Wednesday, November 9, 2011

Competitor Analysis and the HD Optimal Disc Format War

As I read Competitor Analysis: Understand Your Opponents I immediately thought of a relatively recent high stakes conflict between technological competitors battling to set the standard for a technological format: the high definition optical disc wars. In particular, I considered the aggressive competition between Sony and its Blu-ray disc format and Toshiba’s HD DVD. I wondered how each company sized up its competition and then formulated a strategy to set the “standard” format for high definition optimal discs.

When HD TV’s became more common in the mid-2000’s, the market demand for playable entertainment that exploited the HD capability rose. Two large companies, Sony and Toshiba, led the industry in developing discs to meet this demand. However, the technological standards for both were significantly different and incompatible. Sensing the impending format war, both companies organized alliances behind their technologies; Sony founded the Blu-ray Disc Association, a consortium of nine electronics companies, and Toshiba convinced the DVD Forum (which it chaired) to back its HD DVD format.

In an attempt to avoid a costly format war, the Blu-ray Disc Association and DVD Forum started to negotiate a compromise in early 2005. A large obstacle to compromise was the physical formats of the discs themselves; the Blu-ray Disc Association's member companies did not want to risk losing billions of dollars in royalties as they had done with standard DVD. Even as negotiation talks failed in late 2005, large software developers and movie production studios had already begun to take sides (e.g. Microsoft and Universal Studios for HD DVD and Sun Microsystems and 20th Century Fox for Blu-Ray). The format wars continued through 2006-2007 but by February 2008, the war was over as Toshiba announced it would cease developing, manufacturing and marketing HD DVD players and recorders.

For insight as to how Sony prevailed, I looked at how the four “Characteristics for Analysis” listed in Competitor Analysis applied to the HD optical disc format war between Toshiba and Sony. Analysis of strategies and objectives of the companies is not very intriguing as the two companies were largely in head-to-head competition; both wanted the dominant format for HD optical discs. It gets more interesting when you look at how the two competitors positioned themselves and established strengths and weaknesses largely through alliances with other companies (major consumer electronics manufacturers, personal computer manufacturers, television and movie producers and distributors, and software developers) rather than directly with the consumers. The companies seemed to conclude that whoever lined up the most associates to their format would ultimately prevail. Yet, I think what ultimately decided the outcome was Sony’s aggression factor. Sony took a more aggressive approach to successfully capture the support of Warner Bros., which had the largest market share of DVDs, Blockbuster, the largest U.S. movie rental company, and Wal-Mart the largest U.S. DVD retailer. Additionally, Sony made the strategic decision to commit to its format by incorporating a Blu-Ray player a standard feature in its highly anticipated (and eventually very successful) Playstation 3 video game console.

Looking at the competition in the format war raises some compelling questions. Did Toshiba’s competitor analysis underestimate Sony’s level of aggression consequently leaving it slow to react to counter Sony’s moves? Did Toshiba’s analysis overestimate the strength and reliability of its alliance to withstand Sony’s maneuvering? Did Sony’s failure in the Betamax-VHS video format war influence its competitor analysis and better prepare it for the HD optical disc format war?


Competitor Analysis: Understand Your Opponents (Marketer’s Toolkit: The 10 Strategies You Need to Succeed (HBS Press), 2006)

Patrizio, Andy. "Who Is Drawing Out The High-Def DVD Stalemate?". April 12, 2007.

Smale, Will. "How the PS3 led Blu-ray's triumph". BBC News. February 19, 2008.

Sony Corporation. "Disclosure of Specifications for Large Capacity Optical Disc Recording Format Utilizing Blue-Violet Laser Blu-ray Disc Begins”. May 20, 2002.

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