Sony Corp (SNE)announced on November 10, 2015 that it would cease production of Betamax tapes by 2016. The announcement seemed anticlimactic, given that even when the word "videotape" meant something, Betamax was greatly overshadowed by its rival format, VHS.

Betamax, by Sony's own admission, had been the company's "favorite child," according to the official company history on the company's web site. But it captured less than 10% of the VCR marketshare in the US, UK, and most of Europe. Even in its native Japan, Betamax couldn't win.

The story of Sony Betamax is literally a business school textbook case study in what can happen if a company's pride in its technology trumps its sensitivity to consumer demand. Betamax had two huge initial advantages: 1) it was first to market, having been introduced by Sony in 1975, vs. JVC's VHS, which came out the following year; 2) Betamax technology was universally agreed to be superior to that of VHS, and Betamax cassette images were much sharper and clearer than those on VHS.

Sony's first-to-market advantage and superior image quality should have all but ensured Betamax's dominance. The fact that Sony lost the endgame is used in business schools all over the world as a case study in--well, in how a company can screw up an endgame.

VHS had two unmistakable advantages: 1) VHS was cheaper than Betamax--both the recording devices and the videocassettes and 2) a VHS cassette could record more hours of programming than could a Betamax.

It was the second attribute that would be the death-knell of Betamax. The original Betamax cassette had a capacity of one hour--shorter than the average feature film or soccer game. VHS was double that length, and if you were willing to sacrifice picture quality, you could stretch out the duration of the recording up to six hours. Consumers tended to opt for the longer-duration cassette recording option. Even after Sony gradually started making longer-format Betamax cassettes, it was too late--VHS already gained market dominance in many markets. When VHS was first introduced to the US in 1977, VHS only captured 40% of the total VCR market in the US. By 1987, according to Wired, VHS had 90% market share in the US.

Gentleman's Agreement

If you trust the sad ballad of the Betamax as told by the official Sony web site, JVC developed VHS technology by way of violating a sort of gentleman's agreement. When JVC announced in September 1976 that it would be creating a new VCR competitor, Sony allegedly shared its technology with JVC on the assumption that whatever this new VHS this thing was, it would be compatible with pre-existing VCRs, which is to say, compatible with Sony Betamax. When JVC unveiled the VHS, it was clear that JVC had no intention of having a unified VCR format. The gauntlet was thrown. In the words of Sony:

Sony took a closer look at the VHS format and everyone was aghast. The technology and know-how that Sony had willingly disclosed when it proposed the unification of the U and Beta formats was incorporated in the VHS format. Although Sony had freely given the two companies access to its basic, patented technology, it was impossible for Sony to hide its shock and surprise.

Even though Sony's Beta format and JVC's VHS format were technologically similar, the cassette sizes were different. The two were not compatible. The fact that there was more than one format foretold a grueling struggle for leadership in the home-use VCR market and a deepening fight for market share. The last thing either side wanted was to inconvenience the user. But the VCR war had begun and everyone was running for cover. --Sony History Chapter 2: Sony Goes To Battle For Its Favorite Child.

The Bottom Line

Betamax is dead. At this point, this news basically affects no one, unless you are business student reading about it as a cautionary tale.

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