RSSThe cost of losing the format war: Toshiba falls on its sword
by Scott M. Fulton, III
Few American companies would write off the assets from a losing product as a one-time charge; the result might be disastrous, even suicidal. But in Asian business, defeat can be treated honorably when it's taken as a whole.
History will record, perhaps honorably but not without a note of astonishment, that Toshiba was willing to absorb the full blow of its huge gamble in HD DVD, as a one-time charge for its 2007 fiscal year, ending in March.
When Toshiba pulled the plug on HD DVD, it absorbed the entire cost of its dissolution in one fell swoop. The result weighed so heavily on revenue that the division eked out an operating income, before taxes, of 74.1 billion yen (with just a "b"), or about USD$711 million. While Toshiba tried to break down the cost of dissolving HD DVD at just over USD$2.5 billion, the residual effects -- the real costs of losing -- were astonishing: close to sixteen and two-thirds billion dollars.
How much is that in practical terms: Say you were to give Microsoft a call today, and tell CFO Chris Liddell that instead of everything the corporation intends to make in revenue (not earnings) for the second quarter of this year -- instead of all that -- nobody anywhere would purchase a single Microsoft product of any kind until July 1. Or maybe the company would only break even in all of its combined divisions in earnings, for about eight months. It would cripple the company if such a hypothetical situation were feasible.
What saved Toshiba? It had strong sales (2.95 trillion yen, or about USD$28.3 billion) in its digital products segment, which incorporates its flash memory-based MP3 players -- which continue to sell well in Asia. With memory prices plummeting, you'd think margins would increase; but the fact is that the market for flash devices is so competitive that manufacturers can't afford to sustain artificial premiums for too long.
Toshiba as an entire company barely broke even in its fiscal fourth quarter of 2007, reporting net income after taxes of USD$11.5 million (and that, dear reader, is only an "m").
15 Comments
They should have left HD-DVD alive for PC DATA/BACKUP PURPOSES! If the cost per GB would be cheaper than DVD+R, many users like myself would have gone with it. Toshiba simply gave up too soon. If they're losing money ANYWAY, why not subsidize the burners and media for a little while? Oh well... Guess I'll stick to backing up & sharing on DVD+Rs and ultra-portable harddrives for the next few years. **** BLU-RAY - I'm never gonna buy into that sham.
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How mature.
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I guess it's all a matter of the relative ethics.
Toshiba show a transparent one-off honest admission & account to inform investors about the losses HD DVD has cost them instead of what has been going on in the business world here
(the recent activities of the US & UK financial markets over-extending themselves with debt & their various gambles that all looked so clever & profitable until the inevitable correction - the possibility of which they appear to have permanently denied - came along).
It's a damned shame, it's obvious that for those interested in HDMs becoming mainstream (bearing in mind HD DVD, unlike Blu-ray, offered a future with Twin discs & combo discs so that no-one got left behind) the wrong format won.
Here we are months after the event & we can see the critics were totally right what Blu-ray is all about; HDMs are to be high margin niche still several years away from even breaking into the mass-market (which may well be too late).
Great.
Not.
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Agreed. With HD-DVD the next format could have come so much sooner. This is why it makes little sense for the studios to have sided with Blu-Ray besides money incentives.
It looks to me like Sony won because they have more money than Toshiba. I don't think that is necessarily the case, and I have no evidence to prove that, but it sure seems that way.
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Unfortunately all HD-DVD did was cause Sony to rush Blu-Ray to market. Yes, HD-DVD was a superior format since it supported things like internet connectivity and HDi interactivity features from day one but had HD-DVD never been released Blu-Ray still would have been the next generation HD format. It just would have been delayed by a few years.
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I agree. But also HD-DVD's where cheaper to produce. It really is a shame.
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Format incompatibilities are the gamble. I respect Toshiba for taking a chance, and still being able to break-even at the end of FY.
Probably, for a fact, most US-based companies would start suing each other rather than taking a loss and moving on. Toshiba, on the other hand, wrote off HD-DVD losses and continued to grow it's business. I respect company's management for that.
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Leave to the Creep Fulton to somehow work MS into a story about Toshiba.
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So that's what they're calling me in the comments circles these days. I need to get that on a T-shirt or something.
http://www.dvdcult.com/rev_Phantom%20Creeps.htm
-S "The Creep" F3
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Just smack em around with a shirt saying "I'm Scott Fulton, B----!!"
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I don't think the Microsoft analogy works so well, given Microsoft's massive cash reserves. The company would be fine, the stock would tank, but it would recover quickly.
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Sad, really. All media hype. If Toshiba had come up with a better, cooler name like Blu-Ray, they may have done better. Historically, consumers don't like better products, just products that are prettier, have cooler names, etc. Blu-Ray is definitely not the best technology.
Fortunately, for the consumer, and bad for Sony, is that there really never was a format war. Streaming media is the next format, and Sony will end up losing on it's gamble, too.
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streaming media won't be a format widely used until a majority of folks have reliablely fast enough connections to allow hd streaming. Until then physical media will be the mainstream - regardless of what the driveby media claim.
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It wasn't the name.
The PS3 was a very big factor, but more important, Toshiba's marketing just plain sucked. They were never pro-active, just reactive. And you won't get anywhere by simply being reactive.
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And with ISP's sending nasty letters and charging for over use there is no way I'm going to pay $5 a gig to download it on top of the price the site charges.
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