Grab the popcorn for battle royal over DVD high ground


Consumer goods markets are fickle and in a standards war, the best man does not necessarily, or often, win. Victory goes to the company that achieves a large installed base quickly.

With high-definition video discs you need add only the popcorn. The cinema has come to your living room. But whose discs will they be and whose equipment will you play them on? Will home cinema be based on Toshiba’s HD-DVD standard or Sony’s Blu-ray?

In the 1970s, video cassette recorders began to find their way into homes. The Philips system was quickly defeated but VHS and Betamax slugged it out for several years. A similar battle over DVDs was looming but manufacturers agreed a common standard.

Last year, the electronics companies tried to reach agreement on a common product standard for high-definition video discs. They failed and now the format war will be repeated. Toshiba will this month fire the first shot by introducing its disc players in the US. Sony is at the head of a powerful alliance which includes Matsushita, Samsung, MGM, Dell and Disney. Toshiba’s line-up is less impressive but Microsoft and Universal have declared support and several companies are attempting to back both horses.

Sony lost the VCR war to JVC, a subsidiary of its great Japanese rival Matsushita. The truce between Toshiba and Sony over DVDs gave Toshiba the dominant role. Twice the loser, can Sony win this time?

Sony’s mistake with Betamax was to believe that the quality of its product and wide acceptance in the professional market would assure its success. But the best man does not necessarily, or often, win a standards battle. Betamax was probably better than VHS, British Satellite Broadcasting was better than Sky and Apple’s products were generally better than Microsoft’s. But JVC, Rupert Murdoch and Bill Gates won on the basis of the ubiquity of their products, not their quality. In a standards war, victory goes to the company that installs a large base quickly. Hardware and software producers will rush to support the system that has most users.

The greater sophistication of Sony’s system may actually be a disadvantage. It is more important to get to market early and be sure that your product works. Toshiba is there first and its prices, starting at $500, are much cheaper than those envisaged for Blu-ray. It is not certain, however, that Toshiba has many recorders to sell or discs to play on them.

Sony has learnt from its past failures. It brings to this battle the most compelling name in consumer electronics, and more. The Blu-ray standard for its video discs will also apply to its games console. The battle of the video recorders is bound up with the fight between Sony’s Playstation and Microsoft’s Xbox for access to a generation of children.

More important still is the array of movie distributors supporting Blu-ray. Sony owns its own studio, Columbia, holds a 20 per cent stake in MGM and has persuaded other majors to back its format. But whoever ultimately wins the standards war will find every film distributor, including Sony itself, anxious to supply their product.

Consumer goods markets are fickle and there is plenty of time for either camp to make mistakes or winning moves. Sony believes that technology is the key to victory. But, as everyone who has abandoned a manual badly translated from Japanese knows, friendliness matters more than features in consumer electronics.

Personal computers found a mass market once you did not need to know anything about computers to use one. The genius of Akio Morita, Sony’s founder, was the combination of technical brilliance and inspired marketing. You need both to keep winning but Morita’s company has not always sustained that combination. Apple’s Steve Jobs, rather than Sony’s talented engineers, is the inheritor of Morita’s role.

It is too soon to pick a winner. Consumers do not need to; they can wait and see. A few years from now you will be able to back the winner for a stake of $100. Prices fall as the battleground shifts from the enthusiasts to the public.

But it is instructive to watch a great business battle unfold. A year ago, HD-DVD was seen as an also-ran. Today, industry players are hedging bets. If you want to place a modest wager, I would put it on Toshiba.

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