format wars are costing more than just customers …

Sony’s Blu-Ray

The tug of war between Sony’s Blu-Ray and Toshiba’s HD-DVD, is really about royalties. But there is a right way and a wrong way …


Toshiba’s HD DVD

Take for instance the recent decision by Taiwanese CD/DVDR manufacturer Gigastorage to settle a dispute with Royal Philips Electronics over CD-R and CD-RW patents. Why settle? Because it was in the wrong? Nah. Actually, by playing ball with Phillips Gigastore wisely preserves its place in the Phillips-dominated market model in which the Dutch company whips up ideas in R&D, then turns to partners around the world to create a demand, licenses its ideas, and is able to return to its core competency, namely more R&D. Running throughout this model is the idea that the secondary market can worry about production headaches so Phillips can get back to what it does best. And has the model worked? Over the past few years Philips has defended its patents at every turn, and has had impressive results.


By contrast, 15 years after developing Blu-Ray and HD-DVD, Sony and Toshiba have yet to mirror the success enjoyed by Phillips. Instead, today we have market confusion and format dilution as the result of the bickering and contrary claims of the two giants. But with both manufacturers and consumers growing weary of the format fight, Sony and Toshiba now need the marketplace to choose one over the other. Well, the market has yet to make up its mind and as a result manufacturers of optical disks like Taiwan’s CMC Magnetics, Ritek, and a bevy of second-tier players such as Prodisc, refuse to invest in large-scale production of either format. And who can blame them? The unstable nature of the market is making manufacturers nervous, turning consumers off the whole issue, and hurting Sony and Toshiba more every year.


… all of which reminds me of an old story …


Back in the late 80’s NEC was famous for taking out full page ads in the Wall Street Journal touting its new monitors. At the time I worked for a nationwide distributor and would get orders for the new monitors. So, like all salesmen I would take the orders (or at least the inquiries). Then, full of piss and vinegar, I’d zing up the chain o’ command at my company to find out if we actually had (or could get) what I had just promised. No sooner had I begun asking than I was told that the product was not even out yet. What? But why advertise if the product isn’t available yet? … and that was my introduction to the process of creating and peaking demand. But being determined and a tad arrogant (who, me?) I questioned this method of doing things. That’s when I got a lesson in business: getting calls for a product is one thing, but until all the other salespeople started getting commitments from their customers for that same item, there wasn’t a ‘demand’ so much as just curiosity.


So when Paul Sweeting, editor at ContentAgenda, reflected on the one primary question plaguing us all, the ability to rip content, it was a good question to ask. On the surface the general public is still convinced that ripping is a criminal act or are at least confused over the issue of “fair Use”. But there again is the real question, the central issue – royalties. Whether or not a copy is a crime all depends on how much the studios want to make. So much so Sony and Toshiba are taking the industry blame when in fact the Studios nature of grabbing every dollar possible is the main culprit.


To us, this just puts the final nail in the coffin. Research surveys today all point to 2009 as the time when this issue will settle. Well if the disc manufactures are already looking to alternatives business models in generating new revenue, looks like more than just consumers have lost interest in the subject…..

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