Toshiba to drop HD DVD, sources say

Company says no decision has been made

The format war has turned into a format death watch.

Toshiba is widely expected to pull the plug on its HD DVD format sometime in the coming weeks, reliable industry sources say, after a rash of retail defections that followed Warner Home Video's announcement in early January that it would support only the rival Blu-ray Disc format after May.

Officially, no decision has been made, insists Jodi Sally, vp of marketing for Toshiba America Consumer Products. "Based on its technological advancements, we continue to believe HD DVD is the best format for consumers, given the value and consistent quality inherent in our player offerings," she said.

But she hinted that something's in the air. "Given the market developments in the past month," she said, "Toshiba will continue to study the market impact and the value proposition for consumers, particularly in light of our recent price reductions on all HD DVD players."

Immediately after the Warner announcement, the HD DVD North American Promotional Group canceled its Consumer Electronics Show presentation. The following week, data collected by the NPD Group revealed Blu-ray took in 93% of all hardware sales for that week.

Toshiba subsequently fired back, drastically cutting its HD DVD player prices by as much as half, effective Jan. 15. But a hoped-for consumer sales surge never materialized; retail point-of-sale data collected by the NPD Group for the week ending Jan. 26 still showed Blu-ray Disc players ahead by a wide margin, 65% to 28%.

Software sales have declined as well. The latest Nielsen VideoScan First Alert sales data show the top-selling Blu-ray Disc title for the week, Sony Pictures Home Entertainment's "Across the Universe," sold more than three times as many copies the week ending Feb. 10 as the top HD DVD seller, Universal Studios Home Entertainment's "Elizabeth: The Golden Age." Blu-ray Disc titles also accounted for 81% of all high-def disc sales for the week, with HD DVD at just 19%.

Toshiba had been pitching its discounted HD DVD players toward the standard DVD crowd as well as high-def enthusiasts, noting in its ad message that the new players would make DVDs look a lot better as well. And as a last-ditch effort, the company ran an ad during the Super Bowl -- a 30-second spot that reportedly cost $2.7 million.

But in the end, sources say, the substantial loss Toshiba is incurring with each HD DVD player sold -- a figure sources say could be as high as several hundred dollars -- coupled with a series of high-profile retail defections has driven the company to at last concede defeat.

"An announcement is coming soon," said one source close to the HD DVD camp. "It could be a matter of weeks."

Microsoft is the other big player in the HD DVD equation. Last fall when Paramount Home Entertainment announced it was dropping its dual-format strategy and would release titles only in HD DVD, giving that side a brief resurgence, a pitch to journalists for interviews came from a Microsoft email address.

Several phone calls to Kevin Collins, Microsoft's normally accessible "HD DVD evangelist," were not returned. Nor were calls to Ken Graffeo, the Universal Studios Home Entertainment executive who doubles as co-president of the HD DVD North American Promotional Group.

When Warner abandoned HD DVD in January, the format was left with just two of the six major studios backing it, Universal Studios Home Entertainment and Paramount Home Entertainment. Blu-ray support among independents is rising. ADV Films, Tai Seng Entertainment, Topics Entertainment and National Geographic have all confirmed they are going Blu-ray exclusive, while more than one indie that was releasing titles just on HD DVD, including Surround Records and Opus Arte, will now offer Blu-ray as well.

This week, two key retailers, Best Buy and Netflix Inc., both got off the fence and threw their support behind Blu-ray exclusively, citing widespread studio support and consumer preference. Both companies said Warner's decision was a turning point in their strategies.

"We've listened to our customers, and we are responding," said Best Buy president and COO Brian Dunn.

Netflix spokesperson Steve Swasey said it appeared the format war had been won by Blu-ray for the benefit of everyone.

"We wanted to put an exclamation point behind that," he said.

Industry observers are closely watching Amazon, but there's been no movement, other than a 50% off sale for 150 HD DVD titles, including "Transformers," "Zodiac" and "Stardust."

Blockbuster Inc. last summer already decided to offer only Blu-ray Disc titles at its company-owned rental stores.

Chris Tribbey, Home Media Magazine senior reporter, contributed to this report.