end consumers. However Sony and Blu-ray disc manufacturers found ways to increase the production speed and decrease component costs, (i.e. Blu-ray reached the breakthrough point of the Scurve quick enough), and as a result HD-DVD was not able to hold its ground. 2.2 Opportunities and Threats Sony created both Blu-ray and the PS3 which uses the technology. Sony managed to capture a whopping 70% market share among video game consoles in 2006. If the PS3 continues this trend, the diffusion advantage of Blu-ray Page | 4

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Furthermore, at the existing price of that time, the transition would require substantial discounting; HD-DVD could have been adopted much more readily by the early majority than Blu-ray. This in itself could have been one of the most important factors in determining the standard. Although HD-DVD currently seems to have a stronger distribution position, both technologies were at very preliminary stages. As time passed, the winners of this war become

will be enormous. This fork-in-the-road was played out in two ways: (1) Sony managed to fill the video game gap and sold a record number of consoles, or (2) Microsoft and Nintendo had to reap the benefits of HD-DVD, if the Sony was not able to take advantage of the extraordinary demand for its product. Furthermore, Sony had significantly more at stake in this battle, as several of their divisions are closely knitted with the success of the technology; primarily gaming, video, and studios. Therefore, Sony was hard-pressed to do whatever they have to, to ensure the ultimate success and standardization of Blu-ray. One ultimate question for both technologies was Is this really a winner-take-all affair? When the players involved are such a diverse group like movie studio, electronics manufacturers, software companies, and home videos and the stake of the battle is so extreme, the situation was much more complicated than was in the fight of VHS vs. Betamax. Companies who aren't in the leadership group for either format could have taken the advantage of this deadlock and steal market share from Sony and/or Toshiba by manufacturing universal (multiple format) players in the future. Then, Blu-ray or HD-DVD would have not realized the distribution required to set the stage for a win in this standards war. Moreover, the split of Blu-ray and HD-DVD would slow down the adoption speed of consumers, since they are not sure which one is going to be dominant in the future. Splitting the market with these two competing, yet similar technologies would have delayed and inhibited the transition to reach the early majority consumer segment in the product life

cycle. Furthermore, alternative technologies such as online content downloading, hard drive storage, and cable on demand posed a substantial risk to the success of either bluelaser disc technology. Analysts at Sanford Bernstein estimated that media companies could collectively lose as much as $16 billion over seven years if HD-DVD and Blu-ray were launched without a clear favorite, because without a clear-cut winner, consumers would be leery of buying one or the other. 3.0 Results & Implications In 2005, Toshiba believed it could win the marketing battle for consumers before Blu-ray technology even got off the ground. However, both formats came to the market within a close time period and engaged in a fierce competition. Both tried to outpace each other in the race for the largest installed user base, as the speed of diffusion will ultimately determine the winner. To accelerate the diffusion, they focused on increasing the availability of content and competed on device prices. The film studios involved in the race started playing a key role in increasing the availability of content. As of November 16th 2006, 110 movie titles have been released on HD-DVD vs. 84 on Blue Ray. The race was almost a draw (HD-DVD is slightly in the lead). It appeared that both camps were able to match each others pace in bringing new releases to the market. 3.1 Deciding factors The format war's resolution in favor of Blu-ray was primarily decided by two factors: [1] Shifting business alliances, including decisions by major film studios and retail Page | 5

distributors, and [2] Sony's decision to include a Blu-ray player in the PlayStation 3 video game console. Studio alliances shifted over time. Before October 2005 and the release of either format, each had the exclusive support of three of the Big Six. HD-DVD had Universal Studios, Paramount Pictures, and Warner Brothers Pictures, while Blu-ray Disc started out with Columbia Pictures, Walt Disney Pictures, and 20th Century Fox. Then HD DVD supporters Warner Bros. and Paramount added support for Blu-ray. The tipping point came on January 4, 2008 when Warner Bros., which has the largest market share of DVDs, announced plans to drop HD DVD support completely as of the beginning of June 2008. At the Consumer Electronics Show in Las Vegas, some HD DVD-related events and private meetings with analysts and retailers were canceled, including an event scheduled for the eve of the show sponsored by the North American HD DVD Promotional Group. Toshiba management expressed disappointment over Warner's decision but said that Toshiba would continue promoting the competing format. The limited title library ultimately inflicted fatal damage on the format, leaving Blu-ray the victor by the end of 2008. Warner's move also caused a chain reaction among DVD distributors, most prominently in the form of Wal-Mart's February 15, 2008 decision to phase HD DVD out completely by June 2008. Wal-Mart is the largest DVD retailer in the United States, and its decision prompted the New York Times to run a mock obituary for the HD DVD format.

Netflix, the largest online video rental service, began phasing out its HD DVD inventory after stocking both formats since early 2006. Sony's decision to incorporate a Blu-ray Disc player as a standard feature of the PlayStation 3 video game console also helped ensure the format's eventual triumph. By the time Toshiba ceded the market, about 10.5 million of the Sony consoles had been sold worldwide versus an estimated 1 million HD DVD players including both standalone units and the add-on player for Microsoft's Xbox 360 console, which did not use the HD DVD add-on for gaming unlike the PS3 which had games that used the Blu-ray's added storage capacity. This equipment gap was a factor in Blu-ray titles (including the ones bundled with the PS3) outselling their HD DVD counterparts two to one in the United States and three or four to one in Europe. Sony's strategy came at a cost. Not only Sony competed for market share, but they also fought for the survival of the company as a whole. In this situation, Sony experienced significant pressure on margins, and consumers benefited as a result. 4.0 Conclusion There was a luck factor which determined the clear winner of the format war. Most probably, both standards could have faced an adoption problem: as the diffusion was slow despite the widening content availability and increased affordability of devices, simply because the confused customers were unable to decide. For example, home video (which was one of the key applications of the new technology) on Blu-ray or HD-DVD would be only an incremental improvement over DVD. Therefore, the majority of consumers will not be desperate or Page | 6

eager to jump into the new format and will adopt a wait-and-see strategy. Furthermore, cable companies like Comcast are also increasing their inventory of HD content to HDTV screens at homes across the US. Ondemand playback is immediate, theres no need to wait for downloads to complete. Today, titles start becoming available at on-demand cable the same time they appear at video rentals. A more remote threat to laser discs in long term is the hard disk. Although today the two technologies are still incomparable in costs, this can change in the future as hard-disk storage capacities are increasingly pushing upward, while their physical size and price drop. For instance, the Economist recently released its eight-DVD collection simultaneously on DVD and on a pocket size hard drive. The delay in diffusion will cause Blu-ray to lose out to the next technology. References
[1] Block, Ryan. Blu-ray vs. HD DVD: State of the Division, http://www.engadget.com/2005/09/19/blu-ray-vshd-dvd-state-of-the-s-union-s-division, 10/20/2005. [2] Trei, Michael. HD DVD & Blu-ray: Lessons from Format Wars Past, http://blog.scifi.com/tech/archives/2006/06/27/hd_d vd_bluray_l.html, 6/27/06. [3] M Sobeski, Jason Mandel, Jo Lee, Brian Williams, Techno-economic appraisal of Blu-ray vs. HD-DVD, Carnegie Mellon University, 2002, Vol. 2, No. 1, pp. 0126. [4] Herbert. Blu-ray vs. HD-DVD, http://www.cdfreaks.com/reviews/Blu-ray-vs_-HDDVD/Differences.html, 9/03/05 [5] Costa, Dan. Blu-ray vs. HD DVD: What You Need to Know, PCMag.com, http://www.pcmag.com/article2/0,1759,1982533,00. asp, 6/28/06. [6] DVD Wars Fought on Amazon, http://www.thedvdwars.com/index.cfm, 1/24/06. [7] http://en.wikipedia.org/wiki/Comparison_of_high_de finition_optical_disc_formats. [8] http://www.myce.com/article/Blu-ray-vs_-HD-DVD221/

[9] http://en.wikipedia.org/wiki/High_definition_optical_ disc_format_war [10] Xbox Live to offer TV downloads, BBC News, http://news.bbc.co.uk/2/hi/technology/6124042.stm, 11/07/2006.

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