Thanks to PS3, Sony enjoys spoils of HD fracas

The electronics maker and Blu-ray backer is poised to become the leader in high-definition following the demise of HD DVD.

Tuesday's announcement from Toshiba that it is pulling its support of the HD DVD format and ceasing production of the video players effectively stamps Sony as the new standard bearer of high-definition video.

Sony has long been associated with the Blu-ray Disc format, but HD DVD's demise brings new opportunity for the Japanese electronics maker to effectively take control of the future of high-definition in consumers' living rooms.

The fall of HD DVD gives Sony a chance to really extend its high-definition strategy with the pieces it already has in place: It's the only major consumer electronics player with a real presence in every high-profile consumer market: HDTVs, cameras, notebook PCs, gaming, and even a film studio that creates high-definition content. It has positioned itself so well that it would have to really screw up to not seamlessly ascend the throne as king of HD.

It's a change in fortune for the company whose gaming and electronics divisions were struggling throughout the past year. Suddenly the company's PlayStation 3 strategy appears smarter than previously thought.

One of the key's to Sony's success is undoubtedly the royalty structure --Sony, Philips, Panasonic, and Warner Bros. all own patents on Blu-ray technology and they get paid when anyone manufactures a Blu-ray player or disc. But it's not the only thing. The company's brand legacy and the most important weapon in its HD arsenal, the PlayStation 3, mean Sony has a leg up on all other participants in the world of high definition.

Sony already owns the largest chunk of market share of Blu-ray devices, but it's not because millions of people are buying Blu-ray Disc players as replacements for standard DVD players.

"The majority of Sony's success in the Blu-ray Disc market hasn't been because of their standalone player business--it's been the PlayStation 3," noted Paul Erickson, director of DVD and HD market research for DisplaySearch.

Sony's strategy of seeding the market with PlayStation 3 game consoles that came with Blu-ray Discs playback ability looks fairly prescient now, though it didn't at the time.

After a boffo market entrance--fans queuing up for days to buy the next-generation consoles--in late 2006, Sony had to deal with a lot of bad press for product shortages and the success of the Xbox 360, and the sudden popularity of the Wii from Nintendo. Blu-ray's inclusion in the PS3 was a major reason for product shortages and was responsible for the high price of the console.

Sony was able to claim in January 2007 that it had 1 million Blu-ray players sold. But those were largely PS3 sales. At the time, since the battle with HD DVD was still in full swing, it wasn't clear that Sony's strategy on Blu-ray had worked.

HD DVD's demise gives new perspective. Sony doesn't break out how many standalone players it has sold from the number of PS3s, but according to DisplaySearch shipment estimates, in the third quarter of 2007, Sony accounted for nearly 96 percent of Blu-ray devices worldwide. In conjunction with point-of-sale data collected by the NPD Group that shows Sony and Samsung collectively accounted for 87 percent of Blu-ray Disc standalone player sales in December alone, Sony is already the dominant player. Samsung is its closest competitor, but the royalties earned on manufacture of the discs and players give Sony much more room to be competitive.

Sony won't comment on any future business plans for the company, but it can now move full-speed ahead on its HD strategy in the living room, which it's been laying out over the last year or so.

It said as much in this statement it issued Tuesday: "We believe that a single format will benefit both consumers and the industry, and will accelerate the expansion of the market.

"Blu-ray has been and will continue to be a core part of Sony's HD strategy. We will continue to promote the benefits of HD throughout the value chain including Blu-ray products, Bravia LCD TVs, PlayStation 3, Vaio PCs, camcorders, entertainment content, and broadcast and professional."

Pricing of Blu-ray players is what is most up in the air. So far, it's the biggest reason that most consumers have not purchased high-definition video players.

Toshiba had a lot of success last fall lowering its prices dramatically on HD DVD players, but Sony faces different challenges. Unlike Toshiba, which was the sole producer of standalone players in its format, Sony is not the only producer of standalone Blu-ray Disc players. Samsung, Philips, Panasonic, and others will now begin to compete with Sony, and each other, over features and pricing of Blu-ray players.

But just because HD DVD is dead does not mean Sony will automatically make its standalone player prices more competitive, said DisplaySearch's Erickson.

"I'm not sure Sony is going to be as aggressive on player prices because they're attacking the market on two fronts (PS3 and standalone players)," he said. "PS3 pricing is not going to be governed by Blu-ray Disc (player) prices; it's judged by competitiveness with Xbox 360...There's not as much impetus for them to be hyper-competitive on standalone player prices."

Whether they will do that or not remains to be seen. Now with HD DVD out of the way and Sony's game console strategy vindicated, what will be interesting in the months to come is where it goes with standalone players.

Ross Rubin, an analyst with the NPD Group, doesn't anticipate any major moves by Sony quite yet. "I don't suspect we'll see any imminent price drops, but there could be this holiday season."

About the author

Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur.

 

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