Toshiba’s Billion Dollar Gamble
by Pravin on March 14th, 2008 in news.
UPDATE: In their March filing, the loss posted was actually about $670M, not the billion originally reported by a Japanese newspaper.
Despite the recent devaluation of the dollar and inflation, $100 is still not chump change. In fact, $1K and $1M still count as large amounts of moola, and most of us would be happy with that amount of cash added to our bank accounts.
Coming from our world of personal finances, it’s a little difficult to relate to the tens and hundreds of millions of dollars that are routinely exchanged by corporations in the course of their business activities. But that’s just spare change compared to many other deals. For example, I’m sure you’ve already heard about Microsoft offering to buy Yahoo! for $45B. The price tag was a lot lower, but Electronic Arts, famous for their Madden games offered $2B for Take Two, most famouly known for publishing Grand Theft Auto.
The day that Toshiba announced they would cease HD DVD production, they also announced a partnership with SanDisk on a flash memory factory in 2009, and two more of their own. This continues their prior ventures with SanDisk where they’ve spent $2.6B in 2004 and $3B in 2006 on the factories that have helped both companies gain significant market share in flash memory (that’s the memory on your usb stick, phone, mp3 player, and many other devices).
I’m getting you accustomed to the billions being thrown around here so that you can better comprehend how much Toshiba is about to write off on their HD DVD investment: it’s “only” one billion dollars. That’s a lot of money for you and I, but it’s money that Toshiba will easily make back in just about a year. In fact, they’re still on track to post an overall profit of $3B (though I’m not sure if that’s before or after subtracting $1B on their HD DVD loss).
If you were going to criticize Toshiba for making such a big investment, consider whether you’re also willing to criticize Team Blu who had to have spent at least as much to keep up their end of the format war. $1B is nothing compared to the tens of billions of yearly profits that both sides had their eyes on.
In the end, it’s all business. Like this deal where Sony recently sold off their Cell manufacturing to Toshiba for $835M. These are the CPUs used in the PS3 (which essentially won the format war for Blu-ray), and Toshiba has been interested in using them for their own purposes to enhance HDTVs. Sony put $1.6B into building that factory in 2003, and selling it for half price is sure to have hurt a little — but that’s how life goes: If you don’t take the risks, then you’ll never reap the rewards.
March 14th, 2008 at 11:28 am
I am really dissapointed that toshiba would throw in the towel like that. The real fact that no one is saying is the fact that the war was suppose to be decided by the consumer. Instead Sony opened up their check books and won the war by offering money. I believe that HD DVD was the better product because it was cheeper, it had internet connectivity for downloadable content, DVD/HD DVD combo Disks and use HDI for the interactive features. HDI was a much better feature then Blurays BD-J which is bug filled. All Bluray had was larger disk capicity, that’s it. The amount of people that will buy HDTV’s during Christmas 2007 and the future your telling me that they would have bought a more expensive product with less to offer. I don’t think so. Sony had to pay otherwise their PS3 wouldhave been a bad investment. After all they have a history of failed products. Batamax, UMD and the Mini Disk. Too bad the movie companies choose to take the Money instead of going with the more superior product, HD DVD.
March 14th, 2008 at 12:21 pm
In all fairness, it’s good for the benefit of the overall public that this stupid format war is over. Now we can all focus on a single format. I do own both and to be honest, I do like HD DVD than BD but hey, business is busines. We all know that only one will come up as the winner and its just unfortunate that it is not the format that we like the most. But does that make HD DVD a worse format? Absolutely not. The concept of right or wrong is a niche policy on them, it’s more of what is legal and illegal. One just have a deeper pocket and the other doesn’t. There is nothing wrong with buying someone off, its part of business. It sucks to hear that way but hey, that’s the way it is, live with it. Live moves on and there will be better technologies in the future. In the meantime, we just have to live with it and move own with our bloody lives.
But a billion dollars, Damn! I could use 1 percent of that.
March 14th, 2008 at 12:29 pm
It does stink CAD, however Toshiba had no other choice, and they made the choice for the consumer so the consumer could finally know what they need to buy for HD viewing. Unfortunately the studios made their choice, and shure Toshiba could have held on with Paramount and Universal and dragged it out forever, but unless they had big bucks to buy back other studios or start and advertising blitz, it would have just been an annoying stale mate where supporters of either format would be missing out on movies they love that are on the other format. Tech saavy people might have chosen hd-dvd, but with blu-ray’s money and advertising the majority of consumers would have just picked up blu-ray players instead of hd dvd because they were told to. The majority of consumers don’t do that much research. I just have to have faith that Blu-ray will catch up with the technology that HDDVD has and eventually provide a product that is as good as HDDVD is. I’ll probably just buy a PS3 when I get the money, instead of buying a standalone blu-ray, I like a lot of ps3 games and the ps3 blu-ray player will be able to upgrade to the new blu-ray features as they come out.
March 14th, 2008 at 12:38 pm
www.thisishddvd.com
March 14th, 2008 at 12:40 pm
www.thisishddvd.com finally shows Microsoft stopping support of HDDVD. Ahhh well. At least we have Warner’s promise of HD DVD until June!
March 14th, 2008 at 12:47 pm
CAD, altough I’m a member of the blu ray camp I often visit this site since its a well maintained site.
I know this is a HD-DVD oriented site so I will try and keep my comments neutral. I do however feel I must coment on what you say.
You may be dissapointed in that Toshiba threw in the towel but if you would have been the director of a company loosing millions of dollars you would have been forced to make some difficult decisions as well. Do not be naive, neither Sony nor Toshiba was in this for anything else than to make money in the end.
The war was supposed ot be decided by the customers? Is any war that? Not really.The VHS was was won due to more content being available on VHS, not because it was a better product in terms of image quality. So the consumers choose the format with the most content. Did the consumers really choose then or was it choosen for them because the VHS camp manage to bring more producers to provide material on their content? What comes first, the chicken or the egg?
HD-DVD as the better product because it was cheaper? That is a bit simplistic isn’t it? Is a Ferrari a inferior product because it is more expensive than a cheap Fiat. Well some people might say so. I do not, even though I could never afford a Ferrari. Also I’m not convinced that HD-DVD prices would have stayed low if th war had ended in HD-DVD’s favor. We do know that they where selling players at a loss.
Interctive features? Well, I’m afraid that all the advocates of interactive features will get their hands full with all the Java crap that they are going to fill the new generation of BD players with. However, this might suprise a lot of people, I consider that a drawback. Myself I want a disk with top quality video and audio and NOTHING ELSE. I do not want interactive menues, PIP, unskippable ads and good knows what kind of crap they put on. It scares me that a disc I insert in a player actually contains good knows what software
I would happily buy a profile 1.0 BD player. All I care about is that it plays every single disk now and in the future. My old Pioneer multizone DVD player (bought legally in Switzerland by the way) is almost 10 years old and still going strong.
Well that whas a lot of ramblings but I guess that the bottom line of what I wanted to say is, we (the consumers) rarely really choose. Buissness deals etc. always play a big role. And when the consumers choose, I’m not sure we end up with the best choice. Would you really say that the original IBM-PC with Microsofts DOS was a superior product for instance? It was a cheap consumer product after all so buy the standards you outline in your post it was the best product…or maybe not
March 14th, 2008 at 1:23 pm
@Jonsson
The consumers didn’t choose the format the movie production houses did.
March 14th, 2008 at 1:36 pm
I think Jonsson is saying that the consumers don’t usually get to choose, and if they do, that’s no guarantee that the best product will win either.
March 14th, 2008 at 7:40 pm
cant we all just stop the hate and have fun with what we have, come on people, act your age
March 14th, 2008 at 7:41 pm
Reguarding to Jonsson comment about simplicity, I have to agree, but just remember it was used both ways ”Blu-ray is better because it has 20 GB more space.”
March 14th, 2008 at 8:37 pm
HD-DVD cheaper - it’s a little more complex than that 25GB blu-ray disks are cheaper than 30Gb Dual layer HD-DVD according to manufacturers web sites - both are around the same cost per Gb to make add cost of packaging and labeling the overall cost for a single DVD or Blu-ray or HD-DVD are about the same. For the consumer the HD formats give a true cinema quality picture and IMHO are far better value for money than DVD. (FYI some movies are projected and distribuited with 1080P digital rather than film)
CAD Says: “All Bluray had was larger disk capicity, that’s it. ”
well that and higher data rate Neither can be fixed with a firmware update to the player - and all the rest is software based and can evolve over time - IMHO novelty features like pop-ups etc have an ammusment life of around 2 minutes - worthless. I get an HD disk to see a cinema quality presentation of a movie and the only special features i normally use are play , fast forward, pause, reverse and stop and am quite happy with that.
Main reason i got a PS3 is because the Cell chip interests me - and toshiba have done some groundbreaking work with this chip as well as IBM who are using it in a new super computer. Power-PC archecture used in the Wii -Xbox360 and PS3 is common in high performance computing but the Cell derivative is quite a radical design with highly scallable performance. Toshiba are planning to add Cell based Multimedia acellerators to Laptop computers and new interactive features to appliances using the Cell - this chip has an unparalled performance, versatility and power ratio.
Toshiba and IBM indirectly gain from blu-ray by association with the Cell in the PS3. -AND the PS3’s success makes it easier for ID’s to get their hands on a very powerfull archecture - some people are buying PS3’s not for games or Blu-ray but for Cell programming.
March 15th, 2008 at 10:16 pm
It’s sad that Universal is going over to blu-ray now. They really pushed HD-DVD from the start, and had the best implementation of the features unique to HD-DVD. On the other hand, maybe now the HDi interface (in some form) will find it’s way onto Blu-Ray. I for one, care about the special features, provided if it’s a movie I really like. Sure, if I’m just watching it once I don’t mind a barebones flick. But if it’s something that I watch again and again, I appreciate all the extras to get the full experience as a fan.
I’m building a great HD-DVD collection with all the new sales out now, so I’ll probably end up getting a combo player as my second unit, so I can enjoy my current library and go blu in the future when the dust settles.
March 16th, 2008 at 2:52 am
Blu-ray has their own HDi kind of functionality based on another set of technologies, and that will come out this summer. It’s unlikely that any new combo player models will be manufactured in the months ahead, which means that if you want to use Blu-ray’s full interactivity, then you’ll probably have to buy a standalone.
March 17th, 2008 at 1:13 am
Actually I plan on making an HTPC with a combo drive inside. Hopefully this way I can update my software to allow for the latest blu-ray features when they arrive! Since I already built a slim PC, this is the most budget-friendly option and won’t keep me stuck in profile 1.0.
May 8th, 2008 at 7:03 am
These pointless format wars are examples of pathological capitalism.
We’re brought up to think that competition is good for its own sake. We concentrate on price wars and think we’re getting a bargain. What we seem blind to is how these wars are designed for one purpose: to lock consumers into a proprietary trap that costs us all MORE in the end.
Take VHS vs Beta. Both formats had advantages… but neither had the best features of both. So regardless of who won, it was technically inferior to that theoretical format that COULD have been created if the Sony and JVC design teams got together. Instead, when the inferior compete only the inferior can win. And how much did consumers pay for dead-end equipment when Beta collapsed? Oh ya, we re not supposed to think about that.
Corporations can’t cooperate you say? Do you know there was a DV videotape consortium and a DVD consortium… both designed to create a SINGLE format to avoid a wasteful format war and to promote the fasted market acceptance? Of course once the DV standard was created, Sony and Panasonic rushed to create spin-off professional formats designed to trap consumers in their proprietary formats… again raising costs.
On the other hand another example of how standardization paid off. The FCC created a standard TV format back in the 40s. Consumers could buy TVs with confidence knowing they picked up all the stations (yes I know about the UHF expansion) and broadcasters could invest in broadcast equipment knowing consumer sets could pick up their signals. Compare that to the AM-Stereo debacle in the Reagan years where he favored a market approach to FM formats. It predictably was madness and AM-Stereo failed to take hold.
Competition has its place in the DESIGN phase… where the best ideas are pooled to create the best format. Format competition in the market only raises prices to all and can never guarantee the technically best format will win… or was ever even developed.