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Tickers in this Article: SNE, TWX, WMT, BBY, DIS, NWS, VIA, GE
Toshiba has finally given up the fight and decided to drop its HD DVD format. This is good news for Blu-ray DVDs pioneered by Sony (NYSE:SNE) and leaves it as the default next generation media format.

Sony Learns From Betamax Failure
The current conflict was very similar to a battle lost by Sony in the 1980s, when Sony pitted its Betamax tapes against VHS Videocassettes. In these types of situations there is a pile-on effect that tips that scale. Eventually one format grabs either more consumers or more producers. If that format grabs more consumers initially for whatever reason, producers will start to flock to it, and if more producers start to move towards it, so do consumers. The consumers want more options to buy, and the producers want more people to sell to. As soon as the battle begins to shift, it quickly turns into an insurmountable situation.

The battle between HD DVD and Blu-ray has been waged for a few years now, but recently began tilting in the Blu-ray's favor. Both formats provide crisp high definition picture, but HD DVD had the benefit of being able to be produced with preexisting DVD technology, while Blu-ray needs new factories, but has the benefit of being able to store much more data. (For related reading, check out Competitive Advantage Counts.)

Some of the recent blows to HD DVD came as Time Warner (NYSE:TWX) and Warner Brothers, which were producing in both formats, decided to solely produce in Blu-ray. On the heels of this, Best Buy (NYSE:BBY) and Wal-Mart (NYSE:WMT) decided to exclusively sell Blu-ray. This is a big victory for Sony and a big letdown for Toshiba, but both of these formats were led by consortiums of companies and had a wide impact across electronics and media.

The Winners
Obviously, executives at Sony must be feeling good. A battle like this is risky but can have huge payoffs. Sony had to bite the bullet on its Betamax flop in the eighties, but with Blu-ray the company will be reaping the benefits. It already has contracts out with many major studios, and the rest will follow shortly. Of those studios there are winners as well.

Most notably is Walt Disney (NYSE:DIS). Disney has already jumped on the Blu-ray bandwagon. It combines this with its ingenious "Disney Vault" strategy where it only releases its classic movies for a limited time thereby to increase demand. Now Disney has even more reason for people to update their collections. News Corp. (NYSE:NWS) is the other notable company who backed the format early and will benefit. Sony's research showed that more than 40% of consumers had steered clear from both Blu-ray and HD DVD, so as to avoid being stuck with an obsolete technology. Sony now gets to focus on efforts to get people to update their home video libraries. All film and T.V. producers will ultimately experience a benefit, but the studios that hopped on early have the advantage.

The Losers
As good as executives at Sony feel, the Toshiba brass likely feel twice as bad. They have to eat their hat now. Other notable losers are those studios that supported the format, and even entered into contracts with Toshiba. The main supporters of HD DVD were Viacom's (NYSE:VIA) Paramount Pictures and General Electric's (NYSE:GE) Universal Pictures. These companies backed the wrong horse, and while consumers who bought in will want to hold onto their HD DVD players, these studios will have to find a way to make the switch as quickly and painlessly as possible. It is clearly a messy and expensive misstep on the part of these companies.

The Bottom Line
The battle between media formats is over, and this time Sony has tasted the victory with Blu-ray. This will be a great thing for Sony, and will have big payoffs spread over years. Companies that supported the format early on, such as Disney and News Corp., will reap benefits from having put their chips in the right corner. Others such as Viacom and GE will have to lick their wounds as Toshiba's HD DVD format falls into obscurity.

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